United States: Freelancing In The Age Of Unicorns: Understanding The Role Of The Gig Economy In The Modern Workforce

Last Updated: February 9 2017
Article by Robert W. Ratton III

Mobile devices that connect the worker with the in-need consumer have become a mainstay of our marketplace in the past five years. Whether you take Uber to the airport or stay at someone's home using Airbnb, millions of consumers around the world are tapping into these new markets. According to a PriceWaterhouseCoopers study from 2014, almost 20% of US adults had participated in the sharing economy via the internet. In this article, we will seek to understand the terms that describe this new facet of the economy, legal problems created when the 21st century work model meets 20th century labor and employment laws, and predictions for how law and regulation will catch up with what is at least perceived as a new workforce reality.

A Gig by Any Other Name

The term "gig economy" is bandied about with such regularity we rarely stop to think about what it means or the section of the economy in which it represents. Based on a term frequently used by musicians, the term "gig economy" was coined in 2009 to describe the rather unfortunate economic reality of the Great Recession. From February of 2008 to February of 2010, the U.S. economy lost a staggering 8.7 million jobs. To fill in the gaps created by job loss or underemployment, people started reaching out to new methods to generate income. Around this time, gig economy powerhouses such as Uber and Airbnb came into existence.

Broadly speaking, the gig economy includes any industry where you match up a contingent workforce (i.e., someone who doesn't mind working a series of one-off tasks, or "gigs") with a willing consumer via an electronic platform, usually a mobile device app. There are a number of subgenres within these markets that make up the gig economy. Peer-to-peer service exchanges, such as TaskRabbit, connect an individual with a particular need to a freelancer with a particular skillset. Companies such as Lyft and Uber allow individuals to exchange services. By the time you have finished this article, it is safe to assume that some enterprising individual will have found another market appropriate for the gig economy.

While it appears that the gig economy is predominated by these internet-based organizations, this assumption is greatly misleading. A recent study by Lawrence Katz of Harvard University and Alan Krueger of Princeton University revealed two surprising realities about the gig economy's prevalence in the modern workforce. Internet-based gig economy freelancers account for only a fraction of all workers in 2015. However, what has risen meteorically are the number of workers who rely on "alternative work arrangements," which can include internet-based intermediaries. An alternative work arrangement includes independent contractors, on-call workers, temporary agencies and contract workers. Individuals involved in an alternative work arrangement increased from roughly 10% of the workforce in 2005 to 15% of the workforce in 2015. The most prevalent increase has been among independent contractors. Notably, of all participants in the survey, 19.4% stated that they sold goods or services directly to a customer, the hallmark of the gig economy. However, only .5% of these workers use an online intermediary.

None of this is to diminish the rising importance of the gig economy. The workforce is undoubtedly shifting toward work arrangements that fit the gig economy model. The fundamental question is why so much emphasis has been foisted upon the internet-based intermediaries. It is likely two forces. First, the novelty factor of technology has been driving a great deal of the attention. Most of us don't use services where groceries are delivered to our home, but the possibility of never again slogging through a crowded grocery store is an exciting prospect. The other, more likely factor is the world's fascination with the ever elusive unicorns. A unicorn is a startup business valued at $1 billion or more. The online gig economy has an impressive stable of unicorns. It is this combination of new technology and massive pay out that helps fuel a national obsession.

Square Pegs, Round Holes

The greatest dilemma from a legal perspective is trying to wedge a freelancer who uses a web-based interface as the predominant link to customers into our current employment law strictures. If you have had access to any form of media over the last year, you have probably heard of the titanic legal battles of Uber. At the heart of this disagreement is whether Uber exerts a level of control over its drivers to categorize them as independent contractors or employees. The ramifications of this decision are tremendous. If deemed employees, Uber has a whole new level of responsibility, and cost, associated with its drivers.

Even in the traditional work arena, it is often difficult to determine who is an independent contractor. The IRS, the Department of Labor and the National Labor Relations Board, along with courts and state agencies, implement different tests and standards to determine if independent-contractor status is appropriate. The IRS looks at over 20 factors focused on the amount of behavioral control, financial control and the relationship between the employer and the worker to determine the propriety of independent-contractor status. This determination becomes even more complicated when one looks to the peculiar relationship between Uber and its drivers.

While independent contractor status has taken center stage, there are numerous other issues that crop up. For example, how does traditional civil rights law function in the gig economy? Technically, Title VII applies to employees, but few individuals are likely comfortable with a large percentage of the workforce having no civil rights protection. There are also issues with benefits, trade secrets and workplace safety that have not yet been answered. Right now, we are at best trimming the corners of the square peg to squeeze it into our current labor and employment model.

New Classifications

For better or worse, it is unlikely that our government will allow the gig economy to continue without new laws and regulations. The Hamilton Project, a think tank within the Brookings Institution, has proposed the creation of a new class known as the "independent worker." An independent worker is the hybrid between a traditional employee and an independent contractor. In this scenario, the employer would exert some control over the means and methods of work by the independent worker, but not to the extent of a traditional employee relationship. The Hamilton Project's proposal is that a compact exist between the independent worker and his or her "employer." The "employer" of the independent worker would allow the right to collectively bargain, provide civil rights protection and handle some tax withholdings. However, the employer would not be responsible for overtime pay and/or unemployment insurance.

This new definition will create a ripple effect across many legal concepts. For instance, a group of independent businesses banding together to set a price, as requested in the collective bargaining portion of the compact, would normally constitute price fixing in violation of antitrust laws. Regardless of these effects, it is likely the cost of maintaining the status quo will be too high.

Conclusion

The prevalence of the gig economy in the modern economy is still undecided. We are coming out of a rough job market where people with college degrees competed for unskilled jobs barely above minimum wage. It's not hard to leave a job making ten dollars an hour with a rigid schedule and no benefits for the potential of greater money and freedom as a freelancer.

Regardless of the effect of an improved economy, the gig economy will undoubtedly play a role in the workforce of the future. Currently, we have a labor and employment legal structure designed to support a pre-internet workforce. This has kept us going for some time. Except now, we are moving away from a gold watch retirement culture, frequently prizing autonomy over security. If the old expression "may you live in interesting times" has any positive connotation, those who practice human resources and employment law are truly lucky.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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