Home > Basics > The Gig Economy and the Law: What You Need to Know

The Gig Economy and the Law: What You Need to Know

person typing on computer

Know anyone who drives for Uber? Or maybe you have a particularly close friendship with your Doordash driver (what college student doesn’t these days)? These workers are all part of what’s known as the gig economy.  Of course, as you may have guessed, this newer and ever-growing model for doing business can also be rife with legal issues and implications. Time to call in your DoorDash order and take a few minutes to dig into the ways your law expertise might make a real difference within the gig economy.

What is the gig economy?

The phrase ‘gig economy’ is most commonly used to describe a business model where temporary or contract workers perform specific services, usually for a customer, and increasingly via an app or other on-demand services. It also tends to include freelancers or artists including — you guessed it — musicians or comedians. Hence the name ‘gig’!

How is the gig economy evolving?

The gig economy has boomed over the last few years with the rapid expansion of companies such as Uber, Doordash and other ‘direct-to-consumer’ businesses. It’s a business model that is particularly attractive to many companies because:

  • It allows them to provide consistent, ‘always on’ services to customers, as workers can choose to work when it suits them. This ensures that customers can get their DoorDashed burrito meal whenever they want.
  • Gig workers are not considered traditional employees and are typically engaged as contractors. This can make it easier for the companies as they don’t have to comply with ordinary labor laws that include paid time off, salary and a structured work schedule. (Uh oh … red flag?)

For similar reasons, the gig economy can be an attractive source of income for workers:

  • Workers can choose when and how often they work. This comes down to a lifestyle choice, enabling many people to have a certain amount of control over the way they work. Further, many people have turned to gig work during COVID-19, particularly because permanent or full-time employment opportunities basically imploded. 
  • Gig economy workers are also less tied to one organization. They don’t have to work for one company in the same way typical employees do. Rideshare drivers, for example, can even choose to work for multiple brands, which is why you’ll often see drivers appear on multiple rideshare apps at once.
  • Workers can choose how they complete their work. Uber and Lyft drivers, for example, use their own vehicle and can choose which rides they will take. Freelancers on platforms such as UpWork choose what work they want to take on and can have a say in how the work is completed. 

This is a tricky area. There are a couple of characteristics of the gig economy that raise interesting legal considerations. In particular, the hot topic of the day is centered around whether gig workers should actually be classified as employees. 

1. Labor Law, Employers and the ‘Classification’ of Gig Workers

While it’s true that the gig economy provides flexibility for workers, it does raise questions around rights and fair treatment, as they aren’t entitled to the same protections as employees. 

The Biden administration in particular has been laser focused on protecting workers’ rights in the gig economy space. In May 2021, the Biden administration blocked a law that the Trump administration put in place that would have made it easier for companies like Uber to classify gig workers as contractors (rather than employees). 

This has led to a number of law reforms focused on employers correctly classifying their workers. California, for example, recently introduced a law (known as Assembly Bill 5, or AB5), which requires employers to follow strict classifications for their employers and workers — and imposes major penalties for getting this wrong. 

How you can make a difference: This area has opened up a ton of work for employment attorneys and will likely be an area of contention for many years to come.

2. Opposition to AB5 and Litigation

There is plenty of opposition to AB5, from both employers and contractors alike. Employers argue that the methodologies for classifying workers under the bill are confusing and inappropriate. 

In late 2019, Uber and Postmates filed a lawsuit against the state of California on the grounds that the bill was unconstitutional. Although they lost the case, both companies (along with DoorDash and Instacart) supported a ballot initiative in California’s November 2020 election known as Proposition 22, which granted app-based transportation and delivery companies an exemption to the requirements of AB5. Although Proposition 22 was declared unconstitutional by the Supreme Court, it certainly shows that employers aren’t happy about these changes and willing to go hard at pushing back.  

What’s also interesting is that, although the intention of the AB5 litigation is to protect workers from unfair or inhumane working conditions, many workers actually oppose these types of regulations as well. They don’t necessarily want to be classified as employees because if that happens, they lose the flexibility and autonomy that comes with being a gig worker. That’s kinda the whole point! Employers are now trying to avoid harsh regulatory fines by cutting down, or eliminating their contractor work forces, so workers have found it harder to find work. 

How you can make a difference: As the back and forth around this continues, the knowledge and skill set of employment attorneys will remain in large demand. 

3. Tax Considerations

The rise of gig workers has created a range of issues from a tax perspective as well. Under federal law, employers and employees jointly pay payroll taxes, in addition to other taxes. Contractors, however, must also pay taxes known as self-employment taxes in addition to these payroll taxes. 

This not only creates higher taxes for those working in the gig economy, but it can also lead to confusion for the workers, who may not understand their reporting and tax compliance obligations or may not know how to deduct expenses from their taxable income correctly, leading to overpayment. 

How you can make a difference: Tax lawyers can help contractors understand and correctly manage their obligations. And trust us when we say that tax law is way more interesting than you’d expect. 

4. Changing Classifications

To accommodate the changes emerging from the gig economy, some commentators have been suggesting for years that there needs to be a new category of worker that is neither an employer nor a ‘worker,’ in the current sense of the word. Others suggest that protections given to employees should also be extended to contractors to encourage more flexibility in ‘ways of working.’