The Gig Economy and Employment Law: Navigating Legal Challenges

Even though the gig economy is becoming ever more widespread in multiple industries, the work scheme is still associated with a lot of legal challenges not covered by employment law. Of course, a lot depends on the local legislation — some authorities have more comprehensive procedures in place, while others ignore the necessity of regulating the gig economy altogether. In any case, there are quite a lot of gray areas that require attention from the legal departments and add a bit of strain on the role of HR manager. Below, we will list the top areas to watch out for.



Top Dilemma: Employee or Independent Contractor?

This is the first challenge and the largest gray area of the gig economy — classifying workers. Independent contractors enjoy a great degree of autonomy — they decide how the work is done, and often, they determine how much they charge for it. However, according to the IRS definition, everything is more complicated in practice, and each case must be analyzed separately. 

One of the most famous controversies of the kind is when Uber was sued by its drivers for misclassifying them as independent contractors. The idea was that drivers could not set their wages — the rates were fixed by Uber, along with the earnings each driver made from the ride. Lyft faced the same accusations, and eventually, both companies lost the case and were forced to pay out hundreds of millions of dollars to drivers. 

So, where do you draw the line between independent contractors and employees to avoid legal repercussions? As already mentioned, each case is different, but you can make a more or less informed decision if you consider:

Degree of control 

This is the most important parameter that defines the difference between gig workers and employees. The case with Uber drivers is an excellent example because it shows how people seemingly working on a freelance basis are forced to comply with company regulations.

Level of integration 

Normally, independent contractors are not an integral part of the team, and they have limited (if any) access to the company’s operations and protocols. The higher the level of integration, the higher a worker ranks on the possible employee scale. For example, if an office hires the same staff of cleaners every week, the level of integration is minimal. On the other hand, a remote accountant who does the company taxes every month has a higher level of integration — even though the accountant does not visit the physical office as often as the cleaning staff. 

Financial relationship 

Besides the obvious elephant in the room — who pays the taxes — there are other financial matters to consider. Independent contractors generally work with their own equipment — whether it is a laptop, a hand drill, or a vacuum cleaner. They usually carry their own expenses and are the only party responsible for their own profit or loss. 

Contract duration

The classic definition is that independent contractors are usually hired for the length of a single project, while employees have an ongoing relationship with the employer. But again, the lines can get a little blurred in practice — for example, a software development company may be regularly outsourcing part of their work to another team. And while technically, each time the second team is employed on a per-project basis, it’s hard not to notice the ongoing relationship between these two parties. 

Top HR Challenges and Implications 

Often, the HR and legal departments in a company work hand-in-hand — at least when the internal workforce is concerned. The rise of the gig economy, despite its many benefits for employers, has also created a few challenges specifically for HR teams. The first one is directly related to the legal classification of workers — something that often falls on the HRs. And, while it has always been implied that HRs have to be well-versed in the intricacies of labor laws in their area, now they also have to navigate the dangerous waters of worker classification. 

The second challenge is more of an organizational nature than a legal one. How do you onboard independent contractors? And do you onboard them at all? Which data do you share, and which remains confidential? Once again, there is still no official regulation that would suit every situation — but the general rule is that if onboarding becomes necessary, it means people have an employee level of integration already. With all the taxing consequences. 

In the Workplace: More Labor Law Inconsistencies

Further challenges begin after onboarding. Mostly, it’s about traditional employee benefit policies and their near-absence with independent contractors. Here are only some problematic areas to keep in mind:

  • Benefit disparity: while in-house employees enjoy healthcare benefits, starting with paid sick leave and vacation, gig workers are generally outside the benefits range. Besides, there is no protection from or compensation for overtime.
  • Financial safety: the minimal wage is a concept that applies to employees, but independent contractors are sometimes forced to offer lower rates to stand a chance with the competition. Besides, unemployment laws do not even have a definition of a gig worker in their legal frameworks, so independent contractors cannot just march into a Labor Bureau and ask for a new contract or, at least, some financial help for the low period between the jobs. 
  • Anti-discrimination laws: another sensitive topic and a gray legal area that does not cover gig workers at all. While most countries have regulations protecting the rights of minorities, these laws do not apply to the gig economy.   

Current Development & Future Predictions 

Considering all of the legal and workplace challenges described above, it becomes clear that both employers and independent contractors could use more structured work legislation. In fact, some countries are already making steps in this direction. In the USA, the IRS already created a comprehensive 20-Factor Test designed to determine whether a worker is an employee or an independent contractor. It’s not perfect yet, but it’s something. 

The UK introduced an official status of a ‘worker’ that falls somewhere in between employee and independent contractor. Workers are granted certain rights, including minimal wages and paid time off, for example. 

France has issued a series of laws protecting gig workers, for example, through obligatory insurance from work accidents. And Germany has allowed gig workers to form unions so that contractors would have more influence while negotiating with the companies. But that’s not surprising — Germany has always been fond of all sorts of unions.

What is surprising is how far India took its contractor work legislation. The country recognized gig workers’ need for financial security, allowing them legal access to practically the same benefits employees get to enjoy, including healthcare and disability packages. 

So, it seems like countries with very different cultures and values are moving in the same direction — acknowledging gig workers and offering them more financial security. Of course, both governments and companies will continue to affect this process in the future, and one can only hope they play for the same team — which is something private and government sectors rarely do. After all, the more independent contractors are seen as employees by governments, the more taxes for the companies. But we will just have to wait and see how it all plays out, country by country.

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