Worker (Mis)Classification in the Sharing Economy: Trying to Fit Square Pegs in Round Holes

Abstract

How is it that the world’s largest taxi service claims it is not a transportation company? How can an iconic worldwide package delivery company argue that it is not in the package delivery business? These are just two idiosyncrasies of the modern economy in which microentrepreneurial contractors using their own resources carry out the fundamental operations of enterprises.

Businesses and courts have long struggled trying to determine whether certain workers are employees or independent contractors. Originally, the focus was on whether the employer should be held liable to third parties for injuries arising from the employer’s workers — it controlled the actions of the workers; it should therefore be responsible for those actions. More recently, however, the focus has been on whether the employer should be responsible to the worker for unemployment insurance, workers’ compensation, tax responsibilities and compensation benefits, and other liabilities associated with employees. In this latter analysis, while the focus has been on the economic reality of the employment relationship — i.e., whether the independent contractor is truly economically independent — control is still a critical factor. If the employer controls the worker, how can the worker truly be independent?

Part of the control factor in the economic reality test is the extent to which the worker is dependent upon the employer for his or her livelihood, under the argument that the more dependent the worker is the less independent he or she actually is. With the rise of the “sharing economy” where individuals are connected through online intermediaries with potential customers needing a task performed, a room to rent, or a ride to the airport, the workers are much less dependent on the intermediary employer. As such, the tests used to classify the workers — employees or independent contractors — which still fundamentally focus on control, are failing. There is still some control exercised by the employer, but less worker dependence on that employer. This paper argues that the nature of work exemplified by the sharing economy requires the classification tests adjust to focus not on the dependence of the workers on the employer, but the dependence of the employer on the workers. If the enterprise arranging all of these individualized tasks and services is dependent on the service providers for its existence, then those service providers should be considered employees of the enterprise.

Keywords: employee, independent contractor, misclassification, sharing economy, Uber, TaskRabbit