The Rise of the Gig Economy: Benefits, Risks, & Traps in the Evolving Workplace Gus Sandstrom, Blank Rome LLP Anthony A. Mingione, Blank Rome LLP Stephanie Gantman Kaplan, Blank Rome LLP Today s Roadmap The Evolving Workplace Risks with a Growing Contract Workforce Misclassification Joint Employment Best Practices for Risk Avoidance and Protection 86 Page 41
What is the Gig Economy? There is no official definition of the gig economy or, for that matter, a gig (U.S. Department of Labor) An economic sector consisting of parttime, temporary, and freelance jobs (Random House Dictionary) 87 This is not the Gig Economy 88 6/13/2017 Annual Labor & Employment Law Briefing: Page 42
This is the Gig Economy... 89 This is also the Gig Economy 90 Page 43
The Evolving Workplace 91 Who works in the Gig Economy? Any worker who is not classified as an employee Includes traditional non-employee workers Contractors Consultants Temp Agency Workers But also includes not-so-traditional non-employee workers Outsourcing Insourcing Project Workers Includes both workers who want to be in the gig economy and those who would prefer traditional employment 92 Page 44
The Gig Economy is Growing... Quickly Contract workers are the fastest-growing segment of the U.S. and global workforce Growing at 3-to-4 times the rate of the traditional employee workforce Contract workers now account for ~22% of the workforce at the 200 largest U.S. companies Expected to make up 40% of the U.S. workforce and 25% of the global workforce by 2020 93 Gig Economy Offers Benefits for Companies Flexibility Adjust workforce size to changing needs Control workforce costs Agility Quickly respond to competitive challenges On-demand access to required skills Innovation Not tied to how things have been done New knowledge and fresh ideas 94 Page 45
(Most) Workers Like the Gig Economy 70-75% of independent workers are in the gig economy as a matter of personal choice, not out of necessity But... 14% of independent workers want traditional employment 1 in 6 people who are currently traditional employees would prefer to work in the gig economy >75% of traditional employees would consider gig work Independent workers have higher job satisfaction Not just millennials and other stereotypical gig workers 95 So... What is the Problem? If the gig economy is good for employers and most workers like it, why are we even discussing it today? Simple answer: The law still favors traditional employment Two major risks with using gig workers: Misclassification Joint Employment But there is good news: the law is evolving (slowly) 96 Page 46
Remember this Slide? 97 Government Scrutiny of Classification is Increasing Federal and state government enforcement focus on misclassification of employees as contract workers DOL estimates that 30% of businesses misclassify employees IRS estimates $3.5B in annual lost tax revenue due to contingent worker misclassification DOL misclassification initiative with state agencies In 2014, federal government provided $10.2M to finance state agency investigations of misclassification claims In 2014, New York Labor Department conducted 12,000 contract worker audits and assessed $40M+ in penalties August 2016 Memorandum of Cooperation with Pennsylvania DLI 98 Page 47
... As is Government Regulation Since 2007, 26 states have enacted legislation addressing employee misclassification These state laws create significant civil and criminal penalties for employers that misclassify employees as contract workers California Independent Contractor Law imposes fines of up to $25,000 for each willfully misclassified employee Scarlet Letter : Employers who violate law are also required to publish a prominent notice on their public website acknowledging serious violation of the law 99 Misclassification: Contractor or Employee? DOL, IRS, and most courts use a complex economic reality balancing test to determine whether a worker is a contractor or an employee Fact-specific analysis that does not have clear lines Who has the right to control the contingent worker? Is the work an integral part of the company s business? Does the work require specialized skills? How long is the relationship between the worker and the company? In 2015, DOL issued new guidance that test should be applied with view that most workers are employees 100 Page 48
Consequences of Misclassification Harassment and discrimination claims Unpaid wages, overtime, and business expenses Payroll taxes Affirmative Care Act Pay or Play Penalties Workers Compensation Unemployment insurance FMLA and paid sick leave Union organizing and collective bargaining And more... 101 The Joint Employment Trap Joint employment occurs when two or more entities share significant control over a traditional employer-employee relationship Most common when contract workers work on-site and are integrated with traditional employees May be a joint employer even though a contract worker is properly classified as an employee of an agency or contract services organization 102 Page 49
The Growing Risk of Joint Employment The traditional test: actual control Who has actual authority to hire and fire? Who has actual authority to set work rules, assign work, and establish conditions of employment? Who is actually involved in day-to-day supervision? Who actually maintains employment records (i.e. payroll, insurance, taxes)? Joint employment requires two or more entities to share actual control over a contract worker But, the rules are changing... 103 The Browning-Ferris Decision and its Progeny Adopted a much broader right to control standard for joint employment Actual control standard is without foundation Reversed 30 years of NLRB precedent D.C. Circuit appeal argued March 9, 2017 Miller & Anderson July 2016 decision allows mixed unit organizing Joint employees may be organized in same bargaining unit as direct employees Can be done without joint employer consent California Labor Code 2810.3 joint liability for wage claims against agencies that supply contract workers 104 Page 50
Consequences of Joint Employment Joint liability for wage claims Joint liability for harassment and discrimination claims Joint liability for Workers Compensation Joint liability Unemployment insurance Affirmative Care Act Pay or Play Penalties FMLA and paid sick leave Union organizing and collective bargaining And more... 105 6/13/2017 Annual Labor & Employment Law Briefing: Light at the End of the Tunnel? Now some good news: the law may be (slowly) evolving New Administration = New Priorities June 7, 2017 DOL immediate withdrawal of recent FLSA guidance on misclassification and joint employment AI 2016-1 Expansive definition of joint employment AI 2015-1 Narrowed definition of independent contractor Arizona Declaration of Independent Business Status Law Companies may obtain declarations from non-employee workers that create a rebuttable presumption of independent contractor status But, does not affect test under federal law 106 Page 51
What Does this Mean? Benefits of a Flexible Workforce Misclassification & Joint Employment Costs 107 Best Practices for Risk Avoidance Use the right partners Have clear policies and agreements Classify and monitor compliance Identify and fix mistakes 108 Page 52
Questions? 109 6/13/2017 Annual Labor & Employment Law Briefing: Page 53