By Cynthia Gentile, J.D., Faculty Member, Dr. Wallace E. Boston School of Business and
Neil Goldsmith, partner, Lathrop GPM
The growth of the gig economy has upended traditional employment classifications and sown uncertainty regarding labor laws. Companies like Uber and Lyft, which rely on independent contractors, face employment law challenges regarding the status of freelancers and gig workers. In this episode, APU professor Cynthia Gentile talks to attorney Neil Goldsmith about how the gig economy is changing employment law. Learn about the various tests used to determine employment status, laws like Prop 22 that change employment classifications, and other changes affecting the gig economy under the Biden administration.
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Cynthia Gentile: Welcome to the podcast. I’m your host, Cynthia Gentile. Thank you for joining me. Today, I’m excited to dive into the many employment law issues present in the so-called gig economy. We will explore what exactly the gig economy is, why it presents so many unique legal challenges, how COVID 19 has changed the gig worker landscape, and how modern courts and the Biden administration treat these issues.
Today, my guest is attorney Neil Goldsmith, a partner at Lathrop GPM, a full-service law firm with nearly 400 attorneys located in 14 offices from coast to coast. Neil counsels employers on labor relations issues and handles complex employment litigation matters as well as day-to-day advising questions for large and small companies, both locally and nationally.
Neil has unique experience in the gig economy space, serving as a primary labor and employment counsel to a major publicly traded gig economy company through its transition of 10,000 employees to independent contractors across 25 states.
He has successfully defended employers before state and federal trial and appellate courts and the National Labor Relations Board, the Equal Employment Opportunity Commission, the Department of Labor, and numerous state and local agencies. Welcome Neil, thank you so much for taking the time to talk with me today.
Neil Goldsmith: Thank you for having me. And I’m very excited to contribute to the conversation.
Cynthia Gentile: The so-called gig economy presents many opportunities and challenges for employers and employees alike. This relatively new workforce dynamic has dramatically shifted the landscape of employment law. And this shift is in more than name only.
With this, traditional notions of the workplace and of the employer-employee relationship are permanently altered. These jobs are often temporary and flexible with workers categorized as independent contractors and freelancers rather than full-time employees.
So for the purposes of our conversation, let’s start at the very beginning. Neil, can you explain what the gig economy is and who some of the major players are in this space?
Neil Goldsmith: Absolutely. The gig economy is an industry or a labor market that’s generally characterized by the prevalence of short-term contracts, freelance work, indefinite flexible working arrangements. And that also usually come with getting their work through some sort of online or app-based digital platform.
Some of the major players in this space are names that most of us know by now Uber, Lyft, Postmates, Uber Eats, Waitr. There’s a number of companies out there and really the unifying factor in all of them is that you’ve got independent contractors, freelancers signing up with these companies to perform task services for the ultimate end user.
Cynthia Gentile: Okay. So from a high level, what is the difference between an independent contractor and a traditional employee from a legal perspective?
Neil Goldsmith: This is a really important distinction because if you are an employee, you are subject to numerous different legal requirements. Things like workers’ compensation, unemployment, you’re protected from federal and state anti-discrimination laws, retaliation laws, benefits. It impacts so many different things if you are an employee versus if you are an independent contractor.
There’s a number of different tests, which I think we’ll get into a little bit on this discussion. Really what it comes down to is what is the worker doing and how much control is being exerted by the hiring entity or the engaging entity?
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For example, I’m an attorney. I work for a number of private companies. They hire me as an independent contractor. They don’t hire me as an employee. I don’t become an employee of company XYZ just for the purpose of providing legal advice. They hire me for a specific task, for a specific arrangement, sometimes for a specific amount of time. There’s a contract that governs that. I provide the service and they pay me for that service. It’s very much more transactional.
Whereas if you’re an employee, most of us are familiar with employment relationships, have been employees, are employees, and you’re really more beholden to one company, right? You work for that one company, either in a fuller part-time capacity. You’re deeply entrenched in what the company does, the company more or less controls you, gives you the tasks that it asks you to perform. You are evaluated by superiors. You get benefits through the company. You have certain protections through the company. So that’s really the major difference between being an employee and an independent contractor.
Cynthia Gentile: Okay. So what are some of the reasons why a company would want to kind of exist in this gig worker space? What are the benefits to the company, I guess, beyond the obvious not having to provide health care benefits? Am I correct in that?
Neil Goldsmith: There’s a number of, I hate to call them benefits, we’ll call them differences, between hiring employees and hiring independent contractors. Simply put, it’s expensive to have employees. Expensive in terms of hard costs, very easily quantifiable costs like paying payroll taxes for those employees, providing them with healthcare benefits, you’re required to under the ACA, providing them with workers’ compensation coverage. Those are the main kind of hard costs.
But also, you are responsible for complying with a number of laws like wage and hour laws, minimum wage laws, paid-time-off laws are becoming more prevalent and popular across the country. Anti-discrimination laws that I mentioned. You can be sued as an employer of an employee for many different things. And there’s many different pitfalls if an employer is not careful in terms of how they are dealing with their employees. If you’re an independent contractor, none of those things really apply, with some exceptions that we’ll get into.
Cynthia Gentile: So why would an employee or a worker choose this or are there some general themes in why people approach employment and engage employment in these spaces?
Neil Goldsmith: There are certainly some workers, I’d say even many workers, who prefer an independent contractor-type model. And really what it comes down to, I think, for those workers choosing that, is freedom, flexibility, entrepreneurial spirit.
If you are a worker and you don’t want to be told, “Here’s your schedule. You’re working a 9-5. You come in Monday through Friday.” Or maybe you’re in a retail setting, right? You get your schedule a week in advance, you never know how many hours you’re going to work, you never know when they’re going to be.
People are seeking more flexibility and they want to say, “You know what, I want to work when I want to work.” For example, if you’re an employee and your boss comes to you and says, “Hey, I need you to get this done for me by tomorrow.” You don’t say, “Sorry, not interested. I’ll wait for the next project.”
Versus independent contractors they have that flexibility. They can say, “Well, I’m going to accept this task or I’m not going to accept it.” And I think there’s a certain flexibility that is attractive to gig economy workers.
Cynthia Gentile: I can think through many scenarios and ways in which COVID-19 has impacted this gig economy. I think about home-bound consumers utilizing grocery shopping and delivery services, take-out delivery services. Even restaurants that didn’t otherwise provide delivery service on their own using those same delivery services. So in what ways has COVID-19 impacted this gig economy?
Neil Goldsmith: So it’s been really interesting. One of the clients that I work with in this space, they’re in the food-delivery business, and things were booming for them in COVID. And I’d say they were one of the few companies where business was booming. Most of the conversations I was having with my other clients were not the same conversations I was having with this client.
Cynthia Gentile: Your more traditional employment workplace setup?
Neil Goldsmith: Exactly. Right. You’re talking to a manufacturer or a healthcare client or higher education and transportation, what have you. They’re all dealing with tougher issues about, “Okay, well, what do we do with our workforce? Can people work remotely? Is demand all of a sudden dropping off?” I do a lot of work with the restaurant industry. Obviously they’ve been hit very hard from COVID-19.
For the gig economy companies, though, I don’t know about you, Cynthia, but I’ve used DoorDash, Bite Squad, Waitr, Grubhub, all those apps way more in the past 12 months than I probably have in the previous, since whenever they began, just because it’s easy, right?
You’re not going out to a restaurant, but you still want restaurant quality food. And frankly, for me, it’s something to do or it was something to do, right? There was not a whole lot going on and it was nice to kind of change things up that way. And I think a lot of people were thinking and feeling that way.
So for the food delivery and particularly the Instacarts, the Postmates of the worlds too, that was also, I think COVID-19 was a big boom for them because people didn’t want to go to the grocery store anymore, and they learned they didn’t have to.
What was really interesting is you have kind of what I’d call the grandmother market, that folks who are not necessarily technologically inclined, all of a sudden are getting on Instacart and figuring out how to have their groceries delivered to them, which has been an interesting shift in kind of the target demographic I think for a lot of these companies.
Cynthia Gentile: I can attest to that in my own extended family. Lots of questions about completing an Instacart order from their local grocery store, which we were encouraging so that they were not exposing themselves to any added risk, but also providing tech support.
Neil Goldsmith: Yeah. I never thought in a million years my mother would figure this out and she did, and I’m very impressed and proud of her.
Cynthia Gentile: Right? Exactly. So it sounds like COVID-19 was a boon for a lot of these companies. So what challenges did that present? I’m sure there were many.
Neil Goldsmith: Right. It certainly wasn’t a boom for all of them. I know Uber and Lyft, I mean if you look at their year over a year, I think from March 2019 to March 2020, or April 2019 to April 2020, they were down something like 90%, which is not surprising because people aren’t going anywhere, they don’t want to ride in a car with a stranger they don’t know. People were still kind of feeling out what does it mean to live in a pandemic.
As for the challenges, I think honestly it was a lot of the same challenges that all of us were facing and any of the traditional employers was facing was keeping their workers safe. And keeping their customers safe and making sure that whatever the transaction is, is contactless as possible, right? That’s a new buzzword that we didn’t hear much about before March of 2020. And you saw a lot of these gig companies really advertising, promoting the new protocols in place to keep both their drivers, their workers, and their customers safe. And it’s interesting.
On that note, they’re walking a little bit of a delicate line because remember these are independent contractors, they’re not employees, and they don’t want to convert them to employees by all of a sudden providing them with certain supplies.
So one of the tests that courts or agencies will often look at in terms of whether or not an individual should be classified as an independent contractor or employee, is what supplies does the potential employer provide to them, right? Are they providing their own supplies or is the employer providing the supplies?
For example, if you’re in food delivery and your company is providing you with wipes, sanitizers, face masks, face shields, those sorts of things to make your job more safe and to keep your customers safe, does that shift the needle a little bit in terms of making the argument that these workers really aren’t independent contractors, they’re really employees if you’re the one who is providing it to them.
Cynthia Gentile: That’s really interesting. Can you talk a little bit more about some of these tests that are used to determine whether a company has crossed the line from independent contractors to employees, and needing to then provide them with some of the more traditional employee benefits?
Neil Goldsmith: Absolutely. And before I go into this, I just want to state for background purposes, people often talk a lot about mis-classification and independent contractor mis-classification. Mis-classification in and of itself is not unlawful, right? It’s not a legal claim. You can’t sue someone for mis-classification.
However, as we mentioned at the outset, it’s a legal determination that has a ton of significance as to whether or not someone is entitled to various rights and protections as employees. And so when you’re looking at these different tests, these tests will actually vary based on the underlying employment or labor statute that is implicated, and also the jurisdiction that you’re in. They will vary from state to state. They’ll vary from federal circuit to federal circuit.
For example, the test for determining whether a worker is an employee or an independent contractor for purposes of unemployment in Hawaii is going to look a little different than the test for determining whether or not someone is an employee or independent contractor under the age discrimination and employment act in Massachusetts. It’s going to really vary. But, there are some basic hallmarks that are fairly similar across all the different tests.
And one of those is, to what extent are the services being provided an integral part of the employer’s business? I’d say this is one of the most controversial aspects of the test. Some states have it, some states don’t. But I think it’s really, really pivotal for the gig economy because if you think about it, what do people use Uber for?
Cynthia Gentile: That’s exactly what came to my mind as you stated this, that there is nothing more integral to Uber and Lyft than the service being provided of driving.
Neil Goldsmith: Exactly. So if you’re looking at Uber and Lyft, that factor is a real problem for them. Same with the food delivery companies, right? You’re using them, so someone will get your food and deliver it to you.
However, the way that these companies have argued against this factor, weighing in favor of employee status, is they’ve made the argument that, for example, if I’m Uber, they have said, “Look, we’re not a transportation company. We’re not a taxi company. We are a technology company. We are a digital platform company. The service that we provide and what’s integral to our business is creating the platform to connect the drivers to the end user. And we have provided that space for them to take advantage of.”
And if you think about what Uber is into, yes, I think you could make the argument they’re a technology company. I think you could also make the argument that they’re a taxi company, right? I mean, they could probably be many different things. But that’s the way that many of these gig economy companies have framed it that, no, no, no, we’re not, yes, we connect people that provides the service, that’s what you use it for, but that’s really not what we do and that’s not what is at our core business.
Cynthia Gentile: So I’m sure there are other elements and other pieces to the test. But before we go on, curiosity is killing me. That’s been successful thus far in the life of Uber and Lyft?
Neil Goldsmith: It’s been successful to an extent. Again, it depends on whether and to what extent this factor is being measured. And Uber cases, that are before the NLRB, they’re before federal courts, state courts, agencies. The interesting thing about these independent contractor factors in these tests, most of them are kind of a totality of circumstances-type test where, “Hey, here’s all the factors. Take a look at them, and you reviewing court or agency, you kind of get to decide which factors should be given more weight.”
So there really is a lot of latitude that these reviewing agencies and courts have in terms of which factors to rely on. Because maybe they say, “Hey, Uber, we don’t really buy your argument that you’re not a taxi company. However, when looking at these other factors, those weigh more in favor of independent contractor classification so we think that’s valid.” You’ll see decisions going the other way too. There’s not a whole lot of consistency because the factors and the reviewing courts and agencies just vary.
Cynthia Gentile: Thanks for sharing these important perspectives, Neil. So I know there’s been some changes in the Biden administration just in the last week or so, but before we go into that, tell me a little bit more about some other factors that are considered in that totality of the circumstances piece.
Neil Goldsmith: Sure. So another factor, a major factor, is the nature and degree of control by the employer, right? That’s something I mentioned at the outset. That’s what I really think of when I think of, are you an employee or an independent contractor? Who’s really controlling your work, right? Not just what you do, but when you do it, how you do it, why you do it?
If the entity providing the work is controlling those things, then it’s likely you’re going to be an employee. On the other hand, if you, as the independent contractor are really determining that, then you are likely not an employee, right?
I think of that factor as let’s say, again, I’ll use the lawyer example because it’s what I know and it’s what I do, right? Company hires me and says, “Neil, we need you to give a legal opinion on X.” “Great. I’ll handle that for you.”
And then what I do is determine, “Okay, what’s the best way for me to go about researching this opinion, writing this opinion, who should I be consulting with? Should I bring in other associates to work on it with me?” I have the discretion to make those decisions on my own. So the entity who hires me determines the final product, but I get to determine how that product is made.
Cynthia Gentile: This is why it’s important in this construct that the driver for Uber or Lyft has the ability to turn that light on for a couple of hours a day or a couple hours a week and accept only certain rides. Or the DoorDash delivery person accepts only certain deliveries because it seeds the control with the employee.
Neil Goldsmith: Exactly. And where the line gets very blurry here is these companies they say, “Well, you are an independent contractor, and you get to decide when, where, how and why you work.” However, they all have kind of codes of conduct that go along with it or certain drivers standards or worker standards as well. So they say, “Okay, yes, you need to deliver this food, but you need to make sure you’re using a hot bag or you need to make sure it’s delivered on time or within X amount of time of when you get to the restaurant.” There are certain standards that they implement for quality control.
And that’s where a lot of these cases come down on is, okay, those standards that they’re implementing, are they too controlling, and does it look too much like an employment relationship? Or are they not overbearing and simply go to, “Okay, well, this is what the customer needs and you decide how you want to handle it, but you’d have to meet these kinds of very basic safety standards or timeliness standards.” Whatever the case may be.
Cynthia Gentile: Yeah. That makes perfect sense. So are there other factors that are frequently considered?
Neil Goldsmith: Yeah. I’ll just quickly name a few others here. One is the worker’s opportunity for profit and loss. So this goes along with the, “Okay, how much do you want to work?” In your job, unless you’re kind of a heavily compensated on commissions or you have a variable compensation plan, more or less you are paid a salary or you’re paid hourly, and that’s a set wage, and that’s it.
Here, if you’re a freelance worker, you can kind of set what your price is and say, “This is my rate. These are my conditions.” And you do that in terms of figuring out, “Okay, well what are my costs? What does it cost for me to provide the service? What is my time worth? What equipment and things do I need to invest in to provide the service?” And then you set your own opportunity for profit and loss based off of that.
Another aspect too is, similarly, what is the worker’s investment in facilities and equipment? We talked about the supply thing earlier in relation to COVID. Is this the type of work where the hiring entity really has to provide a lot of equipment supplies and training? Or is this the type of work where you’re hiring someone because they already have the requisite equipment, supplies and training?
Cynthia Gentile: So we touched on this a moment ago, but the Biden administration, I think just within the last week or so withdrew a rule that was set to come into play around the independent contractor status. Can you talk a little bit about that?
Neil Goldsmith: Yes. Absolutely. I’d say it’s a major development, but I don’t think it’s all that surprising, given the change in administration. Basically what happened was the Department of Labor under President Trump issued a final regulation that set forth a new mis-classification test to be used by the federal Department of Labor.
Now, the Department of Labor is responsible for enforcing the Fair Labor Standards Act, so federal wage and hour laws. And I would say in terms of mis-classification issues, they’re probably the most important agency to be keeping an eye on, just because they oversee that law, which is often one of the major laws cited when you’re looking at a mis-classification claim. But again, it’s going to depend on various agencies and it’ll vary from agency to agency or jurisdiction to jurisdiction. But the DOL is certainly an important one.
So the DOL issued this final regulation on January 7th, so right before President Trump left office that set forth a five-factor test that was split into two primary factors and three secondary factors that the agency would use to determine whether or not a worker is an independent contractor or an employee.
The two primary factors were the nature and degree of the workers control over the work, and the workers’ opportunity for profit or loss. Then there were three secondary factors, which were the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production.
I don’t really know what that last factor means, and this is what’s really important, which I’ll explain why in a moment. So this five-factor test was set to go into place 60 days after January 7th. That’s the rule once it’s published, it goes into effect 60 days later.
President Biden comes into office in January, late January and says, “Hold on, let’s put a pause on this regulation.” In March, I believe. He said, “Let’s push out the effective date to May 7th.” And then what happened on May 5th, he said, “You know what…” And when I say he, I really mean the Department of Labor, but obviously it’s controlled by President Biden now. He said, “You know what, we’re going to resend that rule and we’re not going to replace it.” Which I thought was an interesting decision.
Again, not terribly surprising because he just took office, they’re still staffing up the Department of Labor. I imagine they’re going to want to take their time to see what kind of rule they might want to issue if they do. But they said, “You know what, we’re going to resend this. This is not going into effect.” Which means that the prior rule or position that the DOL took was in effect, which was actually issued, I believe, back in 2008.
And that’s a seven-factor test with no primary or secondary, kind of this totality of the circumstances approach. And factor number one is the extent to which the services rendered by the worker are an integral part of the employer’s business.
Cynthia Gentile: So do you contend that the previous rule from 2008 or whatever is more friendly towards the employee?
Neil Goldsmith: Yes, it is definitely more worker friendly. Again, not a surprise. Under President Biden, he’s made very clear overtures that he wants to roll back a number of Trump-era regulations, policies, and guidance on employee rights. It’s definitely more worker friendly.
The biggest change was, between the two standards, in my opinion, is, so this is factor one under what I’ll call the Biden standard, and factor five under the Trump standard was whether the work is part of an integrated unit of production? So you’ll see under the Trump standard, they tried to soften this language of whether a worker is an integral part of the employer’s business. And President Biden said, “No, not so fast. That’s still a factor.” When they went back to this test, I’m positive they had the gig economy companies in mind.
Cynthia Gentile: It certainly seems to apply most broadly to those types of work arrangements.
Neil Goldsmith: Absolutely.
Cynthia Gentile: So what should we keep our eye on right now, as far as sort of what are the bigger challenges, bigger opportunities for employers and employees in the gig space?
Neil Goldsmith: So I think the big one here is look at what’s going on in California. So in California, a couple of years ago, they adopted, codified, what’s called the ABC Test. The ABC Test is a very worker friendly test that makes it very difficult for companies to classify workers as independent contractors. And that’s because the A of that ABC test is similar to this factor one regarding, are the services the workers providing integral to part of the employer’s business? There’s a couple of other factors involved as well. They’re generally more worker friendly and hard for companies to meet when compared to usual independent contractor relationships.
So what happened in California was Uber, Lyft, other gig economy companies said, “We can no longer operate in California because of this ABC test that’s been codified.” And so they launched a ballot initiative called Prop 22 back in 2020 to essentially exempt app-based transportation and delivery companies from this ABC test.
And I was a little bit surprised. I don’t know if others found it surprising. But it passed and it passed with a fairly wide margin. I think it was 59% of voters voted for Prop 22. But what Prop 22 did, it didn’t just say, “Okay, you’re exempt.” It created kind of a third classification, if you will, right?
These Uber drivers, they’re not going to be employees, but they’re not really independent contractors, they’re something else. They are independent contractor-plus, if you will. Right? Because some of the things the law did was it guaranteed a minimum wage for drivers, a guaranteed expense reimbursement, health insurance. A lot of the that they would get if they were employees.
It was interesting how Uber, Lyft came out and said, “You know what, we’ll give you some of these benefits, just don’t make us classify them as employees. Because if you do that, we’re going to have to leave the state and we’re not going to be able to operate.”
So what I think might happen, the big question is, okay, is President Biden going to push for something like this ABC test at the federal level, and are the gig economy companies also going to then push for some kind of Prop 22 enactment at the federal level to exempt themselves or to create some sort of third status. That it’s not just employee or independent contractor, there’s a middle ground where employees can get some of the protections that they’re seeking, and companies can still have some of the flexibility they seek in terms of hiring independent contractors.
Cynthia Gentile: That’s a lot to watch and see as it spreads across the country. But it certainly seems like that sort of middle ground option is the most appealing to both employers and the workers.
Neil Goldsmith: Yeah. I think it’s got pros and cons. Of course, nothing is perfect. But I just think the way these gig economy companies operate, the tests we have in place, they weren’t designed to handle this class of worker.
Cynthia Gentile: Right. Neil, thank you so much for taking time to talk with me today and sharing your experiences and your perspectives. I really enjoyed our conversation.
Neil Goldsmith: Absolutely. Again, very happy to be here and hope your listeners learn something interesting.
Cynthia Gentile: I’m sure they did. And thank you to our listeners for joining us. Be well and be safe.
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