United States: The Future Of Work: Opportunities And Challenges In The Gig Economy

From online dating apps to online food delivery, ride-share services, and just about every other activity imaginable, digital platforms have revolutionized the way that people work, play, learn, socialize, and purchase and sell goods and services.  One of the most interesting recent developments has been the continual rise and development of the gig economy – that is, workers developing niche areas of specialist expertise, but having careers characterized by a series of interactions with various organizations. This does not mean a person working in multiple jobs over the course of their life; but instead, that they are running their own independent businesses providing services to different companies and customers.

The benefits of the gig economy are not difficult to see.  Businesses can outsource non-core functions to workers who can perform important business tasks on an as-needed basis without the administrative burden of employing full-time employees.  In turn, workers can perform jobs when (and sometimes where) they like with flexibility unknown in most industries until recently. 

Despite these obvious benefits, the gig economy also poses challenges to businesses that choose to outsource functions to "gig" workers that were previously performed by full-time employees.  For example, operational continuity can be difficult to maintain when important functions are outsourced to multiple independent contractors.  Similarly, ensuring consistent customer service can be a challenge when customers interact with different personnel each time they purchase a product or service from a company.

Beyond these operational challenges, the gig economy poses considerable legal risks for businesses, particularly because labor and employment law has been slow to catch up with these developments.  While it would be impossible to list all of the potential risks to businesses in a blog post, the following are some of the most significant risks to businesses:

  • Misclassification of Employees as Independent Contractors—Independent contractors are generally entitled to fewer workplace legal rights than employees.  Accordingly, courts and regulatory agencies have increasingly cracked down on businesses that treat workers as independent contractors when, according to the courts and agencies, the workers should be classified as employees.  While no one single test exists to determine whether a worker is properly classified as a contractor, courts and regulatory agencies (including the Department of Labor and the IRS) generally look at a number of "economic realities" factors.  While many "gig workers" are properly classified as independent contractors under these tests, courts and regulatory agencies have found many such workers to be employees.  Because the potential exposure for misclassification can be significant, business should ensure that they have thoughtfully classified gig workers as employees or independent contractors with the guidance of legal counsel.
  • EEO Training—Most companies have comprehensive policies against discrimination, harassment, and retaliation, and most companies provide routine training to employees on these policies.  Such training is essential for companies to avoid liability for alleged workplace harassment or retaliation.  While most companies provide training on their EEO policies to employees, fewer companies provide such training to short-term contract workers.  As companies outsource more jobs to short-term workers, companies face the risk of increasing legal claims brought by such workers or arising out of the workplace behavior of such workers.  For this reason, employers should consider ways to expand training on EEO policies to include workers they engage on a short-term basis through the gig economy.
  • Performance Management—Given the short-term nature of most work performed in the gig economy, businesses can face considerable challenges managing worker performance.  In a traditional employment relationship, employees have an incentive for maintaining positive performance.  Many businesses evaluate employees' performance on an annual basis and reward employees with increases in compensation for demonstrated good performance over a certain  period of time.  Depending on how the relationship is structured, workers engaged in the gig economy may not have the same incentive.  Therefore, many companies are turning to immediate "on-demand" evaluations assessing each individual project completed by workers engaged through the gig economy.
  • Ensuring Efficiency and Compliance with Policies—Along the same lines, where workers perform work remotely, companies may have less opportunity to ensure that workers are performing efficiently and consistent with company policies.  If workers are paid based on their time spent working, rather than their output, time reporting is rife for abuse.  But the reverse is also true:  if workers are performing tasks remotely with little or no oversight, there is a high risk that workers may perform work off the clock or fail to take mandatory meal or rest breaks.  While such requirements do not apply to true independent contractors, they do apply to employees.  For that reason, if a court or agency determines that gig workers are employees, companies can face considerable exposure for permitting remote workers to work off the clock or miss mandatory meal or rest breaks.
  • Managing Reductions in Force—On a macro scale, the gig economy can be seen as part of a wider trend in which disruptive technologies are transforming the workforce on a scale not seen since the Industrial Revolution.  The challenges posed by these changes have led some commentators to predict a dystopian future in which disruptive technologies will displace workers on a massive scale, resulting in widespread unemployment and implosion of the consumer economy.  Even if one doesn't share such a pessimistic view, there can be no doubt that the gig economy is transforming (or even eliminating) some functions that were previously performed by full-time employees.  As businesses weigh the costs and benefits of outsourcing some functions to gig workers, they should keep in mind that such a move may result in one or more reductions in force.  Such RIFs must be properly managed to avoid exposure under numerous laws intended to protect laid-off workers (including, among other laws, the Older Workers Benefits Protection Act and the WARN Act).
  • Protecting Confidential Information and Trade Secrets—The gig economy can also pose new risks to businesses in protecting their trade secrets, confidential information, and other soft intellectual property assets  (such as customer lists, financial data, business plans, etc.)  In a traditional employment relationship, prudent employers take practical steps to limit employees' ability to abscond with the information to which they are entrusted to perform their job.  Such steps can include requiring employees to work only on company-issued computers and other devices and ensuring that such devices are returned (and, if appropriate, forensically analyzed) at the end of the employment relationship.  In jurisdictions where non-compete and non-solicitation covenants are permitted, employers might also require employees to execute restrictive covenant agreements in connection with their employment.  While some of these tools are available to companies operating in the gig economy, practical challenges may limit their effectiveness.  Given the short duration and non-exclusivity of relationships with gig workers, non-compete/non-solicitation covenants may be impractical or unenforceable; and since many gig workers perform work remotely on their own personal devices, companies may have less practical ability to protect the confidential information that they entrust to gig workers in connection with their work assignments.

The bottom line—the development of the gig economy poses great opportunities but also poses considerable legal and business risks that companies must manage. Sophisticated businesses with an eye on long-term success should consider these issues now to make sure they are ahead of the gig movement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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