The Evolving Legal Landscape of the Gig Economy

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The gig economy has become part of our daily lives and is made up of short-term contract or freelance workers instead of more traditional corporate employees. The gig economy has been around for over 100 years but has expanded significantly with the proliferation of technology across various sectors, especially in recent years. Today, household names like Uber, Airbnb, TaskRabbit, and other tech companies are major players in the gig economy. But the gig economy as we know it is changing. Here, we will discuss the evolving legal landscape of gig workers’ rights and what that will mean for the future of the gig economy.

Traditional & Current Gig Workers’ Rights

Gig workers traditionally have been classified as independent contractors rather than employees. Why is this classification important? Laws like the Fair Labor Standards Act (FLSA), the National Labor Relations Act (NLRA), and the Family Medical Leave Act (FMLA) provide benefits to employees, not independent contractors. An employer must withhold and submit taxes on wages paid to employees but not on independent contractor compensation, and an employer pays insurance premiums (health benefits and workers’ compensation) for employees, but again not for independent contractors.  

In recent years, gig workers have contested their independent contractor classification with some success. Courts have been faced with varying fact-driven tests to apply in those cases, causing inconsistent results across the country about whether gig workers are employees or independent contractors. However, in 2019, California passed a law (“AB5”) creating an assumption that app-based workers (those working for Uber, Lyft, TaskRabbit, etc.) are employees unless proven otherwise. That law went into effect on January 1, 2020, and is a landmark law providing significant protection to gig workers by presupposing that they are employees.

AB5 is causing companies to reassess their business models, with some even considering shuttering operations in California. This is evident for Uber and Lyft, which recently suffered an unfavorable verdict in California Superior Court. In California v. Uber Technologies Inc. and Lyft Inc., the Court held that Uber and Lyft business operations directly violated AB5, the California state law, by utilizing gig workers as drivers and ordered them to convert their California drivers from independent contractors to employees with attendant benefits. The ruling initially caused Lyft to suspend operations in California, although it has since resumed business there while that ruling is appealed.

The Future of the Gig Economy

Many other U.S. states are contemplating the adoption of laws similar to AB5. The U.S. House of Representatives even passed a law that would apply an AB5-like standard to federal labor law. This nationwide shift in gig workers’ rights will significantly affect various aspects of the gig economy, including pricing. Under the California ruling, consumers would have to pay higher rates to cover the costs of drivers’ employee benefits, as employers will be doing everything they can to pass those costs on to consumers.

In addition to the cost of gig economy services changing, daily work schedules for gig economy workers may change. Gig workers often choose those jobs for flexible work hours and as a secondary source of income. Advocates for increased gig worker protections as employees insist that such flexibility does not have to end. Ultimately, though, that is a business decision for each employer/company to make. When reassessing their business models, they must choose whether to grant these “employees” continued flexibility or whether they now will mandate more stringent schedules. 

Looking Forward

There is no ignoring this major shift in the gig economy as workers gain rights but now wait for employers to adjust to the new legal landscape. This is a win for gig workers in the short term.  However, the future remains uncertain and future developments will significantly affect gig workers and employers – as well as consumers of the gig economy – in the coming years, underlining once again the importance both of law- and policy-making in our economy and of staying informed and flexible in changing economic times.  

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Jason L. Ott, Member, and Derrick L. Maultsby, Jr., Consultant, lead the Tech & Data Practice Group in the Pittsburgh office of Jackson Kelly PLLC, a vibrant law firm focused on meeting the needs of its corporate and business clients across industries. Jason and Derrick work closely with tech companies of all sizes and in varying stages of growth and development. Jason and Derrick collaborate with clients across the tech space on legal, compliance, and business advisory matters daily, building lasting relationships with the community, their clients, and corporate partners. Feel free to reach out to them at Jason.Ott@JacksonKelly.com and Derrick.Maultsby@JacksonKelly.com.  

This publication has been prepared for informational purposes only. The provision and receipt of the information in this publication should not be considered legal advice, does not create a lawyer-client relationship (even if contact is made with the author), and should not be acted on without seeking professional counsel who has been informed of specific facts.