Employee or Independent Contractor?

A New Class of Worker for the Sharing Economy

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From the Journal of Law & Technology, Megan Carboni offers a proposal for a new class of worker, a dependent contractor.  Megan provides a review of the employee or independent contractor classification under the Fair Labor Standards Act (FLSA), National Labor Relations Board (NLRB) and Internal Revenue Service (IRS).  She also discusses a third type of worker in Spain, France and Italy and offers a proposal for a dependent contractor in the United States.  Megan writes:

  The following proposed third classification of worker is necessary in light of the boom in the sharing economy business model. A third classification will allow courts to find a happy medium between employee protections, flexibility in the workplace, and employer business needs, like predictability and growth. As discussed prior, courts are now struggling to force classification of workers at the expense of the companies who contract with them or at the expense of the workers themselves. For example, where a court holds an Uber driver to be an employee, Uber is forced to sacrifice its formula for success and pay out potentially massive damages, risking bankruptcy of a once successful business model.[179] Where a court deems a group of workers as independent contractors, the workers sacrifice their potential right to statutory protection under wage and hour laws, tax laws, and benefit laws.[180] This third category of worker, or the “dependent contractor,” seeks to lessen the burden on both the employers and the workers in the sharing economy.

[48]     While this proposal is limited to a dependent contractor status under the FLSA, it borrows elements from the standards and tests under the IRC and NLRA. This comment limits the proposed definition to the FLSA only as a means to begin the transition away from a dual worker classification system to a more modern, flexible, and accurate reflection of the current employment landscape.

[49]     The “Dependent Contractor,” (a Definition and Two Part Test) Amended definition under Fair Labor Standards Act, 29 U.S.C § 203(e)(1):

(a) Except as provided in paragraphs (2), (3), and (4), the term “employee” means an individual employed by an employer.[181]

(b) In determining whether an individual is an employee or independent contractor for the purposes of this Act, the following factors should be considered:

1.  The extent to which the worker’s services are an integral part of the employer’s business;

2.  The permanency of the relationship; The amount of the worker’s investment in facilities and equipment;

3.  The nature and degree of control by the principal;

4.  The worker’s opportunities for profit and loss; and,

5.  The level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise.[182]

Upon consideration of these factors and a finding that an individual is an “employee,” it may be necessary to proceed to § 203(a)(1)(B) of the Act to further determine the individual’s status as “dependent contractor.”

The term “dependent contractor” means an individual who, pursuant to a written agreement and in return for remuneration, carries out an economic activity or a profession, personally and directly, for an employer; and who:

  1. Possesses at least some material and/or infrastructure necessary for the activity, independent of the employer’s material and/or infrastructure;
  2. Works subject to as least some of their own criteria, subject to organizational, technical and procedural criteria that the employer provides, such as business production styles, scheduling and other employer or end-client requirements;
  3. Performs the activity autonomously, that is without being subject to close supervision of the employer and regardless of the time needed to carry out the task;
  4. Receives remuneration based on the quantity and quality of the work performed.[183]

[50]     As discussed below, these definitions will give way to specific rights and benefits arising out of each classification. For such proposals, look to policy makers and members of Congress.[184] Though restricted to a definition under FLSA, this is a starting place for reform. This proposal could serve as a model for a third category of worker under the IRC, NLRA, and parallel state statutes.

Read the full story at  A New Class of Worker for the Sharing Economy

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