New Technology Companies and the Resulting Labor Force Identity Crisis

By:  James C. Brady, Esq.

The rise of the virtual marketplace has seen the advent of a new employment space, colloquially referred to as the “gig economy.”  However, emerging technology, freelance driven companies, such as Shyp, Lyft, Instacart, Handy, Postmates, and many more, are still operating under an old employment status regime.  Independent contractors and dependent employees stand on opposite sides of the employment continuum, and between the two is the future of the labor force.

Generally, an employer will be held liable for the wrongful acts of his employee and Courts have repeatedly held that an independent contractor is not an employee.  Specifically, Courts have adopted a multi-factor test to determine employment status as a dependent employee or independent contractor – essentially, an analysis of the control exerted by the employer.

For example, despite Uber positioning itself as a logistics software company/middleman between transportation providers and users, the California Labor Commission recently determined that at least one Uber driver is a dependent employee rather than an independent contractor.  That being said, it should be noted that Uber had success in other states, which determined that Uber's drivers are independent contractors. 

Still, lawsuits are expensive and potentially fatal, as can be seen through the closing of Homejoy.  Indeed, companies, including Lyft and Shyp, are starting to re-classify their workforce as dependent employees ahead of Court rulings, though, they each state that this is an attempt to achieve better customer service and is an investment in their workforce rather than a hedge to litigation costs.  Reallocating funds from fighting its employees in court to paying more money in benefits etc. is a cost benefit analysis that these companies will be forced to make, and may threaten their unique business model.  Clearly, the new “sharing” or “gig” economy is creating rifts in the established classifications for employees.

The classification of “dependent contractors” has been utilized by European countries and could possibly offer clarity where ambiguity presently lies.  Again on the employment status continuum, a dependent contractor would stand between the independent contractor and the dependent employee.  A designation of dependent contractor would allow such laborers the flexibility of an independent contractor and the protections of a dependent employee.

Whether those protections include insurance coverage has yet to be seen; however, if an employer provides insurance, the covered laborer would likely be considered a dependent employee.  Nonetheless, the legitimization of the dependent contractor status could provide a windfall for workers’ rights.  More, the establishment of the dependent contractor may lead to new insuring practices and platforms etc.; thereby, advancing and evolving the insurance industry, inter alia, to keep up with today’s transformative economy.