By Alex Kroeger
Special to Minnesota Lawyer
Gig workers have taken control of the American economy. According to a report by Upwork, over 56.7 million Americans freelanced in 2018, up from 3.7 million in 2013.
Today, organizations access gig workers virtually and send them on-site to perform work at corporations, hospitals, and family homes without ever meeting the worker. The gig economy brings a new era of legal risks for organizations who use a blended workforce consisting of employees and independent contractors. Of main concern for short-term, on-demand labor are misclassification and insurance risks that organizations are beginning to learn how to mitigate.
Misclassification in the gig economy
Misclassification has been at the forefront of gig-economy legal battles for years. Businesses who use independent workers assert no employer relationship exists, while independent contractors are seeking rights similar to employees. At issue is whether a gig worker is classified as an independent contractor or as an employee.
In a majority of states the deciding factor for employee classification is the control a business has over the acts of an independent contractor. An employee-employer relationship is less plausible where the organization has little to no direction over a remote worker. Remote gigs allow the worker to work when and how they want. On-site services, however, require client control over the gig worker’s schedule and manner of execution. For example, every on-site project specifies a location to perform the work. And, most projects require the worker to show up at a specific time, for a specific reason, to follow specific instructions of the client with pay contingent upon client approval. Such control is incidental to the nature of on-site gig work where two parties contract without ever meeting face-to-face. Consequently, on-site workers are more likely to pose misclassification risks than remote workers.
In Vega v. Postmates the New York appellate court addressed the issue of incidental control of on-site gig workers. 162 A.D.3d 1337 (N.Y. 2018). Here, Postmates was accused of controlling gig workers to the point of creating an employer-employee relationship. Postmates – a web-based company that posts food-delivery pickups for gig workers to deliver – requires basic information and a background check before workers can make deliveries. Once approved to receive work, Postmates sends pickup orders to workers in the area who are at liberty to accept or reject the work. The orders specify when and where to pick up, and where to deliver. Because of these specifications Postmates has basic control over who is eligible and how to make deliveries. However, the court stated, “[i]ncidental control over the results produced—without further evidence of control over the means employed to achieve the results—will not constitute substantial evidence of an employer-employee relationship.” Id. at 1338. The Postmates decision effectively favors gig economy platforms by broadening the scope of an organization’s ability to control independent workers.
Meanwhile, the California Supreme Court created a more stringent test for classification. See Dynamex Operations West, Inc., v. Superior Court, 416 P.3d 1 (2018). In Dynamex, the court places the burden on organizations to show the worker is not an employee. Under Dynamex, the hiring organization must show that the worker is free from the control and direction of the hirer in connection with the performance of the work; that the worker performs work that is outside the usual course of the hiring entity’s business; and that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. Id. The second prong is troublesome to businesses taking advantage of the gig economy because they rely on gig workers to execute their everyday business. The decision is barely a year old but could transform the entire makeup of the gig economy if followed by other states.
Dynamex and Vega show the difficulties of navigating worker classification in the gig economy. With the new workforce shifting, there is no clear answer on when an independent worker classifies as an employee. Each state has a varied response, and each situation is unique. Those confronted with the gig economy should consider implementing compliance monitoring for their blended workforce to prevent misclassification liabilities.
Insurance coverage in the gig economy
The rise of the gig economy has brought insurance questions for companies and gig workers alike. The issue gig economy participants face is multiple parties contracting without clear liability ownership. There are three main players to consider: businesses hiring gig workers, gig workers, and the platform that connects the two. Responsibility for property damage or if the worker is injured on the job can cost a business, or the worker, much more than the value of the work. Businesses must clearly set up boundaries to separate themselves from gig workers to limit their insurance exposure.
One way businesses mitigate risk is finding gig workers through an intermediary. Businesses often find gig workers through web-based platforms such as Upwork, Field Nation, or Thumbtack. These platforms act as an intermediary between the business and gig worker which creates a difficult problem for insurance agencies. The gig worker is not an employee of the intermediary platform or the business seeking workers – so neither is truly responsible for the gig worker’s actions. But when something goes wrong it is unlikely that the gig worker has the means to cover the costs themselves. Businesses and gig workers commonly look to the platform connecting them for liability.
In response to the increase in liability claims, gig economy platforms opt to classify themselves as technology companies to avoid insurance liabilities. See Uber v. Evanston Ins. Co., 2015 WL 8597239 (N.D. Cal. Dec. 14, 2015). In this case the company hiring and the gig worker are in privity of contract for the work, while the platform connecting them has terms and conditions absolving liability for on-site damage. However, as claims continue to rise and litigation becomes frequent, gig economy platforms are being forced to change their policies.
More gig economy platforms are opting to provide insurance for their users. At Field Nation gig workers are required to have $1 million in general and professional liability insurance coverage to protect on-site damage. If gig workers do not have their own insurance, they can elect to use Field Nation’s policy for a small fee. The insurance covers property damage, but with highly skilled on-site services comes the risk of personal injury. As independent contractors these gig workers should maintain their own workers’ compensation insurance. But reality is that most will not want to pay for insurance that is not required. Most states do not require workers’ compensation for sole proprietors, which leaves gig workers vulnerable if injured on-site. Field Nation is one platform that offers workers’ compensation from a business perspective to cover gig workers in the event of on-the-job injury. As gig workers continue to seek compensation for their injuries more platforms are offering insurance to prevent litigation.
Outside of insurance coverage, gig economy platforms have found other ways to mitigate risks. Many platforms have instilled a vetting process for the gig workers before they gain access to available work. For example, consumer based apps like Lyft and Uber require background checks and driving records before gaining access to the app. Meanwhile B2B – business-to-business–companies like Upwork, Field Nation and Task Rabbit enable gig workers to add background checks and drug tests to their profiles for businesses to see. Businesses can mitigate their risk by choosing gig workers who have passed a background check and a drug test recently. And businesses can see reviews from past businesses who worked with the gig worker in the past to validate their skills and experience. Gig economy platforms are constantly evolving to add features that create trust and mitigate the risk of claims.
Despite classification and insurance risks the gig economy continues to grow. Organizations are learning how to mitigate risk while gig economy platforms offer new ways to monitor compliance and insure on-site work. Gig worker rights are growing in California and the courts are just scratching the surface of what’s to come. As the gig economy expands and on-demand labor platforms overtake the market, businesses can expect to see regulatory changes and disruption in traditional insurance coverage.
Alex Kroeger is the risk operator and marketing manager for Field Nation, an online marketplace that connects companies with service providers to complete on-site work orders. She is a 2018 graduate with honors from Mitchell Hamline School of law, where she was an executive editor for the Mitchell Hamline Law Review.