The United States has seen rapid growth of the gig economy: emerging companies across the spectrum of business are using independent contractors to perform short-term, discrete tasks, with workers often hired directly by customers through phone-based apps. A series of recent lawsuits (a number of which involve ride-hailing businesses) have highlighted the uncertainty over whether these workers should be classified as independent contractors or employees. The difference is crucial both to the legal protections and benefits available to the workers and the business models (and survival) of their employers.
For example, ride-hailing businesses in California now face multiple lawsuits filed by drivers alleging misclassification under state and federal law. The drivers assert that they should be classified as employees, not contractors. One such suit recently settled for $27 million, while another proposed settlement for nearly $100 million was rejected by a California federal court as unfair and inadequate to the claimant. And it seems that the ride-hailing businesses will not be able to escape from these lawsuits before trial, with some courts finding that drivers are “presumptive employees” because they provide a service to the businesses. Ultimately, it will be up to juries in these cases to decide the factual dispute of whether drivers are properly classified as employees or independent contractors. Similar lawsuits are pending in other jurisdictions, including New York, Massachusetts, Indiana, and Texas.
The enforceability of mandatory arbitration agreements, and class action waivers within such agreements, is another hot issue in the gig economy. Companies often require independent contractors to sign arbitration agreements that require claims be resolved in arbitration. These agreements often forbid the collective resolution of claims, requiring each claimant to bring his or her claim individually. A number of workers have challenged the enforceability of the arbitration agreements on the ground that the agreements violate the workers’ rights to engage in concerted activity under the National Labor Relations Act (“NLRA”). The National Labor Relations Board and the EEOC have both initiated litigation to invalidate such class action waivers in arbitration agreements. And the federal circuit courts have issued conflicting opinions on whether the NLRA makes such agreements improper. The United States Supreme Court has granted review of this hotly contested issue, and will issue an opinion resolving the circuit split in its next term.
Legislators are also getting in on the action. Proposed legislation in New York would allow gig workers to opt into company-funded portable benefits programs while allowing companies to classify the workers as independent contractors. The legislation looks to trade employer contributions (of approximately 2.5% of the fee for each job) to worker accounts to use for benefits for the right to file suit for misclassification.
Gig workers are also attempting to unionize. Last year, the Seattle City Council adopted legislation that allows for-hire drivers to collectively bargain, even if they are classified as independent contractors. This ordinance is being challenged by ride-hailing companies as unconstitutional.
The battle over the company-worker relationship in the gig economy is far from resolved, but legislation and litigation across various jurisdictions may ultimately provide clarity and guidance on the issue.