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The Exploding New Gig Economy: States Decide Tough Classification Issues!
In recent years, many states have passed laws attempting to regulate ride-hailing companies such as Uber (and other members of the “gig economy”). These new laws cover how to treat independent contractors with regard to insurance requirements, recordkeeping, inspections and background checks, etc.
GIG ECONOMY: The term “gig economy” is new and confusing. Generally speaking, the gig economy involves freelance work typically facilitated by an internet platform or app. Its increased use in recent years by all kinds of businesses has started to impact the overall economy. The gig economy can also be understood as any digital platform that allows independent contractors to build their own independent business ventures. Uber drivers, for example, typically aren’t employees but rather independent contractors who use the app to connect with potential clients of Uber.
The independent contractor vs. employee battle continues to heat up, state by state. State legislatures are trying to straighten out these classification issues to either refine existing laws or create new ones (to permit the fast growing “gig economy” to flourish).
NEW FLORIDA LAW: TRANSPORTATION NETWORK COMPANIES ACT: On May 9, 2017, Governor Rick Scott of Florida signed the Transportation Network Companies Act (HB 221), which classifies drivers for ride-sharing companies in the on-demand or gig economy as “independent contractors” (as long as the “transportation network company” meets legal criteria that are currently met by Uber, Lyft, and other similar companies).
For a business dubbed a “transportation network company” in Florida, the new law essentially creates a legal safe-harbor for ride-sharing companies like Uber from liability for misclassification of employees as independent contractors under Florida’s labor and employment laws (including state laws governing minimum wages, unemployment, workers’ compensation, and workplace discrimination). It does so by creating a new four-pronged test for independent contractor status in the ride-sharing industry – a test that is not difficult for ride-sharing companies to meet. The law also creates statewide protections for both the drivers and consumers.
This Florida law is the latest example of a state responding to growing pressure from lawsuits, lobbying efforts by companies, and the consequences of the expanding gig economy. States are crafting new laws to handle these legal issues springing out of the gig economy.
VIEW OF CRITICS AND SUPPORTERS: Critics fear any carve-outs for companies such as Uber will limit the ability of independent contractor drivers to sue for their employment rights. Critics argue that by classifying drivers as independent contractors and not employees, the companies avoid all the responsibility of being an employer and shift the cost of doing business onto the independent contractor drivers (in hopes of avoiding liability for unemployment or workers’ compensation).
FLORIDA’S GIG ECONOMY STILL COVERED BY FEDERAL LAWS: Note that this new Florida law is just a state law. Therefore, it does not preempt or eliminate the federal wage and hour laws and other U.S. labor and employment statutes, which are not affected by this new state law. The legal tests for independent contractor status under those federal laws remain unchanged by this new Florida law.
PRACTICE TIP: All on-demand companies (big part of the gig economy) including those in the ride-sharing industry who rely upon independent contractors should take steps to minimize the likelihood that they will be targets of future claims for independent contractor misclassification. It is an excellent idea for any company which is part of the gig economy to review both state and Federal laws and legal precedent on independent contractor classification issues. Then put good independent contractor practices in place to provide legal protections (in case of a future legal challenge to independent contractor status). Develop and nurture strategies to strengthen independent contractor status.
For assistance with independent contractor hearings or issues or restructuring independent contractor relationships or agreements to reduce risk, contact Attorney Nancy E. Joerg who can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at firstname.lastname@example.org.
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