Employee or Contractor?




What do freelance writers, IT consultants and Mary Kay sellers all have in common? They are each a part of what’s commonly referred to as the “gig economy,” which is comprised of nontraditional employees who typically don’t have a single, steady employer who guarantees regular hours and pay.

According to the latest Marketplace-Edison Research Poll, a quarter of American workers now participate in the gig economy, and they report significantly higher economic anxiety than regular full-time workers.

They worry more about not having enough money for basic necessities or to cover an emergency. They’re also less likely to say their gig work utilizes their skills, experience and education.

Long Island resident David Aria is a freelance audio engineer. He works “pretty much out of necessity. Unless you build your own studio, it’s really not going to pay the rent. Now I’m in a bit of a lull, I haven’t gotten any work, so I’ve been doing other stuff.”

Like dabbling in stocks.

“I would love to be financially stable,” Aria said. “I don’t particularly like the idea of freelancing as a sort of permanent solution. I’m a musician as well, I have my own goals, but I’ve had to put them aside. It’s like, I’m good at saving money, I’m not that great at making it yet.”

Harvard economist Lawrence Katz says a lot of people are finding it hard to make enough money in the new gig economy. Along with Princeton economist Alan Krueger, Katz has done seminal research on the rise of these alternative work arrangements–also sometimes referred to as “gig” or “contingent” work. Their 2015 research paper, based on a nationwide survey by RAND, found that between 2005-2015, the contingent workforce increased by about half–from 10.7 percent to 15.8 percent of all U.S. workers–and constituted approximately 95 percent of all net employment growth in the U.S. economy during that period.

According to Katz, without a steady employer, workers “get fewer benefits — things like workers’ compensation and unemployment insurance you’re not covered by. The hours are both lower on average, and the instability of earnings is much greater.”

That kind of instability hasn’t bothered carpenter Opis Harris much. He’s 58 and lives in Syracuse, New York. For decades he’s worked for himself and earned six figures in some years. Now he’s on disability and trains young carpenters for extra cash.

“I loved being my own man and I don’t have to be told what to do, and I could put in as much overtime as I want if I decided to stay there all night,” Harris said. “But then, with an employer, there’s a turn-on time and a shut-off time. But with me, I go as long as I want or as short as I want.”

Work flexibility is what the ride-hailing apps Uber and Lyft tout for their drivers, who are independent contractors and have to cover their own expenses, such as insurance, car repairs and gasoline.

Rebecca Smith, senior counsel at the National Employment Law Project, said that independent contracts are great for companies.

“They allow them to offload a substantial portion of risk and cost of doing business onto either a middleman — another company — or directly onto workers by themselves,” Smith said.

But for someone like John Franklin of Minneapolis, who owns his car — a Nissan Pathfinder — paying those costs in order to drive for Uber can make financial sense.

Franklin makes a good living as an independent marketing consultant. But he wanted another gig for his down time, and some extra cash. He has considered bartending, but because of his unsteady schedule, he also considered driving for Uber.

“I can just go on where and when I want,” Franklin said.

Our survey finds that gig workers highly value setting their own schedule and being their own boss.



If you believe the Silicon Valley sloganeers, we are in a “gig economy,” where work consists of a series of short-term jobs coordinated through a mobile app. That, anyway, is both the prediction of tech executives and futurists and the great fear of labor activists.

But anyone who cares about the future of work in the United States shouldn’t focus too narrowly on the novelty of people making extra money using their mobile phones. There’s a bigger shift underway. That’s a key implication of new research that indicates the proportion of American workers who don’t have traditional jobs — who instead work as independent contractors, through temporary services or on-call — has soared in the last decade. They account for vastly more American workers than the likes of Uber alone.

Most remarkably, the number of Americans using these alternate work arrangements rose 9.4 million from 2005 to 2015. That was greater than the rise in overall employment, meaning there was a small net decline in the number of workers with conventional jobs.

That, in turn, raises still bigger questions about how employers have succeeded at shifting much the burden of providing social insurance onto workers, and what technological and economic forces are driving the shift.

The labor economists Lawrence F. Katz of Harvard and Alan B. Krueger of Princeton found that the percentage of workers in “alternative work arrangements” — including working for temporary help agencies, as independent contractors, for contract firms or on-call — was 15.8 percent in the fall of 2015, up from 10.1 percent a decade earlier. (Only 0.5 percent of all workers did so through “online intermediaries,” and most of those appear to have been Uber drivers.)

And the shift away from conventional jobs and into these more distant employer-employee relationships accelerated in the last decade. By contrast, from 1995 to 2005, the proportion had edged up only slightly, to 10.1 percent from 9.3 percent. (The data are based on a person’s main job, so someone with a full-time position who does freelance work on the side would count as a conventional employee.)

This change in behavior has profound implications on social insurance. More so than in many advanced countries, employers in the United States carry a lot of the burden of protecting their workers from the things that can go wrong in life. They frequently provide health insurance, and paid medical leave for employees who become ill.

They pay for workers’ compensation insurance for people who are injured on the job, and unemployment insurance benefits for those who are laid off. They help fund their workers’ existence after retirement, at one time through pensions, now more commonly through 401(k) plans.

It’s true that the Affordable Care Act has made health insurance more easily within reach for independent contractors, for example, and temporary services firms can offer retirement benefits and workers’ comp. But over all, there’s little doubt that workers in these nonconventional work arrangements carry some of the burden of protecting themselves from misfortune that employers traditionally have carried.

That makes the question of why the shift has happened particularly important.

You could imagine a world in which more workers become independent contractors voluntarily, trading the social insurance functions of traditional employers for higher pay and greater flexibility. If the period from 2005 to 2015 had been one when workers had a lot of power in the job market, that might even be plausible.

It wasn’t. The unemployment rate was above 7 percent for nearly half of the period, from the end of 2008 to late 2013. Employers had the upper hand. That suggests it’s more likely that employers were driving the shift to these alternate arrangements.

But Mr. Katz and Mr. Krueger raise the possibility that something has changed beyond the weak job market of the last several years. And that’s technology.

When people working as a team need extensive experience working together, it can be tricky to contract out the work. But when there are clear, simple measurements of how successful each person is, and a company can monitor it, the employer now has flexibility.

“New technologies may allow some things to be shipped out and standardized and easily monitored,” Mr. Katz said. “Call center workers can be at home. Independent truck drivers can be monitored for the efficiency of their routes. Monitoring makes contracting more feasible.”

So Uber alone may not be a major force reshaping the nature of work. But the same technologies that made it possible could be making employers more interested in building a work force of nonemployees. A weak job market has probably given them more ability to make it a reality.

A big question for the next decade is whether this was a one-time shift or whether it will continue in the years ahead, even with a tighter labor market. The answer may determine if the employer-provided social insurance that was a staple of the 20th-century American economy will remain there in the 21st.


Sharing Economy Workers want court action


A whole new branch of the sharing economy is coming under fire from disgruntled workers who argue that they’re being treated like employees but are getting none of the workplace benefits.

Food-delivery services including GrubHub, Caviar and DoorDash were all sued Wednesday by drivers in San Francisco, who allege that the companies have “misclassified” them as independent contractors rather than formal employees.

The drivers argue in a class-action suit against GrubHub, for example, that the company didn’t pay them overtime or minimum wage, or cover their fuel expenses as it should have if they were classified correctly. GrubHub spokeswoman Meghan Gage declined to comment on pending litigation.

Caviar and DoorDash did not immediately respond to a request for comment.

The suits against the on-demand food delivery services mark the next chapter in an ongoing battle between sharing-economy companies and some of the people who act as their laborers. Last month, a federal judge allowed a similar class-action lawsuit against Uber to move forward.

Whether companies like these have to meet employer obligations isn’t just an ethical question — it could redefine the future of the industry. Reimbursing drivers for gas, mileage and tolls, a requirement for companies based in California, could cost Uber billions of dollars. And that doesn’t even get into other benefits like retirement plans, disability insurance and the provision of other benefits.

But despite those costs, critics of the sharing economy say there should be a safety net for all workers in America, particularly as an uncertain job market drives people into freelance and part-time labor. How to regulate the sharing economy has even become a theme on the presidential campaign trail, where companies such as Uber and GrubHub are having an impact on a broader debate over the future of work.

California ruling UBER has employees

In what could prove to be a ruling with serious implications for the on-demand economy, the California Labor Commission has ruled that an Uber driver should be classified as an employee, not an independent contractor.

The ruling, made in March, came to light after Uber filed an appeal Tuesday evening. The ruling ordered the company to reimburse Barbara Ann Berwick, a former Uber driver, $4,152.20 in expenses and other costs for the period when Ms. Berwick worked as a driver.

Uber has long positioned itself as a “logistics company,” an app that drivers and passengers use merely to facilitate private transactions, and not a transportation fleet with tens of thousands of employee drivers. The company argued it did not exert any control over the hours its drivers worked and did not require drivers to complete a minimum number of trips, according to the court filing. Classifying Uber’s drivers as employees may turn out to be an even bigger roadblock to the company’s business than regulatory changes because it could change Uber’s cost structure, requiring it to offer health insurance and other benefits, as well as paying salaries. On-demand companies have been premised on the idea that people who find piecemeal work through these online marketplaces are freelancers, not employees entitled to costly benefits.

Uber’s driver ranks have swelled globally. At a presentation this month celebrating Uber’s five-year anniversary, Mr. Kalanick said the company had 26,000 drivers in New York City alone, 15,000 in London, 22,000 in San Francisco, 10,000 in Paris and 20,000 in Chengdu, China. The company is now operating its service in more than 300 cities across six continents.

“Every single month, Uber is adding hundreds of thousands of drivers around the world,” Mr. Kalanick said at the presentation.

Uber has faced legal action in the past over the status of its workers. Drivers have filed class-action lawsuits against the company, including in Federal District Court in San Francisco, saying they were misclassified as independent contractors.

“Uber has been fighting very hard against any decisions like this coming out, and when a fact-finder sat down and looked at the situation, they determined that Uber is an employer,” said Shannon Liss-Riordan, a Boston-based employee and labor rights lawyer who is involved in the class-action lawsuits on behalf of drivers against Uber.

Who is an Employee, Who is a Contractor?

From the Huffington Post–this full article appeared first in the Huffington Post–8/31/14

Labor Day encourages a review of the legal status of labor. Worker status is important because numerous statutes such as minimum wage and overtime requirements apply to employees but not to independent contractors. Being a “joint employee” means that both employers will have legal liability for employment law violations. If one employer is bankrupt, the other employer hopefully has sufficient assets to pay any claims. Five court decisions in August 2014 illustrate how worker status is determined. The legal standards are fairly consistent although the factual situations in question vary. Always consult an experienced attorney in employment cases.

The federal Court of Appeals for the Ninth Circuit held that FedEx drivers in Oregon were employees rather than independent contractors (Slayman v. FedEx). The Court applied the traditional right-of-control and economic realities tests to a detailed factual discussion of how FedEx and the drivers interacted.

The right-of-control test considers four factors to determine if a worker is an employee or independent contractor. These factors are: 1. To what extend does the employer have either the right to control or in fact exercises control over the details of how the worker does the job? This is the single most important factor. 2. Does the employer or worker furnish tools and equipment? 3. Is payment by the hour or by the job? 4. Does the employer have a right to fire the employee? The Ninth Circuit found significant evidence of FedEx’s control of the drivers.

The economic realities test does not involve control but instead the extent to which the worker depends upon the employer for his or her livelihood. The Ninth Circuit determined that the FedEx drivers were employees under this test.

The second court decision involves joint employment. The California Supreme Court in a divided 4:3 decision concluded that Domino’s Pizza was not liable for the sexual harassment of an employee of a local franchisee (Patterson v. Domino’s). The Court discussed modern franchising and stated that imposing a uniform marketing and operation plan does not create an agency or employment relationship. The majority opinion focused on the franchise contract that made the franchisee “solely responsible” for “recruiting [and] hiring” local store employees. A Domino’s employee handbook and computer based orientation did not change the employment. Additionally, other states have reached a similar result.

The California Supreme Court dissenting opinion stated that the majority relied too much on the franchise contract and “not enough on the parties’ real world interaction.” There was some evidence that a Domino’s area leader had sufficient power to force a local franchisee to fire employees. Consequently, the case should have gone to trial on the joint employment question.

The third court decision comes from the Missouri Supreme Court and also involves joint employment (Tolentino v. Starwood Hotels). A housekeeper employed by a labor services company sought to hold the hotel where she worked liable as a joint employer for alleged wage violations. The Court applied a five factor test for joint employment. The factors are: 1. Who has authority to hire and fire? 2. Who supervises and controls the worker? 3. Who determines the rate and method of payment? 4. Who maintains work records? 5. Whose premises and equipment are used for the work? Since facts were in dispute, the case was remanded for a trial.

The fourth court decision involved night janitors at local grocery stores who asserted joint employment, seeking payment for alleged wage law violations (Becerra v. Expert Janitorial). The Washington Supreme Court applied a five factor test similar to Missouri’s test. The Court emphasized that the factors are not to be mechanically applied, but require a review of the situation as a whole. In this case it is important to consider if wage violations were known by the grocery stores, whether the payments made to the cleaning service were sufficient to to pay lawful wages, and if the subcontracting of the work was a sham. Apparently the trial judge orally ruled that there was no joint employment but the written opinion did not specify what factors the judge relied upon. The Washington Supreme Court stated that “… we believe it is unlikely that summary judgment should have been granted on this record, but we leave it in the able hands of the trial court…”

The federal Court of Appeals for the Sixth Circuit applied Kentucky state law in denying the employee of an electrical contractor the right to sue a glass company for negligence (Dunn v. Corning). The injured worker asserted that as an independent contractor he was not limited to a workers’ compensation award for his injuries, suffered while installing electrical conduit. The Court decided that since Corning employees also performed the work in question, at the time of the injury the worker was a “statutory employee” of Corning. Consequently, Corning was immune from a tort lawsuit by the worker.

These decisions have some common lessons. Contract language is important. Employers are tempted to load-up a contract with provisions to cover any future contingency. However, the more potential worker control the contract allows, the more likely workers are employees. If a worker indefinitely earns a living only from one employer, the more likely there is an employment relationship. Workers should have some breaks in employment with a single employer if they are truly independent contractors. Calling a worker an independent contractor does not necessarily make her or him one. In contrast, a worker who appears to be an independent contractor may be an employee in some situations.

Additionally, it is not difficult to slip into a joint employment situation if the employer is exercising control of the details of tasks it has contracted to have performed (rather than just the end product) or asks the staffing agency to discipline or fire the workers that it sent. Complaints are best directed to the quality of the end product only. Finally, since these issues are legally complex, both employers and employees should seek the advice of experienced legal counsel.