“Dependent Contractors” in the Gig-Economy • A Comparative Approach

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Saint Louis University, Law School Center for International and Comparative Law

“Dependent Contractors” in the Gig-‐Economy A Comparative Approach

Miriam A. Cherry – SLU Law, Saint Louis Antonio Aloisi – Bocconi University, Milan

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e 2 1.   The gig-‐economy

I.  An attempt at classification II.  Legal implication (labour law) III.  The scope of the On-‐Demand Economy

2.   Crowdwork I.  Legal Standards for Determining Status II.  The Uber Litigation and Settlement

3.   A third category between employee & independent contractor? I.  Proposals for an intermediate category

4.   An historical and global context, with various and mixed results I.  Canada II.  Italy III.  Spain

5.   Lesson learned I.  Our answers

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www.forbes.com

Transportation Finance Consumer Goods

Professional Services Personal Services Space

+ The gig-economy An attempt at classification n  Crowd-‐employment (Amazon Turk, Clickworker…)

n  Work on-‐demand via apps (Uber, Lyft, TaskRabbit, Handy)

n  A variety of performances

n  Virtual / concrete work

n  Global / local execution

n  Selection / competition

n  Payment (bid/defined rate)

n  Vertical vs. horizontal platforms

n  Content of task and control power

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Differences have a strong impact on legal issues such as liabilities and employment reclassification

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CROWD EMPLOYMENT Some processes of “micro-‐labor” involve computer-‐based work that is performed wholly in cyberspace, where work is

broken down [taskified] into its smallest constituent parts (coding, describing, or

tagging the thousands of items).

WORK ON-‐DEMAND is aided by cellphone “apps” or websites, and they rely on technology to deploy

workers to perform tasks in the real world (such as driving, grocery delivery, or home

repair) for requesters, with the app or platform keeping a percentage.

The Context of Crowdwork The scope of the On-‐Demand Economy

Technology is reshaping the future of work

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Does the U.S. legal system need a new hybrid category between employee and independent contractor to be more responsive to the practices associated with on-‐demand gig work?

Proponents advocate that an intermediate category is not only necessary for modern economic and technological realities, but also a completely new innovation, created out of whole cloth and appropriately formulated for the era of digital work. The issue of classification is not merely an academic or philosophical one.

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Classification as an employee is a gateway to determine who is deserving of the protections of the labor and employment laws (the right to organize, minimum wage, and unemployment compensation)

Increasingly work is becoming casualized, outsourced. Workers are being managed by and through algorithms, and many sectors are seeing the rise of the just-‐in-‐time workforce.

Rather than create a special classification category just for the gig economy, any category that would be created should ideally ameliorate conditions for other forms of precarious work.

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n  Under U.S. law, whether a worker is an employee or independent contractor is determined through various multifactorial tests dependent on the facts of the relationship

n  The “control” test derives from the case law and decisions on agency law, and focuses on a principal’s right to control the worker

n  Economic realities of the relationship: whether the worker is exhibiting entrepreneurial activity, or whether the worker is financially dependent upon the employer

n  The label (and the intentions) affixed to the relationship is a factor in the outcome, but it is certainly not dispositive

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The Context of Crowdwork Legal Standards for Determining Status

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n  With Uber some of the factors in the control test point toward an employee relationship while others are reminiscent of an independent contractor relationship n  Crowdworkers have some flexibility to set their own schedules and can sign on and off the app readily

n  Crowdworkers also use their own cellular telephones, computer equipment, Internet connections.

n  Further, EULAs label crowdworkers as “independent contractors” forcing them to click “I agree” in order to access

n  The tests are notoriously malleable, difficult, and fact-‐dependent, even when dealing with what should be a fairly straightforward analysis

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The Context of Crowdwork Legal Standards for Determining Status

+ The multi-part test Criteria for the analysis

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n  This multi-‐part test scrutinizes the presence of the following factors: I.  whether there’s a right to control how the worker does his job;

II.  whether a worker has set hours or can work whenever he or she wants;

III.  how the worker is paid i.e., by the hour (which points toward employment) vs. by the job (which points toward an independent contractor relationship;

IV.  whether the business provides the tools to perform the job;

V.  whether a written agreement exists classifying the worker + intentions;

VI.  the permanency of the relationship, with an indefinite term pointing toward employment and a defined term pointing toward an independent contractor;

VII.  whether the services rendered are an integral part of the employer’s business; VIII.  whether the work requires a special skill.

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n  In the largest of these suits, pending in the Northern District of California, 400,000 were certified as a class-‐action to seek employee status and redress under the FLSA for minimum wages and overtime pay n  O’Connor v. Uber, 3:13-‐cv-‐03826-‐EMC (N.D. Cal.)

n  In May 2016, O’Connor v. Uber settled for a $100 million payment to the workers and an agreement to send worker dismissals to an arbitrator n  (i) transparency about the internal algorithm, (ii) disclosure of the deactivation procedures,

(iii) creation of an appeals panel, (iv) promotion of a driver association

n  While this was a brokered compromise, the settlement failed to bring about any definitive resolution to the classification problem à “on/off” toggle of employee status

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The Context of Crowdwork The Uber Litigation and Settlement

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n  The gateway question is as of yet left unresolved (“all or nothing” scheme). Proponents cite innovation and the novelty of these forms of work and organization as a reason for special treatment n  “Innovative business models cannot survive if overly regulated”

1.   Harris & Krueger, A Proposal for Modernizing Labor Laws for Twenty-‐First-‐Century Work: The “Independent Worker,” The Hamilton Project

2.   Professor Benjamin Sachs has authored a series of blog posts debating the merits of creating a third category, and has approached the concept with some skepticism

3.   ‘Washington Post’ discussed the possibility, but ended critically, noting that gig workers were unlikely to receive the protection they needed

4.   Senator Mark Warren of Virginia has recently begun discussing the need for legislation

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Proposals for a Third Category Focused on the Gig Economy

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n  “Independent workers” would gain n  rights to organize and bargain collectively under the NLRA

n  anti-‐discrimination protections under Title VII

n  NO: payment for overtime and minimum wage arrangements n  the gig-‐economy business model does not allow anyone for tracing hours or even

for attribution of hours to any particular platform

n  an hours-‐based rate of pay does not make sense when dealing with work that is paid by the gig.

n  This stance has been criticized for ignoring the role of big data in the on demand economy (constant tracking of data)

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Proposals for a Third Category Harris and Krueger “dependent worker”

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Situating the “dependent contractor” category within an historical and global context, other countries have already experimented with an intermediate category, with various and mixed results.

These legal reform efforts pre-‐dated the platform economy, but arose in response to a perceived lack of coverage by the binary switch that is the hallmark of the worker misclassification issue.

Comparisons of the experiences of Canada, Italy, and Spain

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n  1950s: principle of vicarious liability for torts + “fourfold” test (1) control; (2) ownership of tools; (3) chance of profit; (4) risk of loss.

n  “Merely different ways of expressing the same ultimate question of whose business is it?”

n  1965: Arthurs seized on the idea of a 3rd category as a reaction to a trend that created injustice for certain groups of Canadian workers. n  That small tradespeople, artisans, plumbers, craftsmen, and the like were increasingly

structuring as separate business entities.

n  These putative independent businesses were often almost wholly dependent on the patronage of a larger company.

n  “Insofar as dependent contractors share a particular labour market with employees … they should be eligible for unionization.”

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The Canadian Experience: Harry Arthurs: “Dependent Contractors”

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n  Arthurs’ academic work resulted in substantial law reform and the extension of the employment laws to a group that had previously been subordinate but that had received few protections. n  As the court in Fownes Construction v. Teamsters noted this was “one law review article which

has had an impact on the real world.”

n  The government has “introduced this intermediate category into statutes in order to extend the reach of the statute beyond typical employees.”

n  The effect was, in the words of subsequent commentators, “beneficial for a significant number of workers formerly excluded from the ambit of collective bargaining laws.” n  There have been no Canadian decisions on ridesharing services like Uber, one would have to reason by

analogy to earlier cases involving taxicab services, limousines, and cars for hire.

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The Canadian Experience: Harry Arthurs: “Dependent Contractors”

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Independent CONTRACTOR

The Canadian Case 1/2

EMPLOYMENT

Traditional binary divide

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The Canadian Case 2/2

Arthur’s article


“DEPENDENT CONTRACTOR”

EMPLOYMENT

ECONOMICALLY DEPENDENT

SELF-EMPLOYMENT

+ The Italian Case: Lessons of Unintended Consequences n  The definition of Article 2094 CC is apparently circular:

“an employee agrees to collaborate with an employer in exchange for remuneration, performing intellectual or manual labour in the employment of and under the direction of the entrepreneur.”

n  The self-‐employed worker contract is not even a part of the chapter of the Civil Code devoted to labour. Article 2222 CC: “a person who performs services for remuneration, mainly by means of his own labour and in the absence of a relationship of subordination vis-‐a-‐vis the client.”

n  A judge may be allowed to disregard the contractual label whenever the concrete relationship contains legal indicia of employee status (“primacy of facts” principle). Subsidiary indicators:

1.  the requirement that the worker follow reasonable work rules; 2.  the length of relationship; 3.  the respect of set working hours; 4.  salaried work; 5.  absence of risk of loss related to the production.

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n  1973: Italian Law sought to extend certain procedural protection to the weakest of the independent contractors, and incidentally brought about the genesis of the third category, deemed “lavoratore para-‐subordinato”

n  Sub-‐set of self-‐employed workers (Co.Co.Co.), workers “collaborating with a principal/buyer under a continuous, coordinated and predominantly personal relationship, not of subordinate character.”

n  Consequently, the lavoratore parasubordinato category was used to hide bona fide employment relationships n  “a gradual erosion of the protections afforded to employees through jobs that are

traditionally deemed to constitute master-‐servant relationships, progressively entering the no man’s land of an inadequately defined notion”

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The Italian Case: The Legislation on “para-‐subordinazione”

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1.   2003 – “Biagi Law”: many workers that functioned as employees were incorrectly classified as quasi-‐subordinate by businesses, the legislature required the [collaboration] be linked to at least one “project”

n  A new definition: “lavoro a progetto” à to check the validity (questionable tecnique)

n  To reduce the number of precarious forms of employment leading to illicit work and evasion of social insurance contributions

2.   2015: the “Jobs Act” fundamentally eliminated the concept of project work that had its genesis in the 2003 Biagi law and limited the scope of Co.Co.Co.

n  This was intended to reduce the use of atypical contracts and to establish the principle that the “natural” or default category is that of employee.

n  “Moving as many employment contracts, in a gradual, from the uncertain grey area of atypical employment to the area of salaried employment”

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The Italian Case: “Para-‐subordinazione” and the project

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The Italian Case 1/6

EMPLOYMENT

Traditional binary divide

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PARA SUBORDINATION



EMPLOYMENT

1973

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PARA SUBORDINATION



EMPLOYMENT

…

hiding bona fide

EMPLOYMENT

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EMPLOYMENT

2003 – Biagi Law

+ PROJECT

PARA SUBORDINATION

countering the misuse of the scheme limit control power

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EMPLOYMENT

2012 – Fornero Law

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Sanction for an improper or

absent project PARA SUBORDINATION

discouraging the 3rd

category

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“former” PARA

SUBORDINATION

EMPLOYMENT (default contract)

PARA SUBORDINATION

2015 – Jobs Act

PARA SUBORDINATION

presumption

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n  2007: the Spanish legislature enacted a new law aimed at regulating non standard forms of work comprehensively.

n  The law gave the rise to a new classification: “Trabajador Autonomo Economicamente Dependiente” (“TRADE”).

n  TRADE workers were granted some legal protections such as n  minimum wage,

n  annual leave,

n  severance for wrongful termination,

n  right to suspend work for family or health reasons

n  collective bargaining.

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The Spanish Case Economic Thresholds for the 3rd category

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n  TRADE defined according to a threshold of economic dependency. 1.  the performance of an economic or professional activity directly and predominantly vis-‐

à-‐vis one single principal and

2.   a dependence on the principal for at least 75% of the worker’s earnings.

n  The law assumes that TRADE workers are predominantly working for one business; this could be a problem for platform workers who are working for multiple platforms.

n  Sadly, “while increasing certainty and transparency and ensuring a minimum level of [substantial] protection of the self-‐employed, such requirements could, however, have the effect of limiting the scope of these contractual arrangements.”

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The Spanish Case Economic Thresholds for the 3rd category

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EMPLOYMENT

Independent CONTRACTOR (unregulated)

The Spanish Case 1/4

Before 2007

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EMPLOYMENT ECONOMICALLY

DEPENDENT SELF-EMPLOYMENT



2007

75% of income from the same principal

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EMPLOYMENT ECONOMICALLY

DEPENDENT SELF-EMPLOYMENT



…


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EMPLOYMENT



today

ECONOMICALLY DEPENDENT

SELF-EMPLOYMENT


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n  We have a large grey area to be interpreted in at least 2 different ways:

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“types of work that do not fit into the binary system as, objectively, they display employment and self-‐ employment features”

“certain types of work which appear to be self-‐employment

but which, in fact, are employment”

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This is about employment performances that could barely classified by applying existing laws or criteria and tests aimed at determining the worker status.

Quite clearly, in the second case, we confronted with illegitimate practices of

false self-‐employment.

What we have learned from these three experiences

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n  Nothing new: worker classification entails legal arbitrage, as a shortcoming;

n  The uncertainty is genuine because of the combination of: n  Control vs flexibility

n  Organizational dependency vs multicommissioning

n  Economic dependency vs voluntary freelancing

n  Geographical disaggregation vs “attempts” of collective voice

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What we have learned from these three experiences

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CANADA the “dependent contractor” has

essentially resulted in an expansion of the

definition of employee.

effectiveness The category was enacted to help those workers who were in need of labour protections. The earlier tests were rigid and made it difficult for small business workers to claim benefits and protections.

ITALY the intermediate

category was used to disguise bona fide

employment relationships.

formality The third category became a discounted alternative to a standard employment contract. Reform efforts were “somewhat tentative and partial.” The grey area was extended.

SPAIN the legal arbitrage shifted TRADE to independent

contractor because of the level of burdensome

procedures.

substantiality “While increasing certainty and transparency and ensuring a minimum level of protection, such requirements could have the effect of limiting the scope of these contractual arrangements.”

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What we have learned A preliminary appraisal

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n  Crafting a new category is a complex legislative exercise

n  Innovation cannot be hindered or stopped. Also innovation should not consist of taking advantage of a legal loophole

n  Not a matter of mere definitions. Not a matter of interpretation.

n  We need traditional protections for 2.0 work arrangements (like CANADA)

An effective “3rd category” should cover ALSO any form of precarious employment

A progressive expansion of the definition of employee in order to cover situations that are not covered today

(unregulated not only disguised)

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Implications From Gig-‐Economy to Precariousness

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INDEPENDENT CONTRACTOR

The Gig-Economy Case

EMPLOYMENT rights & benefits

Protection

Today: “No Man’s Land”

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Thank you! [email protected] [email protected]

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“Dependent Contractors” in the Gig-Economy • A Comparative Approach