WHO'S AN EMPLOYEE NOW? CLASSIFYING WORKERS IN THE AGE OF THE "GIG" ECONOMY.

AuthorEngelmann, Catherine

Introduction 960 I. The Independent Contractor Designation: Its Genesis as a "Narrow Exception" and Its Application to Today's Workers .. 966 A. Origins of the Independent Contractor and Its Evolution 966 B. Employee Defined: A Patchwork Quilt of Tests 970 i. The Right to Control Test 971 ii. The Economic Realities Test 974 iii. The ABC Test, Its Enactment by States, and Its Applications in the Gig Context 978 1. Overview of the ABC Test 978 2. ABC Test: A Problematic Subversion 980 a. Prong B: Outside of the Employer's Places of Business 980 b. Prong A: Contract Requirement 985 iv. Viability of the Employee-Independent Contractor Dichotomy in the Context of the Gig Economy 987 II. Disrupting the Dichtonomy: The Dependent Contractor 989 A. Proposal of a Third Category.... 989 B. Challenges of a Third Category 991 III. Maintaining the Dichotomy with Reform: Analyzing Workers' Rights and Employment Benefits Through the Concentric Circles Lens 993 IV. Application of the Concentric Circles to the Gig Universe and Proposal for Modification 944 A. The ABC Test Alone Should Determine Accountability for Workplace Injury 999 B. Contribution to Collective Funds Should Be Mendatory 1000 Conclusion 1000 INTRODUCTION

$4.7 million. That number represents the combined contributions Uber and Lyft made to lobbying efforts in 2020. (1) Compare this to the $ 12.50 Ben Valdez, a California-based Uber driver, who drives for the company 12 to 15 hours a day, three days per week, receives per hour. (2) In today's economy, which the "gig economy" occupies a growing share, greater competition means more pressure on companies to lower prices. From the worker's perspective, lower prices translate into lower wages and fewer employee benefits. (3)

Because of how labor and employment laws have developed in the United States, employers are responsible for extending and paying for many essential benefits, such as health insurance, disability insurance, unemployment insurance, and more. (4) A problem lies in the fact that workers, like Mr. Valdez, who provide services via platform companies, (5) are largely not legally classified as employees, rendering them without legal protections and benefits associated with "traditional" employment. (6) As this Note explains, in addition to lacking assurance of making federal statutory minimum wage along with other basic rights, Valdez and others, who work for platform companies, such as Uber, must take on the financial and tax responsibilities of independent business entities, while not reaping the benefits and, at the same time, often remaining financially dependent on the platform. Change is seemingly approaching as the Department of Labor, the Internal Revenue Service, and other stakeholders discover and increase enforcement mechanisms against the improper classification of workers as independent contractors. At the same time, in part due to lack of regulation, and intense lobbying efforts, the law in its current state continues to accommodate platform companies' business model, putting little pressure on them to provide workers with bare minimum rights, such as a livable wage. One problem long-facing employers, workers, legislatures, and courts is that of defining the contours of the employment relationship, especially in relation to whether a worker is an independent contractor or an employee. The independent contractor, in contrast to a traditional employee, brings to mind an individual engaged in business for herself. (7) The independent contractor is rightly understood to contract with the hiring entity to complete a specific project that is outside the core business realm of the other party. (8) For example, a construction worker contracts with a homebuilder to perform carpentry for a new building. The homebuilder specifies the job and the timeframe in which he wants the work completed, and the two parties agree on the level of compensation for the finished project. This scenario also involves an aspect of skill; a giant real estate development might require the work of many independent contractors, some specializing in carpentry, electric, or plastering, to complete the project. (9) These contractors may work on many projects simultaneously. (10)

In reality, distinguishing an independent contractor from an employee has become quite complex and made more so by the corporate trend to outsource, subcontract, and franchise work. (11) In many cases, courts struggle to apply judicially created tests, which rely on a number of nebulous concepts. Some of these considerations include to what extent the hiring entity exercises control over the worker, whether the worker has the opportunity for profit and loss, and whether the worker is engaged in an independent trade of the same nature as the service he provides. The existence of such different tests, and even different versions of such tests, across jurisdictions and statutes is an issue that has sparked extensive debate in the legal community. (12)

Misclassification--where employers, often purposely, wrongly classify their workers as independent contractors--harms workers who must consequently foot the bill for injuries suffered on the job or else must resort to costly and time-consuming tort actions to recover damages. (13) This phenomenon also impacts both the federal and state governments in the form of lost tax revenue. (14) States, in particular, lose out on unemployment and worker compensation insurance premiums, which turns into a problem when --as one study on the Maine construction industry found--injured workers appear on the workers' compensation payroll only after they are injured. (15) The federal government experiences loss of social security taxes, which employers are required to pay on behalf of employees but not independent contractors. (16)

The issue of misclassification is particularly pervasive in the context of the business model employed by many digital platform companies, which rely on classifying their workers as independent contractors. (17) One purported rationale for such classification is to ensure that workers have "flexibility," namely flexibility to choose when and if they work. (18) Platform companies, such as Uber, Lyft, and DoorDash, argue that this scenario benefits individuals who have other commitments during working hours, allowing them the opportunity to earn extra money in their spare time. (19) The theory that employment status limits worker flexibility is unfounded. (20) Instead, the more likely explanation for companies' opposition to such classification is that they wish to avoid the obligations imposed on them by federal and state labor laws. Companies have, accordingly, successfully lobbied for laws that deprive their workers of rights and protections afforded to workers in other contexts rather than empowering them in the form of additional earning opportunities. (21)

This Note highlights how businesses have extended and overused the independent contractor designation such that it is often applied to workers who do not fit the original understanding of what the designation describes. (22) The birth and explosion of the platform economy have only served to exacerbate this tension. This is unfair to gig workers, who, in many cases, perform the same work as those who would traditionally be classified as "employees," in some cases for the same hours, without enjoying the protections and benefits that "employees" have secured. (23) Moreover, misclassification is unfair to employers, who classify workers in good faith, and society, which must absorb its costs in the form of missing tax revenue. (24)

Part I of this Note examines the independent contractor designation, its history, and how digital platform companies have come to exploit the independent contractor designation for their economic benefit at the expense of workers who perform work that forms the core of companies' businesses. This Part analyzes the application of the existing tests used to determine employment status for the purposes of protection of the primary employment statutes. Of particular focus is the application of the ABC test--originating in Maine in 1935, more recently applied by the California Supreme Court, and enacted by the California legislature--to workers who participate in the platform economy. (25)

Part II of the Note examines whether the traditional binary classification of independent contractor and employee is sufficient to encompass the gig economy and addresses whether a third intermediary category is needed. In addition, this Part analyzes whether a third category, as some scholars have proposed, holds promise or hinders workers in attaining the benefits and protections they need to survive, such as health insurance and compensation for injury on the job. Ultimately, the Note concludes that the employeeindependent contractor binary is workable, even in the context of the growing "gig economy." (26) However, reforms must be made to ensure that workers are not deprived of crucial protections.

Part III analyzes the "Concentric Circles" theory of rights allocation recently proposed by former Deputy Chief of Staff and Senior Policy Advisor to Administrator Tanya Goldman and former Wage and Hour Division Administrator David Weil. (27) This Note agrees with much of Goldman's and Weil's approach. In particular, this Note agrees that all workers should be guaranteed certain "fundamental" rights. (28) These include freedom from discrimination and retaliation, safe and healthful working conditions, remuneration for work performed, and assurance of a minimum wage. Part IV details reservations about Goldman's and Weil's "middle circle." (29) Specifically, it argues that guaranteeing all workers the right to organize and engage in acts for mutual aid and protection is not feasible in application to the gig economy, and should instead be based on economic dependency. (30) Furthermore, it asserts that access to injury or...

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