Will the Jig Be Up for the Gig Economy?

31 October 2016 Labor & Employment Law Perspectives Blog

Employers who rely heavily on independent contractors or temporary workers should take note: “Gig” economy companies are now a priority of the U.S. Equal Employment Opportunity Commission (EEOC). The EEOC recently approved its Strategic Enforcement Plan (SEP) for fiscal years 2017 –2021, updating and identifying areas of priority for the agency. In particular, the EEOC is interested in “[c]larifying the employment relationship and the application of workplace civil rights protections in light of the increasing complexity of employment relationships and structures, including temporary workers, staffing agencies, independent contractor relationships and the on-demand economy.” Translation: Companies who utilize a gig workforce can expect their employment practices to be the target of the EEOC’s compliance enforcement efforts.

The “gig” economy refers to the 21st century business environment’s shift to temporary positions and independent workers who contract for short-term projects. Some studies estimate that one in three Americans is now a freelancer (an estimated 53.7 million people) making this a significant labor force. Those who promote the “gig” economy focus on the entrepreneurial spirit and independence of its workforce, and the work-life balance and flexibility inherent in the arrangement, while others are concerned regarding a lack of job security and company-sponsored benefits. This business model has already come under scrutiny as workers have sued to obtain employee status, often in class actions in California. “Gig” companies like Uber are currently embroiled in well-publicized litigation.

What does this mean for businesses operating in the gig economy? Companies who use contractors, freelancers, or temporary workers need to make sure workers are properly classified. The Internal Revenue Service, the U.S. Department of Labor (DOL), and courts consider a variety of factors in making this determination. While no one factor is determinative, the main thrust is the degree of control and independence evidenced by the work. An independent contractor typically is in business for him or herself, invests in his or her own equipment and supplies, and has a broad customer base. Companies who wrongly classify their workforce as independent can be liable for payroll taxes, interest, and penalties.

In 2015, the DOL made it clear that independent contractor classification was high on their list of enforcement priorities, issuing a bulletin claiming that the vast majority of independent contractors are invalidly classified. Now that the EEOC has also set its sights on independent contractors, employers should tackle any classification challenges now to avoid attracting the EEOC’s new focus on this issue. Moreover, while utilizing a staffing agency or workforce management company may help with costs and efficiencies, employers who do so are not necessarily free from liability. Employers should also expect the EEOC to scrutinize joint employment status.

In addition to targeting the “gig” economy in the SEP, the EEOC also has put a new priority on the following areas:

  • Qualification standards and inflexible leave policies that discriminate against disabled individuals;
  • Accommodating pregnancy-related limitations;
  • Anti-LGBT discrimination; and
  • “Backlash” discrimination against those who are Muslim, Sikh, or of Arab, Middle Eastern, or South Asian descent (as well as persons perceived to be members of these groups)

The EEOC’s 2017 Strategic Enforcement Plan can be accessed here. Employers are well advised to review this enforcement plan to understand where the EEOC intends to use its resources to “have a sustainable impact in advancing equal opportunity and freedom from discrimination in the workplace.”

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