Oct 26, 2016 [Transcript] Employment Law Issues for Gig Economy Companies
Employment Issues in the Gig Economy. Good morning, welcome to the webinar. This is Roger Royse, founder of the Royse Law Firm and today’s webinar is Employment Issues in the Gig Economy. This is part of a series of webinars that we’ve done in gig economy issues, peer to peer sharing and innovation economy issues. For those of you that have been tuning in, you know that this is the fourth and the last one in the series. We’ve covered tax issues. We’ve covered policy. We’ve covered regulatory issues, and we’re ending this particular topic with probably the biggest and most controversy or the most significant, and that’s the employment law issues.
We have a panel here of three employment law and legal specialists in this area. Before we get into that, I just want to take care of a couple of housekeeping matters. First of all, if you’re tweeting today, tweet to #RoyseUniversity. You can also tweet to me directly @rroyse00, with an S. This webinar is being recorded. You can find it on the Royse University website. It’s also available for viewing, or will be in a couple of hours on our YouTube site, Royse Law at YouTube. You’ll find it available for download as a podcast in the Apple iTunes Store, and you can find the slides on SlideShare. The content will be there if you’d like to go back and listen to it later.
Again, I want to remind people this is part of our webinar series. We have one more coming up this fall in disaster response and recovery. What do you do if there’s an earthquake or some other type of disaster? We’re going to have a team, a very diverse group of people from different disciplines to talk about what the steps are in that case. But for today, again, employment law issues. This is going to be an in-depth discussion about the classification of workers, compliance with employment law rules and regulations and a lot of the recent developments.
I want to introduce our panel. We have Pamela Lambert. She’s a corporate attorney here at Royse Law Firm. Alan Haus, an attorney who does a little bit of everything in think. Employment law, IP, trademark. And Lisa Chapman, an attorney at Royse Law Firm who does employment litigation. We are going to start with Pamela.
Thank you, Roger. Good morning everybody. As Roger said, I am Pamela Lambert, and we would like to begin this presentation with an outline of the topics we’ll be discussing today. Since this webinar is focused on employment issues within the gig or, on-demand economy, one of the major legal issues facing gig economy companies is the classification of workers as employees or independent contractors. Many gig economy companies have built their business models around the utilization of independent contractors.
With the growth of the gig economy model, the classification of workers as independent contractors versus employees has come under recent scrutiny. We will begin this webinar with an outline of the issues. First, we will go over the legal test on how to determine if your worker should be classified as an employee or independent contractor. Next, we will discuss what direct or indirect costs there are if a misclassification occurs to your company. Then we will discuss the strategies for avoiding such a misclassification finding. Lastly, we will touch on the changes in the legal landscape surrounding misclassification.
All right, diving into the law, first, the general presumption is that a worker is an employee. However, this is a rebuttable presumption, and different agencies and jurisdictions have different tests. For example, the IRS test is different from the Fair Labor Standards Act or the Department of Labor test, which would be different than California Common Law or the Employment Department. There are also statutory employees, who are employees who have been determined by statutes to be employees rather than independent contractors.
A little bit of background on these different tests. In the IRS, they use what’s called a Control Test, which looks at three primary areas. Behavioral control, financial control, and the type of relationship. We went over more in-depth on our tax version of this so I’ll be brief in my coverage here but, to test whether behavioral control exists in a particular situation, a company should ask, “Does the company control or have the right to control not only what the worker does, but also how the worker does it?”
To test financial control, a company should ask, “Are the business aspects of the worker’s job controlled by the company or the client?” For example, how the worker is paid, whether expenses are reimbursed, who provides the tools, et cetera. To test the relationship type, a company should ask a series of questions. Are there written contracts? Does the worker receive benefits? Will the relationship continue indefinitely? Are the services provided a key activity of the business?
Diving into the Department of Labor and FLSA, they use an Economic Realities Test, or otherwise known as the Silk Factors. Rather than just going through all the numerous factors, we’ll focus on the key factor, which is the degree of control the company has over the worker performing the service. It’s the right to control similar to the IRS test, not whether the company actually exercises the control. Recently just last year in July of 2015, the Department of Labor issued some administrative guidance and explained that the test actually focuses on whether the worker is economically dependent on a hiring entity, or is in business for herself or himself.
In California, the case is SG Borello & Sons, and the EDD uses the same test. This is a multi-factored test again, but the most significant factor considered is whether the principal had control or the right to control the worker as to the work done and the manner and means in which it is performed.
There is another case called Yellow Cab Cooperative Versus the Workers’ Compensation Appeals Board that has also held that even in the absence of control over the work details, an employer-employee relationship may still be found in the principal or employer retains pervasive control over the operation as a whole, the workers duties are integral to the operation and the nature of the works makes detailed control unnecessary.
As you can see, the key issue in all of these tests is how the principal or employer can control the worker and the manner and the means of which the work is performed. I also mentioned that there are statutory employees, which means that the determination of whether the worker is an employee or an independent contractor is actually determined by statute. In California for unemployment insurance, employment training tax and state disability tax purposes, corporate officers, agent commissioned drivers to engage in the distribution of certain products like vegetables, beverages, laundry, et cetera, traveling salespersons, home workers are all statutorily employees. There’s no testing that needs to be done. Those are employees by statute, and the company must make those SDI, ETT, and employment tax withholdings for those listed workers.
The IRS has a slightly similar, but different test, or a different category of workers that have statutorily determined to be employees. Those also include corporate officers, the same types of agents or commissioned drivers, full-time life insurance sales agents, home workers, full time traveling salespersons. The IRS has a narrow exception for corporate officers when they do not perform any services, or only perform minor services, and the officer is not entitled to receive directly or indirectly any remuneration. As you can see, be careful. If you have corporate officers who are being paid as independent contractors, you are not complying with California or IRS’s statutory employment laws so you will likely want to change their status over as quickly as possible.
Moving on to managing the risks. What are some of the direct and indirect costs of a misclassification finding by, well, it could be one of many agencies depending on the state or if the Department of Labor gets involved? As we can see, it’s extremely difficult for a company to determine the classification of their workers, when they seem to have characteristics that fall under both an employee or independent contractor. What happens if there is a finding that a company has misclassified its workers as independent contractors?
Unfortunately, there is a laundry list of direct costs for such a finding. The company will be responsible for unpaid back federal, state, and local income tax upholding. Unpaid back social security and Medicare contributions. Unpaid back federal and state unemployment insurance taxes. Unpaid worker’s compensation premiums and the worker’s compensation issue actually can pose larger issues, which I’ll explain in a moment. Unpaid back overtime compensation and or minimum wages depending on how they were paid or the type of jobs that the worker was doing.
There are also penalties associated with overtime and minimum wage issues. Any unpaid work-related expenses, because an employer is required to pay employees work-related expenses, whereas an independent contractor would normally cover their expenses. Unpaid sick and vacation pay. Waiting time penalties if the independent contractor was not paid in accordance with the proper by-weekly or every other week mandates, or their last paycheck was not paid on the day of termination or if the employee quits within 72 hours of the employee terminating. Independent contractors will a lot of time either invoice, or they’re paid monthly so that you can run into these issues inadvertently.
There’s also a failure to provide accurate statements. Again, employers are required to provide employees with wage statements with each paycheck. Independent contractors, again, they will either provide invoices, or they’re paid monthly or quarterly depending on the arrangement between the independent contractor and the employer. These penalties are $250 per employee, per violation in an initial citation and $1,000 per employee for each subsequent violation. Depending on the number of misclassified workers, this could be substantial.
In California, Senate Bill 459 created California Labor Code 226.8 and 2753, which did two things. It created penalties for willful misclassification and also created joint and federal liability for any legal person who knowingly advises misclassification, with the exception of practicing attorneys and persons advising his or her employer. This largely affects HR consulting companies, but the scope is yet to be determined. The statute says that willful misclassification means voluntarily and knowingly misclassifying that individual as an independent contractor. Now, one would normally think that a good faith attempt at going through the factors and making a good faith determination on the classification would preclude liability under this statute. However, the definition of what voluntarily and knowingly misclassifying means has not yet been interpreted by a court, so we don’t know how far reaching this statute could be.
I would also like to point out that another issue that can come up with a misclassification finding is, all of a sudden, a company that only had a few employees before such a misclassification finding may now find themselves having many employees when the independent contractors they had been using are taken into account. This can cause several issues including under the Affordable Care Act. It could actually take an employer from a small employer, which would be less than 50 full-time employees, to a large employer of 50 or more employees, which would mean that they could be subject to additional penalties under the ACA. This would affect various other tax, whether the number of employees matters for determinations under the ADEA, under ERISA and various other statutes.
As you can see from the fact that each agency and each state have their multi-factored tests for determining whether a worker is an employee or independent contractor, it is very difficult when you get into those close cases, particularly in the gig economy where the worker shares characteristics of both an independent contractor and an employee on how to properly classify them. My colleagues will go in a little bit later on strategies on how to avoid such a misclassification finding.
I’d now like to turn the presentation over to the next slide, which we will go into some of the other costs which would be, attorney’s fees actually can be awarded to the prevailing party in many of these cases. For example, minimum wage, nonpayment of wages or benefits. In California, there is something about enforcement of the public interest, and as California has a public policy of favoring the employee, they will also shift attorney’s fees and also in California, FEHA fees as well. It can be quite expensive to lose a misclassification case in California.
There are also criminal penalties for failing to procure workers compensation insurance or knowingly and intentionally violating this particular California Labor Code section, which is providing wage statements. It could also be considered potential insurance premium fraud, which would be intentionally under-reporting payroll or misclassifying workers to avoid high workers premiums. There’s an example of a prosecution for a company called TB Concrete, which was charged … The officer, the husband, and wife were charged with 15 felony counts of submitting false payroll reports and misclassifying employees to avoid paying payroll taxes and workers’ expenses.
The state claimed that 111, about 85% of the company’s payroll was under-reported. Now, this was an egregious case. They were classifying construction workers as clerical workers, so this is an extreme case. We haven’t seen close cases prosecuted for criminal penalties, but just because it hasn’t happened doesn’t mean it won’t. They can also actually stop the companies from doing business and issue a soft order, and for violating that, there are penalty assessments.
Then finally, there’s something called the Private Attorney Generals Act in California, a PAGA claim, which actually allows plaintiffs’ attorneys to bring suit on behalf of individuals as a stand-in for the Attorney General. To seek a civil penalty that normally the state would only be able to pursue, but actually, a private citizen could pursue those civil penalties on behalf of the state. There’s a default of $100 per penalty so again, depending on the number of misclassifications, this can add up as well.
Under PAGA, they have to give the employer 33 days to cure such a violation before bringing a PAGA claim, so it’s possible that a company would have time to change the status of its workers. However, the company would then be forced to determine whether or not to take the cost of changing everybody over from independent contractor to employee, or whether to fight the PAGA claim in court.
We’re next going to the indirect costs, and I would like to turn it over to my colleague Lisa Chapman.
In the lower right-hand corner of your screen, you have a Q&A dialogue box. Go ahead and type your questions in. We’ll try to leave time at the end to answer them. Okay, Lisa.
Thank you, Roger. Pam thanks a lot for covering so thoroughly the costs and the risk factors which companies need to take into consideration as they consider whether to adopt a gig economy model or whether they are taking the more conservative approach and classifying their workers as employees.
The next few slides which I’m going to talk about are intended to discuss some of the more murkier sides of this issue, i.e., the question of whether or not to adopt a gig economy model. These are the issues which are sort of under the surface which I’ve seen, and my colleagues have seen as we’ve litigated these cases and discussed these issues with our clients. These considerations are a lot more subtle, but I would suggest that I think these are perhaps even more important than the direct costs or benefits that you would gain or lose.
Think deeply about these issues and give them as much weight as you give the more quantifiable costs that Pam has articulated so thoroughly, because these issues go to the question of, what are the core company values your company wants to promote? What kind of culture does your company want to have? How do you want to approach your company and you train for your company going forward?
Looking at this next slide which is entitled Indirect Costs of Misclassification Finding, the first point addresses the short-term costs and benefits from both the employer and the employee side. The first point articulates what the benefits are for a company. We now know Pam’s articulated the negative side, but there’s the positive side. A company will save a lot of money on payroll and related taxes by using independent contractors. They do not have to provide health benefits, retirement benefits or paid time off, holidays, et cetera. It’s a financial gain if you set aside the costs or risks that Pam has articulated. If you don’t get caught violating the law, this is what your upside will be.
From the employee side or perspective, which you should think about because you want to have happy workers, the worker will have a presumably more flexible work schedule because you can’t control them as much. They can bring in supplemental income. The negative is, the worker has no benefits, nothing to fall back on. No PTO depending on their job position, health or retirement plans. There is no legal protection for the worker. There’s no worker’s compensation if they’re injured, and there’s no protection under federal and state wage and hour laws.
Most importantly, there is no job security. Not that this is to say that employees are guaranteed employment. As most of you probably know, California as an at-will state, therefore, employers can terminate workers at any time unless they do so for a discriminatory reason, which will, of course, lead to litigation.
But let’s look at the bigger issues. Those are the obvious ones. Let’s delve deep into what are the real long-term costs and benefits. This is really where your soul searching comes into play. There are two issues that I think are the most important. One is, how is this new gig economy model going to impact your company culture? And on a related point, what are the potential impacts on hiring? In other words, who will want to work for your company in the capacity as an independent contractor, and who will want to be affiliated with the company that adopts that model?
The company culture issue speaks to, how do your workers feel about working for you or your company? How do their goals align with your goals? In the gig economy model, there’s a lot of detachment between the company and the independent contractor, which of course gives rise to the flexibility for the worker, et cetera. But, when the alignment between the company goals and the independent contractor goals gets bigger, the detachment increases. The company starts to have reduced expectations of its workers. The tradeoff is that the workers no longer feel obligated to be beholden to the company meaning the company no longer has this safe, secure workforce that it depends on to grow their business and provide services and products to their customers.
In a lot of areas, including the Silicon Valley, in the startup culture in the entire Bay Area actually, a lot of what certain populations of workers are looking for are things that are things that only employees are going to get. We refer to these as the perks of employment, and particularly in the millennial culture, these are important. These types of benefits that are provided such as stock options, lifestyle concessions, et cetera are an employers way of courting the best workers in the market. This is how companies get the top students to join their companies right after graduation. It’s how they promote them and keep them there.
By giving these perks and benefits, luring them into the company culture, integrating them into the company as opposed to creating a very detached relationship. With those perks, the upside of giving the perks to the company is, it creates a culture of loyalty and a belief on the part of the employer that they have value to the company, they’re adding value to and the company cares about them and wants them to succeed. The company is investing in them directly.
If the company adopts the gig economy model, they’re messaging to the worker that they are not investing in that worker’s future, and the worker’s interest in sticking around and helping to grow the company reduces significantly as a result. So, if you’re in the position of making this decision, think about how you want to structure the culture of your company. How fast do you want to grow and how long term you want your company to stick around and succeed?
You’ll probably remember a few years back, Microsoft in some of its offices classified a lot of its workers as independent contractors. One of the things that happened was, a lot of those independent contractors realized they were being treated the same as the employees, but they weren’t getting the same pay or the same benefits. They sued, and the upshot of that litigation, one of the results of that litigation is the court found that the independent contractors were actually employees, or many of them were actually employees and had been misclassified.
One of the big issues that the court had to deal with was, well what about the stock options that all of the misclassified independent contractors would have received had they been properly classified as employees? Microsoft has to cough up those benefits, the stock benefits to those misclassified workers. That speaks to the issue of the perks that you give out and how it impacts, how it can potentially have a serious negative impact on the company.
One of the other big issues or costs that the company has to consider is, when you classify someone as an independent contractor, you’re limited to the scope and extent of training that you can provide that individual. If you can’t train your folks to do the work, you’re going to have potentially some very serious quality control issues. You cannot micromanage your independent contractors the same way you can micromanage your employees.
The question is raised to companies following the gig economy model, how can you impose systems of like services for customers? What do customers do when they come to the company and say they have an issue with an independent contractor’s services or products? The company is in a very difficult situation. Companies need to think about this question very seriously, especially if they’re a service model as opposed to a non-service model company.
One other related issue is employee loyalty. I touched on it a little bit suggesting that the company should anticipate a lot of more movement in its workforce if it chooses to follow a gig economy model. I’m sure we’ve all heard about this in the papers and the press, about how a lot of folks in the car model. There’s the Lyfts, the Ubers. There’s a lot of movement between those two companies.
When that happens, the companies run the risk of having their confidential, proprietary information spread to its competitors. Its trade secrets are much more at risk, and the company will have a very difficult time protecting its confidential information if its employees are moving back and forth between Its workers rather are moving back and forth between it and its competitors.
Another indirect cost is the impact that this classification can have on investor funding. This can go either way. Some venture capitalists and other investors prefer that companies adopt a gig economy model because it reduces the spend on the part of the company. It keeps costs low. Other investors perceive this to be a red flag in their due diligence because they’re looking more long-term and are worried about litigation risk and are aware of how profoundly expensive it is to litigate this type of issue.
This leads me to the next slide, which is litigation costs. Having litigated a lot of these cases in the last several years, I can say with certainty, and this is one of the most expensive types of case that a company may have to face. Damages are gonna go back two to three years depending on the jurisdiction, and that adds up fast. If you can imagine you’ve got, 50 workers you misclassified, it’s exponential, and you think back to all of the types of damages, attorney fee shifting, et cetera that Pam articulated. Just the damage side alone is really expensive.
Now, you might think that you can settle out with workers before the litigation gets bad and serious or even before a case is filed, but you can’t. Employees cannot waive wage and hour claims under their settlement agreement or relief. A lot of settlement agreements state that the employee has waived those rights, or the independent contractors waive those rights, but that language is not enforceable. There’s no fix. Once the damage has occurred, it’s out there, and you have to live with the potential, risk the litigation until the statue of limitation period expires.
On the issue of attorney’s fee, Pam mentioned fee shifting which means that the company has to pay the plaintiff’s attorney’s legal fees, or the plaintiff’s legal fees incurred by their lawyer. That is profound. There are some methods that are used to determine the actual rate to be charged or which the defense counsel or the defendant will have to pay, and I can assure you, it is very, very expensive.
There are other types of damages including liquidated damages and other penalties that companies face. Perhaps one of the other sort of hidden costs to this type of litigation, that would be wage and hour litigation is the PAGA claim, which Pam spoke about, which is stepping into the shoes of the Attorney General. That type of litigation is extremely expensive during the litigation process and requires hundreds and hundreds and hundreds of hours of research and review or records by outside companies and a lot of lawyers. A huge team of lawyers is typically required. We have found that to be extremely expensive for our clients.
Next, I want to talk about some strategies. I’m sorry. Next, I’m going to have Alan Haus, our colleague speak about strategies for avoiding misclassification.
Thank you, Lisa, Pamela, and Roger. So, Strategies for avoiding misclassification takes us to the planning side of life. This is presupposing the company is looking to use independent contractors. The cost savings are just too tempting. Venture capitalists are actually of two minds of course when they’re looking to fund companies that may be dependent mostly on independent contractors. Lisa pointed out, and they are very concerned about potential litigation risks. Some, however, say that if the independent contractors can be successfully used, it is such a tremendous cost savings that they’re very much willing to fund that and we can see the kind of funding that the Ubers of the world have received.
If your company is looking to do this, of course, then you want to evaluate the current status of your workers to ensure that they are independent contractors. Remember that that status can change over time as both Pamela and Lisa told you about the various tests that apply. They are very specific to the working environment, about who has control. Who has financial control over the work being done as well as supervisory control? That is something where you can have somebody in there who is legitimately an independent contractor in June, and by the time things evolve till November, the person has morphed into an employee. You want to have that in mind.
Draft an independent contractor’s agreement that establishes real independence. Independent agreements are not by themselves controlling. You can have an agreement which says in 14 different ways, “I the worker acknowledge that I am an independent contractor,” but in fact, if again based on the kind of control exercised, the person’s work is that of an employee, the existence of the contract stating otherwise is to going to save you. However, they are helpful in a couple of ways, one of which is, the worker himself/herself will see it and realize that the person has acknowledged that previously, perhaps reducing the likelihood of a claim by a little bit.
In a very close case, the various tribunals, administrative and courts will give at least a bit of weight to the fact that there is an agreement which says the person is an independent contractor. More importantly though per the next point, structuring the day to day work relationships. Again, it follows that independent contractor agreement that you’ve drafted and that it demonstrates the worker’s independence. If a group of workers looks like a close call, consider classifying those workers as employees. There have been various cases in which companies have done that for reasons of both avoiding the downside risks and also enabling some upside opportunity that I’ll get to in another moment too.
Another item, consider using the staffing agency workforce management firm. We have a caution there about a recent case on whether or not the company might be jointly liable in a situation of which you have engaged a staffing agency/workforce management firm. The key to avoiding being a joint employer in that situation is that the outside staffing agency that you engage must actually be involved in managing the workforce on your premises. That’s if you’re looking to have the independence of not having employees and having to deal with the various things that employment status brings along. You need to have that workforce management firm actually managing and supervising.
You’ll notice that this particular case has a citation of 365 NLRB at the bottom. That stands for National Labor Relations Board. The National Labor Relations Board is the federal agency that enforces the National Labor Relations Act. You should be aware that this is the general law under which workers can apply for a labor union. One of the consequences of a finding that workers are employees rather than independent contractors or for that matter, your choice to treat people as employees, is that they are then illegible to form a labor union under the National Labor Relations Act.
Occasionally people classified as independent contractors in their challenges to that will assert that they were denied the right to collectively bargain or collectively act in forming a labor union and other related things as the National Labor Relations Board takes care of.
Other items that did not make it onto the slide here is that in certain at least rare instances, there are situations where companies will hire workers on the condition that the worker himself/herself as an individual corporation. This has been done in technology where programmers are receiving perhaps $100 an hour or more as independent contractors. Annualized, that’s more than $200,000 a year. At that rate, there have been at least a few companies that say, “We only want people who have formed a corporation that we’ll enter into a contract with that corporation and the person will be an independent contractor.”
That seems to have worked in the few instances that I know where it’s tried, has been tired. I’m not sure actually if it’s been challenged though. Let me also mention that there are some implications of choice between being an independent contractor rather than an employee. One of them has to do with agreements not to compete. In California, we think of agreements not to compete as being completely illegal. What’s actually true is that for employees, it’s illegal to have a covenant not to compete after somebody leaves his or her employment. But while they’re working for you, you can require that they not compete with you.
Independent contractors on the other hand and Lisa alluded to this regarding them going to work for other similar companies to yours, are going to be free to compete with you both after their work ends and also during the very same time. And indeed, one of the tests of employee versus independent contractor status is that the person is able and in fact does go ahead and work for other companies and that the person’s sole livelihood is not based on working just for your company.
There is also some difference in trade secret law. As Lisa mentioned, it’s much more likely that people will go ahead and use the information that they learn from your company elsewhere. As a theoretical matter, a trade secret should be a trade secret whether you’re exposed to it as an employee or as an independent contractor, but as a practical matter, the leakage is going to happen much more often with independent contractors.
Also to keep in mind that in this day and age of bringing your device to work, there are going to be a difference in the way you will have to structure things vis a vis your policies on that. Certainly, if you have employer-provided devices, you’re going to have greater amounts of control and ability to search what’s on the device, whereas if you’re having workers bring their device and there’s a need for you to see what’s on that device, you’re going to have more legal challenges in doing that.
There are also implications you should be aware of regarding whether employees are exempt employees or not. What I mean by that is that you may have a worker and the question is whether the person is an independent contractor or employee. If the person is an employee or should be an employee, and you want the person to be exempt from overtime, which is to say premium, time and a half payments for overtime, there has been a change at the federal level which will go into affect on December first whereby instead of paying people at the level of I think it was $24,000 a year or thereabouts, that is going to double so that people have to be paid at the level of about $48,000 a year in order for them to be exempt employees.
The last item that I want to raise on the planning level is that you should consider whether employment practices liability insurance might be available or not. Most companies should look for that EPLI insurance in any event. There are some coverages that are offered that will cover misclassification problems. That used to be more common. It’s now become less common, but it does exist. It’s something where if you have it and there’s a problem down the road, you’ll be very glad that you have it in place.
Changes to the legal landscape. The cases that are cited. Uber, Lyft, and Amazon are cases in which in all three, what we’re talking about is transportation workers. Companies look to have them as independent contractors, and they’ve challenged their classifications. Those have gone through the detailed matters that Pamela has described to you in detail.
Quite frankly, the arguments offered by employee-side attorneys and by the company side attorneys, you would almost wonder if they were thinking about and talked about the same cases because of the many factors and the IRS test that Pamela referred to is a 20-factor test. Even the state of California that she referred to is an eight-factor test, while the employment lawyers for employees are going to be looking at things like financial control.
One of the arguments that the Uber people are making is that because the employee or the worker cannot set the price charged, that person is in no way an independent entrepreneur, and therefore should be an employee. And of course, the employer side in those cases are emphasizing the freedom to drop in or drop out of work when they wish.
There are precedents in other countries, Canada and Germany are featured here in which people are looking to get past the traditional American classification or people being either all or nothing employees or independent contractors. I get to cover some of the fun stuff here with politics coming up as well in this set of slides, as well as some history here.
Once upon a time, almost everybody worked in the gig economy. I’m talking about going back to the 1800s when people were mostly on farms in small towns, and everybody did this, that and the other thing. The phrase was Jack of all trades. These days we would say Jack or Jill of all trades in which the work would change from season to season. It wasn’t till the rise of large industrial corporations with factories that everything got loaded into that distinction between, were you an employee. That got very loaded up with people’s day to day livelihood, their health insurance, their pension as well as in many cases a sense of identity, that’s the way. That was an outgrowth of the economic development in the 20th century, and that’s what’s being challenged right now.
As part of the changes, you can see that independent contractors exist in Canada and Germany and there are certain features to what they offer there that are written up. Also, the very last bullet point on this slide of mini-jobs. That’s actually a slightly different independent contractor that’s in Germany where they allow part-time workers who don’t get any benefits to having tax free income up to a modest amount per month.
The last slide here, I must compliment Pamela for having put together not only this entire set of wonderful slides but also this one in which in a very polarized current political election environment, very even-handed objective statements of each of these candidates position. Pamela has a bright future as a diplomat or perhaps a judge, and we can see what each of these people has said.
The last comments that I’ll offer relating back to the changing landscape and longterm evolution of a gig economy for everybody once upon a time to an industrial economy. Now, what’s unfolding is that if it were possible to separate out health care and pensions from people’s day to day earnings and livelihood, then there are people much preferring the independence of a gig economy. You can imagine almost … Several say that they are in a far better position because if they were to lose only one of them, they’re not losing their entire livelihood. It would be almost like portfolio diversification in your choice of employment.
That’s it for me.
Let’s talk a little bit about that evolution. And by the way, I want to remind people that there is a dialogue box. If you have questions, go ahead and type them in. If you’re on a mobile version, it’ll be at the bottom of your screen where you can type in questions.
The other problem with evolving because today as I listened to this, it seems like these rules were designed for an economy about 50 years ago, which is a problem when it comes to gig economy business. Today a gig economy business, you might have four different, maybe even five different parties that are touching a transaction.
There’s the worker. There’s the maid; there’s the person who the service is being provided for a client or consumer. There’s the platform that they might be using that’s connecting these people. There’s probably a separate third party payment processor. I’ve seen this get even more complex because there might be other payment parties involved using technologies to handle withholding and reporting. Now I see you might even have a separate placement agency. So there are a lot of people involved in.
I guess as I look at this, these rules are kind of fuzzy and ambiguous and very unclear and uncertain. Do we expect that they are going to change? Do we think something might change down the road? Might we get some better guidance? What do you think Lisa?
You know Roger, that is the big question that everyone’s pondering these days. I don’t see a lot of movement shortly because I believe that there are a lot of stakeholders in this process. You’ve got the taxing authorities, Franchise Tax Board, IRS that wanna have people classified as workers so they can take more taxes out of the wages. You’ve got the actual individuals who want flexibility often; then you have the workers that want to be part of the system and be connected. You’ve got lots of different players.
You’ve got companies that wanna make as much money as possible, but also want to be able to have a sustainable long-term business model. At this point, I don’t actually see anything changing. I think what I see happening right now is this becoming murkier and murkier. The risks are ramping up because the focus on litigation as a way to resolve these issues is increasing the costs of using the gig economy model. I think that is the big issue. One of the biggest takeaways companies need to think about is to go ahead and roll the dice, but set aside at least a half a million dollars.
I completely agree with everything that Lisa just said. I think that’s a byproduct of the current political gridlock. There was a case in San Francisco about a year or two ago in which the judge wrote an opinion in which he implored the legislature to address this because the criteria that were set forth were irrelevant and unhelpful in this post-industrial factory environment for him to be able to decide the case.
Other commentators have suggested things like, well, for the in-between kind of worker, there should be some of the current protections of labor law that apply and others that don’t. Also, about planning your workforce when you’ve mentioned that one thing that you can usually do is, even if you have workers who are independent contractors for tax and similar purposes, you can elect in many cases to treat them as employees under the workers’ compensation insurance system. Pay a premium, and the state compensation fund will be satisfied in treating it as such, collecting that premium even if they are independent contractors for tax and benefit purposes.
Well, that sounds risky. I mean, to take a conflicting position for different purposes, but I understand that’s an option. Okay, we’re getting towards the end of the hour here. I think we owe it to wrap up. I want to remind everybody that if you do have a question you’d like to talk to the panelists afterward, go ahead and send them through the GoToWebinar software. I’ll put you in touch with the speakers. We’re going to start off next year with a whole series on program so watch for that.
With that, I’d like to thank our panelists for being here and giving us this extensive presentation on the law, and we can now conclude the webinar.Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.