The Morphing Role of Contractors in the Sharing Economy

Forbes magazine reports that, according to the US government, a full 40% of all American workers hold “contingent” jobs (defined as temp, contract and part time work). The trend is undeniable. The proliferation of contingent work can be attributed to a number of dynamics including the globalization of many US-based companies and the commoditization of labor that came along with it. Internet technological advances and telecommuting have also contributed to the trend and it is technology that is driving some of the high profile cases testing the boundaries of worker classification today.

For example, there are the new tech-infused business models represented by burgeoning companies like Uber and Lyft in the taxi and limousine industry. These companies (and many others like them emerging on to the scene) are referred to as “shared economy” jobs. The business model regards the means of business production (in this case automobiles) as shared resources and the driver/owners as contingent labor. It is all tied together with a very egalitarian smart phone app which connects those who need transport to those with the capacity to provide it. This article from Inc. magazine perfectly encapsulates “Why Every Business Model May Soon Look Like Uber’s”.

But all is not peaceful and calm in the shared economy. In a landmark case currently percolating through the courts in the state of California, the binary choice of classifying workers (in this case Uber and Lyft drivers) as either “employees” or “independent contractors” might no longer be sufficient given the unique nature of these new “sharing economy” job roles. 

HR practitioners have long been warned to remain vigilant when making worker classification decisions.  Numerous competing standards have been recognized for making the determination between W2 wage earners and independent contractors – from the IRS’s 12 questions to a host of third party literature on the subject. And despite all this information, many leading companies still manage to get it wrong, such as FedEx, who misclassified drivers as contractors and must now pay fines because of it.

While the jury is still literally out on the fate of Uber and Lyft in California, the fact remains that the very nature of what it means to be a contractor is shifting beneath the feet of numerous industries. The stakes for non-compliance continue to be high for companies with classification issues.  It will be interesting to see what the two juries in these California cases come up with.  It is sure to set a legal precedent that will be followed in other US states where similar lawsuits are sure to emerge.

For the forward thinking HR practitioner, it is critical to keep tuned into these kinds of happenings from the forefront of labor law because one thing is for sure: the labor environment continues to be in flux and only those with a keen understanding of the nuances will be able to avoid penalties and fines.  Stay tuned to the nextSource blog for ongoing coverage of this emerging story.