Players in the so-called “gig economy” have disrupted the traditional ways of working. Where workers were performing their company’s main business, they used to be considered legal employees under most circumstances. Now, companies like Lyft, Uber Inc., Grubhub and Doordash bring in independent contractors to do their core business.
Hiring independent contractors saves these companies a lot of money because contractors aren’t entitled to many of the legal protections that statutory employees are. For example, contractors don’t get unemployment insurance, the minimum wage, overtime, workers’ compensation, employer-paid payroll taxes or employer-reimbursed business expenses. They also don’t get paid ick leave, job-protected family and medical leave, or health insurance.
By 2017, as many as 55 million people were working as independent contractors in the gig economy. That’s 34% of the entire U.S. workforce, and the percentage was expected to be 43 last year.
In other words, the gig economy has meant that more than a third – or nearly half — of American workers are not covered by the state and federal laws meant to protect them. Worse, research shows that gig workers are a third more likely than other workers to be Black or Latino.
Is it legal to use contractors instead of hiring employees?
This has been a contentious question. Worker advocates claim that the widespread use of independent contractors is merely an attempt to defeat laws like the Fair Labor Standards Act, which mandates the minimum wage and overtime. The companies say that their workers overwhelmingly say that they appreciate the flexibility of the independent contractor model.
Indeed, during the pandemic, many gig workers found themselves unable to work at all – but they didn’t have unemployment insurance to fall back on. The federal government ended up footing the bill for their maintenance through expanded programs.
Whether or not it’s good policy, most courts that have looked at the issue have found that companies break no laws by relying primarily on independent contractors, as long as the employment relationship truly represents an independent contractor-business relationship. That basically means that the contractor controls the details of the work and how it is performed. The more the company controls those details, the less likely the contractor’s classification is legal.
Now, U.S. Secretary of Labor Marty Walsh has stated that “in a lot of cases, gig workers should be classified as employees.” While he didn’t begrudge gig companies their profits, he said that the U.S. should make sure “that success trickles down to the worker.”
This could mean that the Labor Department will be cracking down on the improper use of independent contractors.
Is your company employing gig workers and classifying them correctly? If you are unsure, talk to your employment law attorney.