As litigation over worker misclassification lawsuits continues in various U. If such a third category were to exist, proponents argue that the dilemmas surrounding proper worker classification would conveniently disappear. Proponents claim that the third category would have advantages for gig workers as well, who would at least receive some portion of the benefits that accrue to employees. These proposals all seem to be focused on the gig economy and creating a special carve out. Proponents cite innovation and the novelty of these forms of work and organization as a reason for special treatment.
The argument is that innovative business models cannot survive if overly regulated. Intuitively appealing, a third category would resolve many of the ongoing disputes over misclassification plaguing the on-demand sector. For example, a news story in the Wall Street Journal discussed the advantages of creating a new third category. Likewise, in a series of blog posts debating the merits of creating a third category, Professor Benjamin Sachs has approached the concept with some skepticism.
Recently, two in-depth studies called for the creation of a third category.
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The first was a report sponsored by the Hamilton Project, a subsidiary of the Brookings Institute. In terms of labor rights, Stemler advocates for creating a hybrid category between employee and independent contractor. As she puts it,. Instead of classifying Uber drivers and other supply-side users in the sharing economy as either employees or independent contractors, regulators should create a new classification. This new classification would enable regulators to think differently about how to fill regulatory gaps.
While a footnote references the Canadian experience with dependent contractors, it is only a passing reference. The article does not devote any background or in-depth discussion to the historical or international origins of the category. On the political front, Senator Mark Warren of Virginia has recently begun discussing the need for legislation to address some of the issues surrounding gig-work.
As policymakers, we should begin discussing whether our 20th-century definitions work in a 21st-century economy.
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Likewise, these calls have been centered almost wholly on the United States, where many popular crowdwork services were created. Granted, these legal reform efforts pre-dated the platform economy, but these approaches arose in response to a perceived lack of coverage by the binary switch of employee status.
In this Part, we compare the experiences of Canada, Italy, and Spain, respectively. Our goal is to learn from context and experience, capitalizing on those elements of the third category that were successful and avoiding the aspects of those systems that worked poorly. We begin with the Canadian experience.
Professor Arthurs, one of the leading academics of Canadian labor law, wrote about the problem of misclassification in a now-classic law review article. Indeed, he claimed to have come across the idea of another category while studying Swedish labor law. As such, Arthurs argued that the law did these small business people an injustice in ruling them outside of the bounds of the traditional labor relationship.
If devising a new application of the third category in Canada and highlighting the struggle of small tradespeople was all Professor Arthurs had done, that still would have been a worthwhile effort. But the influence of his article spread far beyond academic circles. As the court in Fownes Construction Co. The gig economy in Canada has yet to achieve the same market saturation as it has in the United States, and, as a consequence, there has been little legal adjudication as of the date of this writing.
We might have expected Uber, as one of the more dominant gig economy companies, to have asserted itself as aggressively in Canada as it has in many U. But Uber is largely an urban phenomenon, and its growth in the larger Canadian cities seems to have been stymied by wrangling with municipal governments in Toronto, Calgary, and Edmonton over insurance and driver licensure requirements.
The labor issues around platform work have yet to be heard by a Canadian court or adjudicative body. As such, predictions are inherently uncertain. Analogous cases involving drivers of taxicabs, limousines, and cars for hire have largely resulted in findings of employee status. For example, drivers working on a part-time basis were held to be employees for purposes of the Canadian collective bargaining legislation and, as such, enjoyed the protective right to organize.
The earlier tests had been too rigid and made it difficult for small business workers to claim benefits and protections. The category was enacted to help those workers who were essentially working on their own in a position of economic dependency, thus requiring labor protections. The expansive and inclusive protection of Canadian labor law may help legislators, law professors, and commentators as they evaluate current proposals for a third category in the on-demand economy in the United States.
Other scholars have since grappled with this concept. Although the bedrock of eterodirezione came from Roman law—as a hierarchical description of the relationship  —the label was unable to describe comprehensively the complexity of the employee category and the idea of worker dignity. Scholars realized that eterodirezione was an incomplete concept and thus developed other theories to explain the employment relationship.
Besides the eterodirezione or managerial power factor,  the case law developed a wide spectrum of subsidiary factors that could indicate the presence of an employment relationship.
Turning to independent contractors, surprisingly, a definition does not exist in Italian law. The self-employed worker contract is not a part of the chapter of the Civil Code devoted to labor. However, the concrete content of the job performance could be identical between an employee and an independent contractor. A leading case regarding misclassification by a courier service highlights these principles. The law did not, however, extend all the rights of employees to quasi-subordinate workers. On the one hand, the protections included access to labor courts.
Hiring a quasi-subordinate worker was much cheaper than hiring an employee because employees were entitled to substantive labor rights, annual leave, sick leave, maternity leave, other employee benefits, overtime, and job security against unfair dismissal. The third category sparked undesirable effects within its first decade.
Businesses increasingly began to hire workers under the lavoratore parasubordinato category.source url
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Consequently, the lavoratore parasubordinato category was used to hide bona fide employment relationships in order to reduce costs and evade the protections workers were entitled to under article of the Civil Code. Over time, the result was employer arbitrage between the categories. Towards the end of the last century, the number of quasi-subordinate workers increased dramatically. In , the legislature amended the content of the quasi-subordinate category with Legislative Decree No. However, the lavoro a progetto reduced the role of the continuity and coordination elements of the original definition by discouraging long-term employment and also limiting the managerial influence over the quasi-subordinate worker.
In , the Italian legislature passed Law No. Not only did the cost of using workers in that category increase, the reform also created burdensome regulations and bureaucracy. The Jobs Act is still new and has not been fully implemented, so we will need to wait to determine what the impact will be for the classification question. For the past two decades, the story of the quasi-subordinate category in Italy has been one of struggle, second-guessing, and revision.
After its promulgation, the third category became a discounted alternative to a standard employment contract. Introducing a third category initially resulted in arbitrage of the classifications and an increase in precarious and non-standard work. That remained the case, up until , in spite of the gradual extension of protective measures through the reforms. Businesses used the quasi-subordinate category as a way to hide what should have been standard employees into a discounted status with fewer rights and benefits.
While the goal of the original legislation establishing and supporting the quasi-subordinate category was to extend labor protections and increase flexibility, those goals were never realized. Instead, in , the Jobs Act changed course by implementing a strong presumption of employee status. In light of the serious misuses of the quasi-subordinate category, the category itself has now been minimized and discouraged.
Instead, the changes created even more uncertainty for both businesses and workers. Turning to the gig economy itself, to date Italy has largely considered ridesharing services under the auspices of fair competition law. In , the Tribunale di Milano banned Uber from operating a service that resembled services provided by licensed and regulated taxis. At the EU level, there is a movement to harmonize legislation across Europe to become more attractive to digital platforms and new economy companies.
As of the date of this Article, policymakers are just beginning to study and debate various reforms and proposals. The rest of this section will describe the Spanish system and the reforms in more depth. The traditional binary classification between employees and independent contractors in Spain depended upon a determination of self-organization as an exercise of contractual autonomy. Rather, a judicial assessment of the substance of the relationship e. More recently, Spanish case law has paid more attention to the presence of a hierarchy and the organizational integration of the employee—i.
Until a few years ago, labor courts interpreted the definition of employee expansively, using a default assumption of an employment relationship. According to the government-funded research center EurWORK, in Spain and many other European countries the independent contractor category was used to hide bona fide employment relationships. Self-employed workers were further desirable because businesses wanted to mobilize and de-mobilize their workforces rapidly to ensure a certain degree of flexibility and fluidity.
These trends caused concern among Spanish labor groups and the government. The legislature, in creating the TRADE category, was trying to ensure increased protections for a subset of independent contractors. TRADE workers enjoy some legal protections, such as minimum wage, annual leave, entitlements in case of wrongful termination, leave for family or health reasons, and collective bargaining. While the employee does not own the means of production and the productive tools and infrastructure, the TRADE owns his or her tools and is equipped with all the hallmarks of genuine self-employment.
Interestingly, the category was not a reaction to disguised employment relationships but a way to offer a special legal arrangement for authentic self-employed workers. The crucial component for determining whether a worker is a TRADE rests on a threshold of economic dependency measured, by law, at seventy-five percent.
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A debate developed among scholars and judges about the legal effect of not following these procedural elements. In , a new reform granted the TRADE worker a number of additional safeguards, such as subcontracting for an annual period as a worker in the case of maternity or paternity leave, among other situations.
Meanwhile, Spanish labor unions complained that the TRADE category was inappropriately covering what should be traditional employment relationships. In terms of developments around the gig economy in Spain, a Barcelona judge has referred several questions about the on-demand economy to the European Court of Justice. The European Court of Justice is expected to decide whether Uber is a taxi service or a digital service provider. Having examined in detail the ways that the Canadian, Italian, and Spanish legal systems have established frameworks for dealing with the third category, we can develop some guidelines from these experiences.
Some of these lessons are directly applicable to the recent proposals for creating a third category for gig economy platform workers. We have seen three different histories and three different outcomes, showing us mistakes as well as successes. Spain provided an example of a legal system that adopted a third category only to see it limited to a small percentage of self-employed workers.
The law assumes that TRADE workers are predominantly working for one business; this assumption could be a problem for platform workers who are working for multiple platforms.
The burdensome requirements to be met and the use of a strict economic threshold are the primary reasons that the law has seen only very limited use. Businesses used the Italian third category as a discounted alternative to what should have been a standard employment relationship. In fact, companies used the presence of the third category of parasubordinato to evade regulations applicable to employees, such as social security contributions.
In essence, the quasi-subordinate category created a loophole that actually resulted in less protection for workers as an unintended consequence. Through the years, lawmakers attempted to adjust the category in order to provide appropriate coverage. Each successive action by the Italian legislature was an emergency intervention as a reaction to the misuse of the third category. The end result was confusion. Since , the third category is extremely limited and workers are presumed to be employees. There is a difference in the genesis, the content, and the effects of the intermediate category between Spain and Italy.
Protections reserved to TRADE are much stronger than the ones reserved to lavoratori parasubordinati. However, there are similarities in that the intermediate category was misused in both Spain and Italy. In Italy, the intermediate category was used to disguise bona fide employment relationships.
In Spain, arbitrage of the categories shifted what should have been TRADE workers into independent contractor status because of the high level of legal protection and burdensome procedures associated with the TRADE category. As a result, there was increased coverage and a provision for a safe harbor for workers in need of protections based on economic dependency. The third category seems to have worked well in terms of expanding the coverage of the laws to an increasing number of workers.
The implementations of the hybrid category in Canada, Italy, and Spain long predated the development of platform crowdwork. Those workers included delivery drivers, errand runners, odd job workers, and couriers, with several providing services that, in many respects, resemble the services provided by modern-day gig economy companies, such as TaskRabbit, Postmates, Grubhub, and Uber. At the outset, we should note that the debate over misclassification can be interpreted two different ways.
One way to view the issue is to acknowledge that there has been legitimate confusion about forms of gig work that do not fit easily into the binary distinctions currently recognized under U. After all, gig-workers have some characteristics that are common to independent contractors and yet others that are reminiscent of employees. In fact, the question of proper classification may be confusing even without the addition of technology; work can be structured in varying ways.
The problem, under this view, lies with a legal test that is malleable, fact-intensive, and difficult to apply. The other way to consider the misclassification issue is to acknowledge that there has long been arbitrage of the law, meaning illegitimate practices that lead to misclassification of what truly are employment relationships.
These practices hide employment relationships under the guise of false or bogus contractor situations. Note that these two views of the misclassification problem are not mutually exclusive. It is possible to have a poorly constructed multi-factorial test and, at the same time, to have businesses arbitraging the test to take advantage of the savings from classifying a worker as an independent contractor.
Any legislative or judicial intervention on this issue must take account of both views. One potential solution to the first problem might be establishing a third category to alleviate confusion over how to apply the test to gig workers. However, if the consequences of establishing such a third category would be arbitrage and result in downgrading employees to intermediate status, that would do nothing to eliminate the problem of bogus contractor status.
In fact, adding a third category would only increase the amount of arbitrage. Three categories create more room for mischief than two, and we can see from the Italian case that such arbitrage became widespread in response to the adoption of the quasi-subordinate workers. As we saw from the Italian and Spanish cases, the kinds of rights and responsibilities that go along with the third category are just as important, if not more so, than the creation of the category itself.
The rights available could be very few, mirroring independent contractor status, or, as in Spain, the rights could closely resemble those of employees. Either way, there are serious risks to face. Construct the third category with too few rights, as in the Italian case, and it will run the risk of arbitrage, with businesses forcing genuine employees into the third category to try to lower costs.
But make the third category either too generous or too burdensome to opt into, as has been the case with the TRADE in Spain, and very few will bother using the category. Continuing with this line of inquiry, the process of trying to work backwards to determine which rights these gig workers would have available and which they would not be entitled to is far more complicated than it appears. What rights and obligations would be left out of the hybrid category? As an example of engaging with this line of analysis, consider the Harris and Krueger proposal in which those workers falling into the independent worker category would not be guaranteed minimum wage.
In fact, the platforms that enable matching workers with consumers who need their services also allow for the gathering of data about the work and the workers on a completely unprecedented scale. Indeed, most ridesharing apps feature real-time GPS tracking and updated ratings from customers, but those are just the features that are visible to users. Both workers and customers generate additional data that platform companies collect and analyze, much of which is used to improve future performance.
Indeed, many platforms can measure precisely how much time and effort a worker spends on a task, down to the minutes spent waiting in traffic in the case of a ridesharing app or the number of keystrokes in the case of crowdwork. In fact, one of the major concerns with platform work is not difficulty tracing time, work, and hours, as Harris and Krueger posit, but rather the constant and pervasive surveillance through GPS, phone, and app data. The idea of exempting gig workers from minimum wage requirements seems poorly thought-out. This is a rhetorical question, of course; but, as one of the authors has previously written, exempting certain work from minimum wage would only exacerbate the problem of exploitation of workers in the gig economy.
If retracting the minimum wage for the gig economy seems problematic, what about excluding other rights from the gig worker hybrid category? Would we choose to exempt platforms from generally applicable laws that prohibit employers from making employment decisions based on prohibited factors such as race, sex, age, and disability? But that too may be a flawed assumption as even a screen name or a picture of dark skin—or even an avatar with darker skin—might result in employment discrimination.
In reality, provision of services through platforms has the potential to be biased based on customer prejudice. Researchers have begun to document the biases embedded in the review and rating systems that many platforms use. What about excluding other protections from the category? Should gig workers have the ability to report crimes that they notice on the job to law enforcement without retaliation? Determining which rights to eliminate is an impossible dilemma, especially when those granted to employees in the United States are meager compared to those guaranteed to workers in many industrialized nations.
Cutting protections only for the sake of creating a discounted category seems not only artificial, but bears no rational relationship to the realities of gig work or the technology that is being used on platforms themselves. Apart from difficulties in defining the third category and the protections or exclusions it would contain, we also feel that it is important to note that, solely on a practical level, it might be difficult to create a third category exclusively for gig workers in the United States. Proponents have made it seem like creating the third category will be natural or easy.
Additionally, determining where a worker would fit within the three categories would have its own doctrinal elements and the potential for misclassification, arbitrage, and confusion. It is possible that judges and administrative bodies could, on their own authority, shift their interpretation of the statutes so as to carve out or constitute an intermediate category.
But this is unlikely, given the way that the statutes are written. Adding a third classification when the statutes only call for two categories would constitute a vast feat of judicial activism. It would also be seen as the kind of process that would likely require political debate and discussion associated more with legislation than with judicial decision making.
In light of the political decisions and consequences that surround the issue of the third category, judges would likely demur from creating a new category without guidance from the legislature. The ridesharing cases provide an illustrative example. In Cotter v. Creating a third category in the United States for gig workers would most likely require legislative action.
It is true that legislation has lagged woefully behind technological developments. There are also changes that would need to happen in state legislatures, as many states have statutes that similarly only apply to employees. Ultimately, the possibility of political change is uncertain, and the intervention is far from a panacea. One way to govern the difficult classification issues that have arisen is to make changes regarding the default presumptions around employee and independent contractor status. Because it will be difficult to implement a third category and there is, as of yet, little or no consensus on how to constitute the category or how it might meet the needs of platforms and gig workers, a third category may not be feasible.
To address current misclassification issues, one solution might be to change the default presumptions regarding the two categories that already exist. Currently, many platform companies operate in an environment where the triangular relationship between the platform, customer, and worker obscures the role of the platform as employer. It is true that misclassification can result in costly legal challenges and in some instances lead to penalties, but many companies are willing to take that risk.
In other words, companies feel it is better to risk asking for forgiveness rather than first getting permission. As the jobs involved often encompass low-paid casual work, the effort may not be worthwhile. Instead of the current system in which the firm chooses how to classify workers and then later justifies its position in litigation, we should consider working with a different presumption.
Assume that above a minimum threshold of hours worked, the default classification would be an employment relationship. That would be the case even if the work was on a platform or completely took place in cyberspace. It would be an employment relationship even if the arrangement were flexible, even if the worker provided his or her own tools of the trade, and even if it were considered part-time employment.
There would then be opt-outs for those who are truly independent businesses and genuinely self-employed. However, such an opt-out could not be a condition of work on a platform. Currently, such coerced choice is stuck into online EULAs, which are little more than adhesion contracts. There are some on-demand economy companies that have already, on their own initiative, engaged in shifting their workers to be employee status. HomeHero is a mobile platform that provides home health care and elder care.
It recently shifted from an independent contractor to an employee based model. Other platform companies have classified their workers as employees from their inception. Some platform companies have provided benefits, including health insurance. These experiences demonstrate that the platform economy can still exist when workers are provided with the rights afforded to employees. The concerns that burdensome regulations will drive platforms out of business seem to be overblown, much like earlier arguments that regulation—of minimum wage, maximum hours, child labor, and safety—would end various phases or components of the industrial revolution.
To address current misclassification issues, we come back to the thought that perhaps the best answer is not to create a third category with an as yet to be determined set of rights but instead to change the default presumptions vis-a-vis the two pre-existing categories. But businesses need certainty, and the safe harbor that we discuss below would surely be helpful when navigating the uncertain question of classification. Many supporters and lobbyists for Uber or other platform-based companies have suggested that these businesses deserve room to maneuver with special rules that amount to a moratorium on existing labor regulations because they are new, interesting, and will create more jobs in the future.
What would be the justification for granting platform economy companies such an exemption? Is there a reason that gig businesses deserve special treatment even better than that of non-profits, which have to pay minimum wage and follow the other aspects of the labor and employment laws?
The premise of the argument is difficult to accept as the platform economy is largely for-profit and comprised of workers who are plying a trade that more or less mimics other work done as a full-time profession for remuneration. Some of this confusion and the calls for exemptions certainly come from the obfuscated language that platform companies use and the rhetoric around their origins. Rather than ownership, participants in the sharing economy were interested in gaining access to resources that would be held in common as shared resources.
For example, early commercials for Lyft in the Bay Area showed neighbors assisting their friends and neighbors without cars, making it more feasible to exist without a car in an area that was already jammed with traffic. For example, on the Threadless platform, designers can work on creating new styles for T-shirts. The designer then profits by receiving a portion of the shirt sales as compensation for their work.
To the extent that the sharing economy is about green choices and involves shared ownership and resources, there should be a safe harbor created if the work looks more like volunteerism undertaken for altruistic reasons or community-minded motivations. There are also some instances where the provision of a service is de minimis and thus does not merit employee status.
For example, if a businessperson used a ridesharing service once a week to pick up her neighbor on her way into work, that businessperson should not considered be an employee of Lyft. Neither are those who use Uber pool or a similar mobile app service to set up and participate in a carpool to save fuel, parking, and expenses. Nor are we suggesting that a person who signs up to do a fifteen-minute task on TaskRabbit once a month is an employee of the platform.
These activities seem to be de minimis or one-off, casual transactions that should not amount to an employment relationship. Trying to sweep those extremely casual forms of work into burdensome legalities would serve no one. Rather, we are more concerned with platforms that seem to be competing with, or in some instances replacing, full-time paid employment with on-demand work.
The concept of a threshold percentage of income or time to determine the safe harbor seems a sensible one. At this point we are in no place to determine exactly where to set such a threshold, but it would serve to separate out an occasional temp or the carpooling Uber driver from those who are working a solid number of hours on the platform.
ATA-UV Chair for Self-Employment