The law concerning gig economy has seen transformational changes in the year 2019. This article discusses the developments in the law relating to gig economy in the USA and India. This is in continuation of our earlier article, India and the Gig Economy1.
The law regarding gig economy has seen major developments in the USA as the state of California, USA has now codified the said law. Such developments are expected to bring changes to the traditional workforce structures and human resource practices followed in the USA.
India, being the uprising gig economy, has also been witnessing huge growth in number of gig workers in the past few years. This has led the Indian legislature to introduce the gig workers in one of the draft labour code bill i.e. the Code on Social Security, 2019 (the "Code"), which has also been discussed herein.
2. KEY DEVELOPMENTS
2.1 Developments in the USA2
In September 2019, the legislature in California, USA, passed the Assembly Bill 5 ("AB5").3 The new law addresses the 'employment status' of workers when they are claimed to be an independent contractor and not an employee. AB5 has become effective from January 1, 2020.
AB5 codifies the decision of the California Supreme Court in the USA, in the landmark judgment of Dynamex Operations West, Inc. v. Superior Court of Los Angeles4 ("Dynamex Case") and clarifies its application. This new law provides that for the purposes of laws relating to employee working conditions, wages and social security benefits5, a person providing labour or services shall be considered an employee, rather than an independent contractor, unless the hiring entity demonstrates that the person:
- is free from the control and direction of the hiring entity in connection with the performance of the work;
- performs work that is outside the usual course of the hiring entity's business, and
- is customarily engaged in an independently established trade, occupation, or business.
The inability of the hiring entity to demonstrate any part of the aforesaid three tier test would mean that the said person is not an independent contractor, but an employee.
AB5 exempts certain occupations from its applicability which include licensed insurance agents, certain licensed health care professionals, legal professionals, direct sales salespersons, real estate licensees, etc.; and others performing work under a contract for professional services, with another business entities. For the occupations on which AB5 is not applicable, the determination of employee or independent contractor status shall be governed by the multifactor test adopted in the judgement of S. G. Borello & Sons, Inc. v. Department of Industrial Relations6. Under the said multifactor test, no single factor determines whether a worker is an employee or an independent contractor and the courts consider all potentially relevant factors on a case-to-case basis in light of the nature of work, the overall arrangement between the parties and the purpose of the law.
With AB5 now being in effect, the protection under the California's wage and hour laws (e.g., minimum wages, overtime, working hours, etc.), workplace safety laws, social security laws etc. is now extended to independent contractors. Additionally, independent contractors can now go to state agencies and other labour law enforcement bodies in California to seek enforcement of this law and for resolving their disputes. Thus, AB5 is a landmark law that affects the employment status of millions of independent contractors, both in and out of the gig economy in California. AB5 is expected to impact companies in the gig economy as well as businesses over-reliant on independent contractors.
However, AB5 has been facing criticism from several stakeholders and gig workers since its introduction. Certain business groups, and/or technology companies whose business model majorly involves gig workers, etc., have challenged this new law on various grounds.
The major grounds on which AB5 has been challenged in the USA are as follows:
Petitioners claim that AB5 is not applicable to them as it does not pass the test laid down to classify gig workers as employees. Under the three-tier test (as mentioned above), a company must prove that contractors are doing work 'outside the usual course' of its business. Such companies claim that they are mainly providing a technology platform, and the work done by the gig workers (working for the said companies) is outside the usual course of company's business.
The constitutionality of AB5 has been challenged on grounds of violation of equal protection and due process clauses, among others. The said law is alleged to be unconstitutional as it targets certain gig workers, including ridesharing and delivery drivers, when compared with other types of workers who undertake substantively identical work in many other industries. It is further alleged that the said law denies independent contractors the choice to work for companies/employers that they would like to work with.
(c) Manner of working:
Classifying independent contractors like drivers, journalists, delivery persons, etc., as employees would cause such independent contractors to lose the freedom and flexibility that they currently enjoy. Working as gig workers allows them the freedom to avoid forced schedules and rigid hourly shifts of traditional employment and helps them in supplementing income from other work. The said classification would take away this freedom.
(d) Increased financial burden:
Classification of gig workers as employees would result in companies contributing to employee benefits for such workers. This would lead to increased financial burden for companies whose business model majorly involves gig workers. Consequences of bearing such high costs for gig workers could involve de-hiring or laying off of such workers.
2.2 Developments in India
The Code, which has been introduced in the Lok Sabha on December 11, 2019 intends to amalgamate, simplify and rationalize the provisions of nine (9) laws related to social security, including the Employees' Provident Fund Act, 1952, the Maternity Benefit Act, 1961, and the Unorganised Workers' Social Security Act, 2008. The Code has introduced the concept of gig and platform workers and contemplates social security schemes for such workers.
The Code has included various non-traditional types of occupations and workers involved therein by categorizing them as gig workers and/or platform workers, unorganised workers, home based workers, etc., which the current industrial laws do not cover, to whom the Code proposes to extend certain benefits.
The Code defines a gig worker7 as a person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationship. Further, platform workers8 are defined as workers who are involved in work, in which organisations or individuals use an online platform to access other organisations or individuals to solve specific problems or to provide specific services in exchange for payment.
The Code differentiates a gig or a platform worker from the conventional definition of 'employee'9 as given under the Code.
A bare perusal of the definitions of 'employee' and 'gig worker' makes a clear distinction in nature and scope of work of a gig worker and an employee in traditional sense. While the definition of employee is similar as defined previously under current various social security legislations, the definition of gig or platform worker encompasses the concept of a deemed employment which is independent of traditional employer and employee relationship.
Further, the Code proposes10 that the Central Government may formulate social security schemes for gig and platform workers on matters relating to: (a) life and disability cover; (b) health and maternity benefits; (c) old age protection; and (d) any other benefit as may be determined by the Central Government.
2.3 A Short Comparison of developments involving gig workers in the USA and India
The law laid down under the Dynamex Case and later codified under AB5 is not a mere amendment, but goes down to the very foundation of gig economy in the USA. It attempts to classify independent contractors as employees based on the strict three tier test as discussed above. AB5 presumes such workers being employees and puts the burden on employers/companies to prove otherwise.
As per the definitions of gig and platform workers provided in the Code, there appears to be an effort by the Indian legislatures to introduce the concept of 'deemed employment' and eventually extending certain social security benefits to said gig and platform workers. This is different from traditional employer and employee relationship which has been the basis of several judicial pronouncements. While the very basis of the new law in California was to regularize the terms of workers in a gig economy, the Code only encompasses gig and platform workers to notify specific incentives to such workers, such as possible social security, life and disability cover.
Additionally, with the judgement in the Dynamex Case, the concept of independent contractor/gig worker and employee is set out very clearly, in light of the three-tier test laid down by the said judicial precedent. However, the Indian judicial precedents provide for multifactor tests to determine the employer-employee relationship. One of the earliest judgements in this field, Dhrangadhara Chemical Works v. State of Saurashtra11 laid down that the primary test for establishing an employer-employee relationship is the supervision and control test. Further, the Supreme Court of India, in Ram Singh and Ors. v. Union Territory, Chandigarh and Ors12 has adopted an integrated approach, which included, among other things, the right of the employer to select or dismiss workers, pay remunerations and deduct insurance contributions. Thus, the Indian courts consider various factors relating to the nature of control an employer exercises, right to hire/fire, to pay salary, initiate enquiry and control the work, etc., to classify a person as an employee.
Gig economy is fast growing in employment space and has witnessed rapid growth in the past few years. Further, the new age on-demand business models adopted by the tech-based companies have created different workforce structures, including the gig and platform workers. At present, in India, gig workers are not regulated by existing labour and employment laws and their association with an entity is governed by contractual understanding between the said entity and such persons.
Given the nature of the engagement or relationship, at this stage, gig workers are not eligible to avail any legal or statutory social security benefits which are otherwise available to regular employees i.e. the employees' provident fund, employees' state insurance and gratuity, etc.
Although the Code makes an effort to formulate social security schemes for gig and platform workers, yet, in its current form, the Code intends to give rise to several pertinent legal challenges, including to the principles laid down in various judicial pronouncements concerning an independent contractor and principal to principal relationship, etc. The Code has only outlined the nature of benefits to be extended to such worker, without getting into the merit of ascertaining the relationship of an employer and employee. The detailed rules and regulations relating to gig and platform workers, may make things clearer.
The Indian government inter-alia may consider formulating various schemes for gig and platform workers, where such workers, while maintaining their status as a gig worker ,are able to voluntarily participate, contribute to and directly avail the social security benefits that may be available to such workers. Alternatively, the government may recognize gig-workers (or platform workers) as a small or medium institution and consider extending the benefits (such as health, insurance cover and disability benefits) which are already in place for the small, medium enterprises in organised sector or unorganised sector. For the smooth implementation of the said schemes and to ensure that the benefits of the said schemes are reached out to gig workers, the government may consider setting up of an independent council or an organisation which would act a special purpose vehicle to oversee implementation of the said schemes and assist the government in creating awareness about the said schemes among gig workers.
2 IndusLaw is not qualified to advise on the USA laws, etc., and the references herein are only for the purpose of discussion on ly.
4 Dynamex Operations West, Inc. v. Superior Court of No. S222732 (Cal. Sup. Ct. Apr. 30, 2018)
5 Working conditions of employees in the USA is majorly governed by the provisions of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission.
6 S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341
7 Section 2 (35) of the Code
8 Section 2(55) read with Section 2(56) of the Code
9 Section 2 (26) of the Code: "employee" means any person (other than an apprentice engaged under the Apprentices Act, 1961) employed on wages by an establishment to do any skilled, semiskilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied, and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union: Provided that for the purposes for Chapter III and Chapter IV, the term "employee" shall mean only such employee drawing wages less than or equal to the wage ceiling notified by the Central Government, respectively, for said Chapters and such other persons or class of persons as the Central Government may, by notification specify to be employee for the purposes of either of such Chapters, or both: Provided further that for the purposes of Chapter VII, the term "employee" shall mean only such persons as specified in the Second Schedule and such other persons or class of persons as the Central Government, or as the case may be, the State Government may add to the said Schedule, by notification, for the purposes of that Government;
10 Section 114 of the Code: Schemes for gig workers and platform workers: The Central Government may formulate and notify, from time to time, suitable social security schemes for gig workers and platform workers on matter relating to:- (a) life and disability cover; (b) health and maternity benefits; (c) old age protection; and (d) any other benefit as may be determined by the Central Government. (2) Every scheme formulated and notified under sub-section (1) may provide for- (a) the manner of administration of the scheme; (b) the agency or agencies for implementing the scheme; (c) the role of aggregators in the scheme; (d) the sources of funding of the scheme; and (e) any other matter as the Central Government may consider necessary for the efficient administration of the scheme
11 Dhrangadhara Chemical Works v. State of Saurashtra 1957 LLJ 478
12 Ram Singh and Ors. v. Union Territory, Chandigarh and Ors 2004(1) BLJR 490
Originally published March 2020.
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.