Employment Law Ramifications for the Gig Economy

This article is courtesy of Kimberly S. Webster, Esq., whose website  is kswebsterlaw.com

Employment Law Ramifications
In reality, essentially any job can be done by the right freelancer. However, the jobs that are mostly ad hoc, such as tech support and graphic design, and jobs that require a small amount of regular weekly hours, such as social media manager or accountant, are particularly well-suited. You get to only pay for the hours you need, and they get to control their schedule. It’s a Win-Win.

Although the shift in work relationships and the rise of the “gig economy” have been many years in the making, it is important to be aware that laws are still in the process of catching up to this new labor landscape. When American law analyzes the scenario of a person performing work for a company it is generally designed to label the person performing work an “employee” unless there are indications that the person is operating their own bona fide business.

Congress has yet to adequately address the increasingly common scenario where an individual who provides labor or services to a company falls somewhere between an employee and a separate business. In the absence of guiding federal statutes, the federal law governing “freelance,” “independent contractor,” “temp,” and “gig” relationships is largely patchwork of ad hoc case law.

State and local governments have been more proactive in adjusting to this new reality. For example, Massachusetts and New York City have passed legislation designed to help ensure that people who perform work as part of less traditional work relationships have some basic protections that are similar to those that employees enjoy. Although most legislation passed to address these newer work relationships is focused on ensuring payment of money that might otherwise be labeled “wages,” other protections are also emerging. “Gig” economy workers in New York State now enjoy the same protection against sexual harassment as regular employees, for example.

To make the situation even more complicated, a person who is labeled an “employee” for the purpose of one law may not fit into that category for the purpose of another—even for the same company and freelancing project. Wage and hour law, discrimination law, tax law, workers’ compensation law, labor union law, etc. all have distinct definitions of “employer” and “employee.” For example, the IRS uses a 20-factor test to decide whether a person is an employee, and there is a 6-factor test used for the Fair Labor Standards Act (the federal law governing minimum wages and overtime). Being an “employee” for the purpose of one law or gig does not necessarily mean the same label applies in terms of other laws, projects, or work sites.

These are some of the reasons why it is essential for each party to have an informed and shared understanding of what the nature of the relationship will be and what rules will govern it – and that they record that shared understanding in a written agreement. Working out the details of what each side can expect can help prevent expensive problems from arising later. Although contracts cannot completely avoid problems from developing and the contract’s characterization of the relationship is not determinative, contracts are still indispensable tools for helping to avoid disputes (and for serving as evidence in the event one arises).

When considering the start of a non-traditional work relationship it is ideal for each side to have their own attorney draft or review a proposed agreement. Although one side’s attorney can begin a proposed draft agreement from scratch, it can also be useful for each side to review templates of these agreements themselves and adapting one to serve as a draft.

Many free contract templates are available across the internet:
Law Depot
Rocket Lawyer
Society for Human Resource Management

Nontraditional work relationships can be beneficial for everyone involved and can also help businesses remain flexible and competitive in an unpredictable economy. However, in order to reap the benefits of these new work arrangements, it is essential for each side to enter them with an informed understanding of their legal rights and obligations and what they can expect from the relationship.