Employment standards must adapt to new types of employment from companies such as Uber and Airbnb
Over the last decade, the number of companies that comprise what is colloquially called the “gig economy” has grown tremendously. The gig economy is characterized by businesses that enter into short-term contracts with workers who are paid for “gigs” they perform. Uber, Airbnb, and Grubhub are each prominent examples of businesses that fall under this label and have enjoyed great success. But where do these workers and companies fall under employment standards legislation?
The rapid expansion of the gig economy is not surprising, given the numerous benefits it provides. Effectively, anyone with a smartphone and an Internet connection can find a job or develop a business.
However, the gig economy also has certain disadvantages that pose complex questions for lawmakers. Chief among these concerns is the fact that a majority of workers in the gig economy are classified as independent contractors, and thereby left without employment benefits and protections.
In order to enjoy the benefits of the gig economy while addressing its problems, legislators will need to rethink the legal framework that applies to its workers. However, this will also be an exceptionally challenging task.
The case for regulation
There are two ongoing debates regarding the legal classification of workers in the gig economy.
The first is being addressed in courtrooms throughout Canada, the United States, the UK and elsewhere. It concerns whether workers in the gig economy are being properly classified as independent contractors under current legal regimes.
The second (and the more interesting one) is being addressed in the public sphere. It concerns whether workers in the gig economy should be classified as independent contractors notwithstanding the current legal frameworks for distinguishing employees from independent contractors.
The evidence suggests that they should not.
The gravest concerns about the rise of the gig economy are a function of simple economics. A June 2016 study entitled The Talented Mr. Robot conducted by the Brookfield Institute for Innovation and Entrepreneurship says that approximately 42 per cent of the Canadian workforce is at a high risk of being displaced by automation over the next two decades. Many of these positions — salespeople, administrative assistants, cashiers, and the like — are traditionally filled by employees and not independent contractors.
While estimating the size of the gig economy is challenging given that there is no consistent definition of “gig economy,” current estimates suggest that it is large and growing. Brad Smith, CEO of market research company Intuit, says that it is estimated that the gig economy currently comprises approximately 34 per cent of the U.S. workforce, and that number is set to grow to 43 per cent by 2020.
Many gig economy companies are also directly replacing traditional employee-driven industries. Airbnb, for example, is converting a substantial portion of the hospitality industry from employee-driven to independent contractor-driven.
Put simply, jobs that have been traditionally filled by employees are dying and are being replaced, either directly or indirectly, by independent contractor-driven positions in the gig economy. This paradigm shift requires us to rethink how we categorize workers for multiple reasons.
First, as automation continues to displace jobs, more and more people will be left without work. This means there will be an increasing number of people who will be in need of assistance. Traditionally, employees have received benefits such as notice of dismissal, pay in lieu of notice, and employment insurance contributions from employers that have provided essential assistance in times of current or impending unemployment.
However, as employee positions continue to be displaced by independent contractor positions, there will be fewer and fewer people entitled to these vital benefits. The math is simple: there will be a growing number of people in need of unemployment assistance and a shrinking number of people entitled to it. Given the economic trends, this disparity will continue to grow. This will have consequences not only for individuals, but for the economy as a whole.
There is also a more principled objection to the application of the independent contractor model to gig economy workers. Scholars such as Guy Davidov note that “it is often said that the basic characteristic of an employment relationship — which is also the background reason for all protective labour and employment regulations — is the inequality of bargaining power between the…employer and the…employee.” While inequality of bargaining power is challenging to define, a useful definition Davidov provides is “the acceptance of an unreasonable offer because of a lack of freedom to choose otherwise.”
As businesses evolve from employee-driven to independent contractor-driven, many workers will have no choice but to seek independent contractor work. They will be compelled to due to the short supply of employee-driven jobs. As the independent contractor labour market becomes more saturated, workers will necessarily lose bargaining power. If such inequality provides a basis for justifying employee protections, there is no principled reason why it should not provide a justification for extending those same protections to independent contractors.
The trouble with regulation
The easy part is recognizing that something needs to be done. The challenging part is determining exactly what that is, as regulators are tasked with conducting a puzzling balancing act on multiple levels.
For one, regulators must recognize that they cannot simply extend employee protections to contract workers in the gig economy. If companies are compelled to provide complete employee benefits to workers in the gig economy, they would likely not extend traditional independent contractor benefits to those workers, such as independence. Rather, companies would be much more likely to simply label their workers as employees, thereby depriving individuals who legitimately want to be treated as independent contractors the opportunity of being independent contractors. A balance must be struck.
Another obstacle that regulators will need to overcome is determining how to reduce the problems associated with the gig economy through regulation, while at the same time not stifling the growth of these companies. Gig economy companies will provide crucial work opportunities at a time when work opportunities are fading rapidly.
One way in which regulators must be careful about how regulations may affect companies is cost. Many gig economy companies are startups, and thereby particularly cost-sensitive. Regulations must be sufficient to protect workers, but not cost-prohibitive for gig economy companies. Fortunately, gig economy companies such as Managed by Q, Instacart, Hello Alfred and Munchery all provide employee-like benefits to their workers, so it can be done.
Another problem will be crafting a uniform set of regulations to a non-homogenous industry. There is a vast array of companies within the gig economy, and not all protections make sense for all companies. For example, imposing overtime requirements on companies such as Uber may not make sense, as employees have substantial autonomy about how much they can work in a day. However, overtime requirements may make sense for other companies. Workers for delivery companies like Postmates risk being deactivated if they cancel deliveries, even if on the basis that the delivery times are taking much longer than expected. In this circumstance, workers are in a sense being compelled to work longer hours and thus should arguably be provided overtime rates.
Going forward
The gig economy is something to be embraced. It is not something to fear — if not because of its benefits, at least because it will likely make up the workforce of the future whether we like it or not.
The primary challenge going forward is to facilitate the beneficial aspects of the gig economy, such as its work opportunities, but not at the expense of vital worker protections. While crafting regulations will no doubt be an unenviable task, the first step is to acknowledge that something must be done. Although the most difficult part lies ahead, we can at least take solace in knowing that, when it comes to the argument that workers in the gig economy should be treated as independent contractors, the gig is up.
