Managing the Workforce in the Gig Economy

• Publication year: 2016
• Citation: Vol. 20 No. 06

Managing the Workforce in the Gig Economy

by Scott M. Prange

A concerted national campaign is being waged within the federal government, in state governments, and in the courts, to regulate the emergent "gig economy," wherein companies fissure jobs into discrete tasks, or "gigs," to be performed by contracted workers on a temporary basis.¹ In the latest salvo, a stunning announcement came from the United States Circuit Court of Appeals for the Ninth Circuit in a case brought against one of the gig economy's chief architects by its workers.

Following an interlocutory appeal, Uber, a ride-hailing service, agreed to a $100 million settlement of what it had called a "runaway class action,"² brought by some 160,000 drivers who claimed they were improperly classified as independent contractors instead of employees, and therefore were denied rightful compensation.³ But, as Uber capitulated, it became clear that its drivers had made major concessions for it to do so; they will not be reclassified as employees, and will remain classified as independent contractors.

Just eight months earlier, all eyes were on the United States District Court for Northern California which had stunned Uber by certifying the class.⁴When it did, the Court did not equivocate; it gave full force and effect to an earlier California Labor Commission Decision which found that Uber had exerted nearly complete control over the drivers, but yet failed to classify them as employees, denying them fair wages and full protection of benefits.⁵

The gig economy is not new. Since at least the 1970s, in the United States, companies have been using non-technological platforms to outsource discrete job functions abroad, such as manufacturing.⁶ After the Great Recession in 2009, the gig economy accelerated as companies such as Uber, Lyft, and SideCar (ride-sharing); Work Genius (staffing agency); Care (companion care, and elderly, child, and pet care); Handy (home cleaning services); Task Rabbit (home maintenance); Q (office cleaning); and Door Dash (food delivery) gave rise to technological platforms which enabled companies to more easily fissure jobs into directly contracted gigs.

Today, companies, across industries and of all sizes, are shedding their roles as direct employers by fragmenting existing jobs into smaller tasks for bidding fiercely competed over by specialized, smaller companies willing to perform the tasks, staffing agencies who enlist contingent workers to perform the tasks, and even individuals willing to complete the tasks on their own.⁷

Not only are companies able to focus on their core operations and bolster efficiency, they are able to evade workplace laws typically applicable to employers by outsourcing these jobs. This saves money by avoiding compliance and not having to pay a working wage, or pay into Social Security, Medicare, unemployment insurance, or workers' compensation.

While these companies benefit, they shift the burdens of being an employer onto other smaller companies with fewer resources or onto the workers themselves. Gig workers may have greater self-sufficiency but they have no guarantee of a stable job, and they are unable to obtain the benefits of a fair wage or the protections that statutory benefits afford.

According to a nascent poll by TIME, conducted in conjunction with the Aspen Institute's Future of Work Initiative and Burson-Marsteller, a global public relations firm, these practices by companies have become so widespread that 44% of United States adults, or roughly 90 million workers, have at some time performed gigs.⁸ In Hawaii, this includes nearly 100,000 workers.⁹

The gig economy has become entrenched, and is now so expansive, that nearly all companies must develop effective strategies to manage their workforces. Especially given national and state efforts to regulate the gig economy, companies may face enormous liabilities should they be found to be an employer or joint employer or to have misclassified workers performing gigs not as employees but as independent contractors. As Uber discovered, the costs can be huge. Meanwhile, in the gig economy, many workers are forced to grapple with making a living with no guarantee of work hours and without the aid of a fair wage and statutory benefits.

So, what is the gig economy? What is its scope? How does a company effectively manage the workforce in the gig economy? What are the web of federal and state laws companies must contend with to (1) avoid becoming designated as an employer or joint employer, and (2) properly classify workers as either employees or independent contractors to avoid incurring liability for any misclassification? And, what is the best strategy for companies to comply with these laws? The following discussion addresses each of these questions in turn.

The Gig Economy

The Gig Economy's Rise

Our national economy has begun a rapid transition into a gig economy. The reason is two-fold—because the transition provides greater efficiency both for companies and for workers.

As noted by David Weil, the Administrator of the U.S. Department of Labor Wage and Hour Division, the gig economy has risen because companies have long sought to maximize efficiency by splitting off functions to streamline and drive down costs.¹⁰ According to Weil, "fissuring," or the splitting off of the company/employer-worker relationship, naturally followed for these reasons. Researchers at Oxford University's Martin Programme on Technology and Employment predict that companies will fissure nearly 30% of all U.S jobs in the next 20 years.¹¹

Precisely because companies have fissured the workplace, workers have increasingly had to pursue these new gigs, in a concerted effort to maintain some semblance of self-sufficiency in the face of job volatility and disrupted wages.¹² According to the JPMorgan Chase Institute, post-recession, with companies fissuring, workers across all income groups have experienced greater work instability, wage volatility, and a loss of real income.¹³ Peter Drucker, generally considered the father of modern corporate management, once suggested that the goal of any company is for a worker to see "himself as a 'manager' and accept for himself the full burden of what is basically managerial responsibility."¹⁴The gig economy has allowed workers to do just that, by engaging a patchwork of gigs over which they have greater control of what they do and what they earn, and ultimately for which they have the full burden of managerial responsibility.

Today, the gig economy is highly expansive as a result.¹⁵ Since 2009, the gig economy has been propelled by technology companies such as Uber, Work Genius, and others, who use technological platforms to engage gig workers as independent contractors. However, the gig economy includes both technology and non-technology companies who use gig workers. This includes companies that outsource to other companies specialized gigs, to be completed by such other companies' workers (e.g., staffing agencies, who provide temporary workers to complete the gigs), and companies that utilize technological and non-technological platforms to directly engage contracted gig workers.

In the past, companies mostly fissured gig jobs for non-professional services, but increasingly are doing so for professional services, including medicine, law, finance, accounting, business, engineering, and even education. Technology companies, including Medicast, Axiom and Eden McCallum, are now working with healthcare facilities, law firms, and businesses, targeting doctors, legal workers and business consultants for gigs. A new technology company called Hourly Nerd is now working with business clients to target MBAs for gigs, consulting on various business projects.¹⁶ A client posts a project on the site, describes what they are trying to get done, a start date, and an estimate of what they are willing to pay. MBAs review the project, ask for more details, and submit a bid. However, non-technology companies are also taking it upon themselves to directly engage gig workers for professional services as well. The University of Hawaii is one of many universities increasingly using gigs for its teaching staff, engaging many adjunct course instructors in short-term working arrangements.

The Gig Economy's Scope

Although the gig economy is expansive, getting a grasp on how expansive is difficult. Federal and state government agencies do not currently track how many companies and workers are engaged in gigs, and those that track comparable working arrangements frequently underestimate their participation by asking the wrong types of questions of companies and workers.¹⁷

The United States Bureau of Labor Statistics does not monitor the gig economy and last counted comparable "contingent working arrangements" in its 2005 "Current Population Survey," well before the Great Recession.¹⁸ However, this is about to change. Recently, U.S. Labor Secretary Thomas Perez announced that starting in May 2017 the Bureau of Labor Statistics, in conjunction with the Census Bureau, will once again track contingent working arrangements,¹⁹to include all workers provided by contract firms, and all workers who may or may not have an implicit or explicit contract for ongoing employment, including alternative employment arrangements and independent contractors.²⁰

However, when companies and workers are asked about gig work, or temporary, contingent work arrangements, survey respondents may not view their activities within these specific frameworks. Therefore, the participation of companies and workers alike is often underestimated.

One way to estimate the gig economy's expanse is to extrapolate alternative federal and state government data. In 2015, the Bay Area Research Economic Institute reconciled two sets of federal government data: IRS-reported totals of W-2 forms, the tax form companies file for traditional employment, and IRS-reported totals for 1099-MISC forms, the tax form...