Tuesday, July 21, 2015

The Dependent Contractor

It seems that everyone that has an interest in employment law, whether it's workers' compensation, taxation, insurance, or whatever, has consternation about the booming trend of the "shared economy."

Uber, AirBnB, Lyft, and the many other types of services out there that are now obscuring even more the previously foggy line (that we pretend is absolute in definition) of the employee-employer relationship even further.

The government doesn't know what to do with these services; the US Department of Labor recently issued a memorandum declaring that it is the "dependency" of the relationship that determines contractor versus employer status.

Uber got slapped by the California Department of Labor recently for misclassifying those who perform the job of transporting customers.

There are many more examples of lawsuits, claims, complaints, penalties, audits, etc. against all of these new shared economy services ... and they won't stop soon.

That's because we have two classes of employment relationship: contractor and employee.

In the eyes of the law there aren't any others.

The employee is deemed to be dependent on the employer. The contractor is deemed to be independent of the employer. And never shall the two meet, according to the law. Despite the law's tendency towards obfuscation, at least with regards to employment status the law seeks a clear dividing line.

But technology, as The Law has learned many, many times in the past, doesn't care. The value of the shared economy is a trend that cannot be stopped; not by lawsuits, not by audits, not by penalties, not by anything.

Because people want to engage in efficient, profitable relationships regardless of the constrictions mandated by those who dictate social conformance.

Which is why we need to stop thinking that there are only two possible employment relationships.

The times now dictate that we have a third possible employment relationship: the Dependent Contractor as my law school roommate, ET, coined it.

The DC is going to be someone, like an Uber driver, who desires to work on his own, call his own hours, determine when he is on the clock and off, pays his own expenses, uses his own tools - but derives a specified contractual amount for his services and is clearly dependent on that relationship for economic benefit.

The employer might dictate where those services are going to be provided; might dictate exactly HOW those services will be delivered; may even dictate detailed control over dress, customer interaction, etc. In other words, may exert sufficient control over the DC that a court would otherwise find an employee-employer relationship.

But what if we created, legislatively, a sector for the DC to live in? What if there were specified legal requirements for determining DC status, that everyone could understand and follow?

For instance, for workers' compensation, the employer could require the DC to have his own coverage, but since the DC is small, the employer would create a pool into which the DC pays to cover his own on-the-job injuries.

The same could be done for liability insurance or any other sort of risk.

And what about taxes? Who pays for what and when could be ironed out so the government doesn't lose out on the deal.

One of the big issues with the DC is that there aren't any rules yet. Everyone is winging it. And the problem with that is that the employer in such relationships has the upper hand because the employer dictates the terms of the contractual relationship (which is why they get into trouble in the first place with those who abhor intrusion into the traditional relationship).

It seems to me that the shared economy will only get bigger, and at a much faster pace, than we can anticipate - that's the march of the Information Revolution that we are just at the beginning of. We may as well be prepared for it legally.

This has been done before, by the way, for all you naysayers: why do you think Limited Liability Companies were created? Because traditional corporate structure wasn't sufficient to enable evolved business relationships - bottom line.

If Silicone Valley wants to expedite the shared economy then its lobbyists need to get to work drafting and getting sponsors for legislation that enables the Dependent Contractor. The insurance community will love it - another product (or suite or products) to sell. The formerly un/under-employed will love it because they'll have another way to pay the gas bill at the end of the month. Employers will love it because there will be some certainty in their future business lives. And consumers make out the best of all of them because these efficiencies of scale mean better value.

So, for all of you who are having a tough time dealing with whether or not an Uber driver should be covered by work comp, etc., quit your whining and do something about it - get laws passed that create the Dependent Contractor status and let's move on with this revolution, because the revolution isn't going to wait for the law.

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