Until recently, the word “gig” had two common meanings:

  1. A live music performance; and
  2. A long trident used to hunt swamp-dwelling amphibians

However, a noted linguist recently crowned “gig” as the 2015 word of the year for a different reason – the rise of the “gig economy.” Led by popular app based ride-sharing services, this term refers to a patchwork of temporary freelance projects and assignments, as opposed to traditional longer-term or career-oriented work with a single employer.

Proponents of this business model tout its many advantages. Freelancers generally have ultimate flexibility with the ability to set their own schedules and work as few or as many individual assignments as they choose. Companies benefit from having a large potential pool of people to carry out projects, while not (in theory) being subject to onerous employment laws.

However, linguists are not the only folks paying attention to the gig economy and doing so in ways less advantageous to gig-based companies. Individuals who perform freelance, app-driven work under the umbrella of the company hosting the app often exist in a legal gray zone. Whether or not gig workers or freelancers are independent contractors or employees entitled to all the benefits and protections of employment status under various (and not always uniform) state and federal tests is a heavily fact-driven determination that has not been settled. To better understand the opportunities and challenges, companies utilizing freelancers or independent contractors should follow legal developments and review current policies and procedures.

Aggressive government agencies and plaintiffs’ attorneys are pushing the argument that gig freelancers are employees. Just two weeks ago for example, ride sharing service Uber filed a highly publicized $100 million dollar settlement of a case filed in California, which claimed that over 240,000 current and former Uber drivers should have been paid as employees.

As that settlement demonstrates, the gig economy is subject to costly attack, often based on whether or not wage and hour laws apply to freelancers. Indeed, we have previously covered some of the issues surrounding wage and hour consequences of independent contractor misclassification. Companies utilizing independent contractors – be they in the gig economy or not – would be wise to review the principles covered in these postings.

In addition to wage and hour considerations, companies involved in the gig economy should also consider the following additional areas of potential concern regarding independent contractor classification.

Workers’ Compensation

With the intense focus on gig economy classification, we can expect to see state agencies and the plaintiffs’ bar argue that freelancers are employees and thus also covered by mandatory worker’s compensation requirements. Improper workers’ compensation classification can lead to harsh financial – and in some states, criminal – penalties.

Labor Organizing

The gig economy has caught the attention of union organizers, as well as the National Labor Relations Board. For example, the Uber settlement itself provides for a recognized “drivers’ association,” which although not a union, certainly could be a precursor to one if the drivers are ever deemed employees.

In fact, last week a group of Uber drivers in New York announced that they had formed a new drivers association, touting the support of former International Association of Machinists officials. Although this is not (yet) a union, the Machinists’ spokesperson left little doubt as to the goals of the new association by stating, “We have to gather together as a labor movement to get around this [new] economy. This ‘gig economy’ or ‘share economy’ is just a way for employers to avoid paying.”

These developments, coupled with state and federal labor agencies’ focus on “joint employer status,” ensure that this is an area to watch going forward.

The Affordable Care Act

The bulk of the Affordable Care Act’s provisions went into effect earlier this year. Any determination that freelancers are employees could be the deciding factor in a company satisfying the threshold number of “full time equivalent” employees to be covered by the Act.

Local Regulations

Gig economy industries are often subject to a large amount of local regulations, even with respect to whether they can operate at all. For example, taxi ordinances in many locations prohibit ride sharing services. However, the landscape regarding these laws is evolving. Miami-Dade County, Florida recently approved an ordinance to permit operation of Lyft and Uber. Along with permission to operate, however, the ride sharing services are now subject to various county regulations and requirements. As more and more localities address ride-sharing and other gig economy services, we may see requirements that include typical employment-related protections, such as prevailing wage requirements.

The gig economy is here to stay and is a source of tremendous opportunity for freelancers and companies alike. However, just as you would not “gig” for frogs in the swamp without proper preparations, do not venture into the gig economy without protection and understanding of all the various legal landmines lurking within it.

All companies utilizing freelancers or other independent contractors should review their policies and procedures in order to assess potential employee status, and should carefully follow legal developments in this rapidly evolving field.