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Does the U.S. Need New Rules for Workers in the Gig Economy?

APTOPIX Uber ProtestAPTOPIX Uber Protest
Uber drivers and their supporters hold signs during a rally at an Uber office in New York, Monday, Feb. 1, 2016. Some Uber drivers in New York City say they are going on strike to protest the company's decision to cut fares in the city by 15 percent. (AP Photo/Seth Wenig)Photograph by Seth Wenig — AP

Are Uber and Lyft drivers, Thumbtack personal trainers, or Handy house cleaners employees? Or are they independent contractors? That question has given rise to a seemingly endless stream of lawsuits. But so far nothing, including the $12.2 million settlement of Lyft drivers’ case last month, has shed any light on which category workers in the smartphone-enabled gig economy belong to.

There’s a simple reason for that. The federal laws that define who is who have not changed much in 60 years. So they don’t fit the fast-growing population that gets its gigs via an intermediary like Uber. Estimated at about 600,000 right now, these workers’ arrangement with employers is in legal limbo.

“We call them ‘independent workers,’” says Seth Harris, an attorney and former acting labor secretary who teaches employment policy at Cornell’s School of Labor & Industrial Relations. “They occupy a gray area between employees and independent contractors. It’s really a third category.”

In a LinkedIn essay, Harris quoted a judge in one recent case who observed that deciding whether gig workers are employees or contractors is like trying to “fit a square peg into one of two round holes.”

Harris would like to see the law catch up with the times. He and Princeton economics professor Alan Krueger wrote a policy proposal advocating for the creation of a new “independent worker” status that would give Uber drivers and their ilk some — but not all — of the same rights as employees.

Under current law, anyone classified as an employee qualifies for a range of benefits, including the right to organize and bargain collectively, civil rights protection, workers compensation, unemployment insurance coverage, overtime pay, and a minimum wage. Independent contractors, including most freelancers, are typically self-employed, which means they operate as separate businesses.

Gig workers, by contrast, are neither fish nor fowl. On the one hand, like independent contractors, gig workers have a lot of leeway in deciding how many hours they want to work, or whether they’ll work at all on any given day. They can also perform tasks for more than one company—both Uber and Lyft, for instance. But on the other hand, they’re a bit like employees, since companies like Uber control many aspects of their work, including fees or fee caps, and can “fire” them at will.

Under Harris and Krueger’s plan, “independent workers” wouldn’t qualify for hours-based benefits, like overtime pay or the minimum wage, nor would they receive unemployment insurance. They would, however, be covered by civil rights laws prohibiting age, sex, and race discrimination. Independent workers would also be allowed to organize and bargain collectively. And companies like Uber would be obliged to withhold income taxes, and pony up a share of the FICA taxes that fund Social Security and Medicare.

That sounds as if creating a third worker category would help workers more than the companies that hire them, but Harris and Krueger maintain that new rules would benefit both sides, and maybe even stem the rising tide of expensive litigation.

“Right now, there’s too much ambiguity,” says Harris. “Neither side knows what its legal rights are, or even if they have any.”

Clearing up the current fog would mean that “companies could attract more workers, with the same flexibility they have now,” Krueger adds. “The law has to evolve to support innovation.”