Proposal for Modernizing Labor Laws for Twenty-First-Century Work

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* Article: A Proposal for Modernizing Labor Laws for Twenty-First-Century Work: The “Independent Worker”. By Seth D. Harris and Alan B. Krueger. The Hamilton Project - Brookings, 2015

URL = http://www.hamiltonproject.org/assets/files/modernizing_labor_laws_for_twenty_first_century_work_krueger_harris.pdf


Abstract

"New and emerging work relationships arising in the “online gig economy” do not fit easily into the existing legal definitions of “employee” and “independent contractor” status. The distinction is important because employees qualify for a range of legally mandated benefits and protections that are not available to independent contractors, such as the right to organize and bargain collectively, workers’ compensation insurance coverage, and overtime compensation. This paper proposes a new legal category, which we call “independent workers,” for those who occupy the gray area between employees and independent contractors.

Independent workers typically work with intermediaries who match workers to customers. The independent worker and the intermediary have some elements of the arms-length independent business relationships that characterize “independent contractor” status, and some elements of a traditional employee-employer relationship. On the one hand, independent workers have the ability to choose when to work, and whether to work at all. They may work with multiple intermediaries simultaneously, or conduct personal tasks while they are working with an intermediary. It is thus impossible in many circumstances to attribute independent workers’ work hours to any employer. In this critical respect, independent workers are similar to independent businesses. On the other hand, the intermediary retains some control over the way independent workers perform their work, such as by setting their fees or fee caps, and they may “fire” workers by prohibiting them from using their service. In these respects, independent workers are similar to traditional employees.

Evidence is presented suggesting that about 600,000 workers, or 0.4 percent of total U.S. employment, work with an online intermediary in the gig economy. Although there are probably many more workers who currently work with an offline intermediary who would qualify for independent worker status than there are who work with an online intermediary, the number of workers participating in the online gig economy is growing very rapidly.

In our proposal, independent workers — regardless of whether they work through an online or offline intermediary — would qualify for many, although not all, of the benefits and protections that employees receive, including the freedom to organize and collectively bargain, civil rights protections, tax withholding, and employer contributions for payroll taxes. Because it is conceptually impossible to attribute their work hours to any single intermediary, however, independent workers would not qualify for hours-based benefits, including overtime or minimum wage requirements. Further, because independent workers would rarely, if ever, qualify for unemployment insurance benefits given the discretion they have to choose whether to work through an intermediary, they would not be covered by the program or be required to contribute taxes to fund that program. However, intermediaries would be permitted to pool independent workers for purposes of purchasing and providing insurance and other benefits at lower cost and higher quality without the risk that their relationship will be transformed into an employment relationship.

Our proposal seeks to structure benefits to make independent worker status neutral when compared with employee status, as well as to enhance the efficiency of the operation of the labor market. By extending many of the legal benefits and protections found in employment relationships to independent workers, our proposal would protect and extend the social compact between workers and employers, and reduce the legal uncertainty and legal costs that currently beset many independent worker relationships."


Discussion

Timothy Taylor:

"Harris and Krueger point out that the current legal standard for distinguishing between "employees" and "independent contractor" involves nine different distinctions--and these distinctions are made in different ways in the Fair Labor Standards Act, the Employee Retirement Income Security Act (ERISA), in tax law, and in various court decisions about all of the above.


The nine distinctions are:

  1. "Role of work: Is the work performed integral to the employer’s business?
  2. Skills involved: Is the work not necessarily dependent on special skills?
  3. Investment: Does the employer provide the necessary tools and/or equipment and bear the risk of loss from those investments?
  4. Independent Business Judgment: Has the worker withdrawn from the competitive market to work for the employer?
  5. Duration: Does the worker have a permanent or indefinite relationship with the employer?
  6. Control: Does the employer set pay amount,w ork hours, and manner in

which work is performed?

  1. Benefits: Does the worker receive insurance, pension plan, sick days, or other benefits that suggest an employment relationship?
  2. Method of Payment: Does the worker receive a guaranteed wage or salary as opposed to a fee per task?
  3. Intent: Do the parties believe they have created a employer– employee relationship?"


It's not hard to imagine various work-and-pay relationships that cut across these distinctions in various ways. For example, in Canada there is a third category of "dependent contractors," who are contractors that get 80% of their income from a single firm, and as a result have access to some but not all of the standard employee legal protections.

Harris and Krueger define their proposed legal category of "independent workers" in this way:

"Independent workers operate in a triangular relationship: they provide services to customers identified with the help of intermediaries. The intermediaries create a communications channel, typically an “app,” that customers use to identify themselves as needing a service—for example, a car ride, landscaping services, or food delivery. (An intermediary need not utilize the Internet to match independent workers and customers ...) ... The intermediary does not assign the customer to the independent worker; rather, the independent worker chooses or declines to serve the customer (sometimes within broadly defined limits). However, the intermediary may set certain threshold requirements for independent workers who are eligible to use its app, such as criminal background checks. The intermediary may also set the price (or at least an upper bound on the price) for the service provided by independent workers through its app. But the intermediary exercises no further control over how and whether a particular independent worker will serve a particular customer. The intermediary is typically rewarded for its services with a predetermined percentage of the fee paid by the customer to the independent worker. ... The independent worker chooses when and whether to work at all. The relationship can be fleeting, occasional, or constant, at the discretion of the independent worker."


They estimate there are about 600,000 "independent workers", which is about 0.4% of US employment, working with online intermediaries. in the gig economy. This number seems to be growing rapidly. They also mention a number of existing jobs that don't operate through on-line apps but seem to share many of the traits of "independent workers," and discuss how many traditional taxi drivers (as opposed to Uber and Lyft drivers), temporary staffing agency employees, labor contractors, members who secure jobs through union hiring halls, outside sales employees, and (perhaps) direct sales employees occupy the points of triangles with other economic actors."

Here's a quick summary (with more discussion in the paper) of Harris-Krueger proposal for how "independent workers' would be treated under law: In our proposal, independent workers — regardless of whether they work through an online or offline intermediary — would qualify for many, although not all, of the benefits and protections that employees receive, including the freedom to organize and collectively bargain, civil rights protections, tax withholding, and employer contributions for payroll taxes. Because it is conceptually impossible to attribute their work hours to any single intermediary, however, independent workers would not qualify for hours-based benefits, including overtime or minimum wage requirements. Further, because independent workers would rarely, if ever, qualify for unemployment insurance benefits given the discretion they have to choose whether to work through an intermediary, they would not be covered by the program or be required to contribute taxes to fund that program. However, intermediaries would be permitted to pool independent workers for purposes of purchasing and providing insurance and other benefits at lower cost and higher quality without the risk that their relationship will be transformed into an employment relationship.

Like any compromise choice, a new legal category like the Harris-Krueger proposal for "independent workers" is going to be somewhat unpopular with many parties. Many companies would prefer to treat their gig workers as independent contractors, to whom they have no additional legal responsibility. Some gig workers would prefer to have both their existing freedom of action but also the legal protections of employees. To resolve these issues, we can either go with the full-employment-for-lawyers approach and litigate the issues over and over in every new context in which they arise--an approach that is already underway--or we can settle on a compromise position. I don't have a strong opinion on whether the Harris-Krueger proposal for the legal status of "independent workers" is the right compromise. But it almost certainly beats smothering the gig economy in red tape and legal briefs." (http://conversableeconomist.blogspot.com/2015/12/new-rules-for-workers-in-gig-economy.html)