Curing Gig Economy Worker Misclassification During COVID-19 and Beyond
The arrival of gig-centric companies, such as Uber or Lyft, and the recent prominence of companies such as DoorDash, Instacart, TaskRabbit, Postmates and Amazon have caused a soaring demand for gig economy workers. As recently as 2018, approximately 36% of Americans relied on gig economy work as their primary or secondary source of income. Thus, the question arises: who qualifies as a gig worker?
Gig workers are defined as workers with flexible work schedules who are actively responding to the consumer’s ebb and flow of demand for a given service. Due to the flexibility of the arrangement, gig workers appear to be independent contractors. An independent contractor is defined as a person who contracts with a company but is not controlled by the company nor subject to the company’s control with respect to physical conduct or performance. Additionally, independent contractors are not entitled to employee benefits such as unemployment insurance, health care and minimum wage standards.
Gig companies argue gig workers are independent contractors because the gig company does not control the time worked or the schedule chosen by the workers. The major issue with this argument is the conflation of “worker flexibility” with the absence of control by the business. The gig companies control terms of service, fares charged, incentive-based pay, deactivation fees and rating structures of the workers. Thus, workers’ advocates argue, gig workers are employees because the gig companies exercise sufficient control over the terms and conditions of work assigned to gig workers.
The merits of each argument can be seen in two recent cases. In In re Vega the court held Postmates delivery drivers were employees because Postmates exhibited unilateral control over compensation, fixed delivery destinations and the hiring of replacement drivers. Conversely, in Lawson v. GrubHub, the court held GrubHub delivery drivers are independent contractors because GrubHub did not control the number of deliveries, the work schedule timing or require any training or orientation. Both cases deal with identical services provided by gig economy delivery drivers using identical gig platforms, yet the courts reached different conclusions based on the definition of employer control.
The issue of misclassification has been further exacerbated due to the effects of the COVID-19 pandemic. State lockdown orders have classified gig workers as “essential.” The majority of gig workers are working overtime in response to the demand for essential workers during the pandemic. Due to independent contractor classification, gig workers are denied basic benefits, such as minimum wages, paid sick leave and unemployment insurance. The absence of basic work benefits has proven to be detrimental to gig workers. For example, the inability to take paid sick leave forces workers to choose between their health, their paycheck and endangering the lives of customers due to the direct contact nature of the job.
To combat this injustice, Instacart workers staged a nationwide strike demanding hazard pay and sick leave for working during the pandemic. In response to the outcries of gig economy workers, Congress extended the Coronavirus Aid, Relief, and Economic Security Act (CARES) to include the allocation of unemployment insurance to independent contractors. This was a historic move as it was the first time a “portable benefit” was extended by the government to independent contractors rather than only to employees. However, the imperative question remains: why not classify all gig workers as employees rather than independent contractors?
Recently, People v. Uber held Uber and Lyft drivers who were classified as independent contractors were in violation of the California Labor Code § 2775 (ABC Test). Although this decision was a momentous win for employee-based coverage, it only applies to ride-sharing-based companies such as Uber and Lyft. The issue of employer control varies dramatically in other businesses such as: delivery application-based companies (DoorDash, Grubhub, Instacart), hotel and lodging-based companies (Airbnb), online market-based companies (Amazon Flex Drivers, TaskRabbit) and domestic worker, service-based companies (SweepSouth).
The gig economy is continuously evolving, and the services provided by gig workers are expanding. It is likely that gig companies will continue to find different ways to support the classification of gig workers as independent contractors. Gig companies want to keep costs low and increase profits; gig workers, on the other hand, want to maintain flexibility but still retain basic worker protections. So, this begs the question: can we achieve a system in which gig companies and gig workers both win?
A New Solution: Portable Benefits
Portable benefits are defined as benefits that are connected to a worker rather than a particular employer such that the benefits can be taken from job to job without interruption in coverage or loss of funding. As a result, workers can accumulate benefits such as unemployment insurance or paid time off while working for different employers. This solution will allow workers, whether independent contractor or employee, to retain a basic level of worker protection across the board.
As stated above, the gig economy is growing rapidly. The MBO Partners State of Independence report  projects 52% of the workforce will be participating in the gig economy by 2023. Trends are showing that even unionized work such as construction and mining will move towards an app-based, service-oriented model. The protection of this new wave of workers must be the focus of the portable benefits system.
A functional portable benefits system will require an equitable infrastructure set forth by the government, unions and gig companies, and executed through the assistance of fintech.
Current Role of the Government in the Creation of Portable Benefits
Congress does not extend unemployment insurance to independent contractors as they are not classified as employees. However, in light of the current pandemic, Congress extended unemployment insurance to independent contractors. This is the first time a benefit was extended by the government to independent contractors and employees. The benefit was universally attainable to workers irrespective of classification status – the first truly universal portable benefit. Further, it has proved to be effective in assisting gig workers during the pandemic.
Similarly, some municipalities have taken action to pilot portable benefit systems that apply to workers within the state. Philadelphia recently passed the Philadelphia Domestic Workers Bill of Rights, which ensures domestic workers the right to paid time off through a portable benefits model. All clients of domestic workers are required to pay a 2.5% fee towards the workers’ portable benefits fund. The domestic workers will receive one hour of paid time off (PTO) for every 40 hours of paid work. The PTO accrues from client to client and the workers take the benefit (PTO) from job to job. The ratio is applied irrespective of where or when the hours are completed, effectively retaining the flexibility of the worker. Philadelphia is actively considering extending these provisions to gig economy workers as well.
The Seattle Universal Worker Protection Bill proposes a similarly structured portable benefits system targeted towards gig economy workers. Companies pay a 5% fee, capped at $1 per hour, which is deposited in a portable benefits fund. The benefits in the fund include health insurance, retirement savings and paid vacation time. The worker can take these benefits from one employer to the next, once accumulated. In addition, several states, including New York and New Jersey, have considered legislation that supports creating similar portable benefit systems for independent contractors.
The active criticism with respect to extending portable benefits to independent contractors is: why would gig companies be willing to pay a 2.5% fee for the sake of worker protection?
The Current Role of Gig Companies in the Creation of Portable Benefits
Gig companies favor an independent contractor classification for gig workers because the flexibility in worker protection allows gig companies to maintain profit margins. In a portable benefits system, gig companies would have to pay a 2.5% fee toward a workers’ benefit fund. Thus, the question still stands: why would gig companies be willing to pay a 2.5% fee for the sake of worker protection?
Gig companies will be willing bear this cost in two scenarios: (a) the company is able to pass the cost on to the consumer, or (b) the company is able to pay a smaller portion of the net cost. The first scenario is best exemplified by New York’s Black Car Fund model. New York’s Black Car Fund was established by the New York Legislature to exact a 2.5% surcharge on all companies which hire drivers. If the company owns less than 50% of the cars and 90% of the customer transactions are cashless, a 2.5% surcharge applies. The money obtained from the surcharge is deposited into a workers’ benefit fund that includes telemedicine coverage, vision benefits and accidental death benefits. The benefits transfer with the driver from job to job, covered under the Black Car Fund. Uber and Lyft are subject to this 2.5% surcharge in New York and simply pass the cost to the consumer. Both companies have still maintained profitability while also promoting workers’ benefits.
Alternatively, gig companies can use the customers’ tips to contribute to the workers’ portable benefits fund, allowing the companies to bear a smaller net cost. There is research showing that customers would be willing to pay extra in order to ensure workers receive benefits. For example, Alia is an application which allows consumers to pay tips for their domestic workers into a portable benefit fund. Alia pools together voluntary funding from the customers of domestic workers to create a portable workers’ benefit plan that gives workers access to protections such as accident insurance, paid time off and life insurance. Alia has been a success for domestic workers and customers. Customers report the driving factor behind the willingness to tip was the incentive of battling against the systemic inequality that domestic workers face, in addition to the negligible monetary amount required in order to make a difference. The spotlight has been placed on gig economy workers as essential workers, raising social awareness about gig worker exploitation and the lack of workers’ benefits provided. This consumer awareness–based template can be applied to the gig economy workers incentivizing consumers to tip 2.5% per ride – approximately $.50 on a $20 ride.
Additionally, consumers have trended toward supporting workers against abuses as seen with the Collation of Immokalee Workers (CIW) campaign for farmworkers. The CIW raised awareness about the abusive practices of companies using suppliers who exploited farm workers. Consumers responded by boycotting such companies, causing companies such as Taco Bell to comply with fair practices in order to save their reputation. Consumers of the gig economy play a big role in influencing the practices of the gig companies and, when mobilized correctly, can effectuate an efficient portable benefits system as well.
Thus, the overarching question remains: how will the surcharge be decided in diverse industries, such as gig economy drivers versus domestic workers?
The Current Role of Unions in the Creation of Portable Benefits
The concept of portable benefits transferring with workers from job to job may seem like a new idea, but unions have been implementing a very similar framework via the Taft-Hartley Act for decades. The distinction, however, is that benefits move with the worker based on the industry. Employees and employers pay into a multi-employer fund subject to the terms of a collective bargaining agreement. The accrued funds are then reinvested and pay for the members’ benefits. The most common examples of these agreements include ERISA benefits across the construction industry. Another relevant example is the Screen Actors Guild Pension and Health Plan. Although actors are contingent workers, the Guild submitted to collective bargaining agreements with each of the studios in order to pay for benefits for actors. The benefits are portable across any studio party to the collective bargaining agreement across the entertainment industry.
The inevitable criticism to this process is: why would gig companies agree to the collective bargaining process of unions when the goal of classifying workers as independent contractors is to circumvent the control imposed by collective bargaining agreements?
Oddly enough, gig companies have been open to the notion of a certain level of collective bargaining when creating portable benefits. Under a recent joint letter between the Service Employees International Union (SEIU) and Uber, both parties made a commitment to create a collaborative universally portable benefits system for drivers espousing principles of universality, flexibility, proportionality and innovation. The letter acknowledges the longstanding legal barriers and legal history of conflict between companies and employers and pledges to break down such barriers by creating a portable benefits system from scratch with the input of both parties. Given this recent collaboration, it is highly likely that unions will turn to the Taft-Hartley Act model to structure the disbursement and negotiation of worker benefits.
Thus, the last question which must be addressed is: what is the most effective way to execute the disbursement and management of portable benefits?
The Current Role of Financial Technology in the Creation of Portable Benefits
Financial technology (fintech) is defined as an innovative economic industry composed of companies whose purpose is to use technology to make financial services more efficient. In response to COVID-19, Mastercard has partnered with Stride, a portable benefits fintech platform, to provide cost-effective worker benefit options for gig economy workers. Workers can choose from a suite of benefits via the Stride application and the benefits directly transfer to the worker via the worker’s Mastercard account. The benefits and disbursement platform would remain the same irrespective of whether the worker changes jobs or moves from job to job.
Similarly, the application Alia, as described above, uses a fintech platform to transfer the voluntary funds from the client to the domestic worker. The domestic worker can access the funds in the form of benefits directly from the Alia application. Furthermore, the United Kingdom launched Pirkx, a fintech platform, which allows users of its platform to access workers’ benefits irrespective of their classification as self-employed, part-time, independent or full-time workers. Fintech is actively innovating and working around the current lack of protection for workers during the pandemic by providing efficient disbursement platforms. However, the costs of benefit plans offered by fintech is extremely high and may come at a hefty cost to the employee, thus strengthening the call for a universally low-cost portable benefit system.
The Pilot Portable Benefits Model for COVID-19 and Beyond
First, the government must pass overarching legislation approving a portable benefits plan that is applicable to all workers irrespective of independent contractor or employee status. The plan can mirror that of the Philadelphia Portable Benefits Plan and charge a fixed surcharge to the employer in order to contribute to the universal benefits fund. The government may offer tax subsidies to companies in order to incentivize participation in the pilot program for a minimum two-year period.
Second, the surcharge will be determined by the industry and negotiated by unions. Using a model akin to the Taft-Hartley Act, unions and companies will collaboratively set the surcharge across the industry.
Third, the gig companies can respond to the surcharge by either (a) passing it on to customers analogous to the Black Car Fund model or (b) pooling customer tips to offset the net cost of the surcharge. Additionally, employers can offer the option for consumers to pay directly towards the workers’ fund rather than merely tipping in order to build social awareness about worker protection.
Fourth, the money collected by the surcharge will be invested into the industry-wide workers’ fund, collaboratively negotiated by both the unions and the companies, and converted into a benefit that will be accessible to all workers in a given industry.
Fifth, a fintech platform will present the suite of benefits available to each worker, and workers can choose the benefits they deem necessary based on their independent contracting needs. The disbursement method will be analogous to the method used by the Alia application.
This collaboration between the government, employers, unions and fintech lays a rudimentary groundwork for a strong universal portable benefits system that is restricted by industry for the ease of distributing the benefits. This by no means is a fully exhaustive plan and modifications can be made accordingly in response to any conflicts or issues that may arise.
The major criticism that may be set forth in response to this plan is the presumption that the gig companies would be open to negotiating with unions. The recent collaborative efforts of the SEIU and Uber in negotiating a universal portable benefits plan strongly suggest this issue is not insurmountable. The recent collaborative efforts by both parties to create a portable benefits system from scratch in order to dismantle the underlying tension between companies and unions is a positive step forward in this direction.
The classification of gig economy workers as independent contractors has focused on the presence or absence of control by the company over the worker, across many different industries, including car services (Uber, Lyft), delivery application-based companies (DoorDash, Grubhub, Instacart), hotel and lodging-based companies (Airbnb), online market-based companies (Amazon Flex Drivers, Task Rabbit), and domestic workers (SweepSouth). Independent workers and self-employed workers are still workers even if they are not classified as employees. Therefore, these categories of workers should be afforded some form of basic worker protection as well. A workable solution is a universal portable benefits fund where the benefits attach to the worker, rather than to the classification of employee and employer. The fund will be created by a collaboration between the government, employers, unions and fintech. A rough framework for such a model is detailed as well. During the COVID-19 pandemic, workers, irrespective of classification status, have been left vulnerable without paid sick leave or minimum wages – all of which could be cured by a portable benefits system. Fintech is already finding ways to innovate portable benefits through privatized means. Rather than letting portable benefits act as another privately created fissure to workplace protections, parties should work together to make it an efficient pro-worker system that provides benefits to any classification of worker. As long as you are worker, you should be protected – a case for universal portable benefits system.
Trishala Dessai is a J.D. candidate at American University Washington College of Law.
This article first appeared in the Labor and Employment Law Journal, a publication of the Labor and Employment Law Section. For more information, please see NYSBA.ORG/LABOR.
 Gallup’s Perspective on the Gig Economy and Alternative Work Arrangements (2018), https://www.gallup.com/workplace/240878/gig-economy-paper-2018.aspx.
 In re Vega, 35 N.Y.3d 131, 136 (2020).
 Arielle Pardes, This Pandemic Is a ‘Fork in the Road’ for Gig Worker Benefits, Wired, April 9, 2020, https://www.wired.com/story/gig-worker-benefits-covid-19-pandemic.
 See Labor Code § 2775, subd. (b); Dynamex Operations West. Inc. v. Superior Court of Los Angeles, 4 Cal.5th 903 (2018).
 Natalie Foster, et al., Aspen Inst., Portable Benefits Resource Guide 7 (2016), https://assets.aspeninstitute.org/content/uploads/files/content/upload/Portable_Benefits_final.pdf.
 The State of Independence in America (2018), https://www.mbopartners.com/wp-content/uploads/2019/02/State_of_Independence_2018.pdf/1.
 Philadelphia Domestic Workers Bill of Rights (April 27, 2020), https://www.phila.gov/media/20200427102747/Domestic-Worker-Bill-of-Rights.pdf/.
 The Seattle Universal Worker Protection Bill, H.R 1601, 116 Cong. § 5 (2019).
 Testimony of Ira Goldstein, Executive Director of the Black Car Fund Before the New York State Senate Standing Committee on Internet and Technology Public Hearing: Examination of the Gig Economy (October 16, 2020), https://www.nysenate.gov/sites/default/files/ira_goldstein_black_car_fund_testimony_10.16.19.pdf.
 NWDA Labs: Alia (2015), https://www.ndwalabs.org/alia.
 Eillie Anzilotti, This New Service Gives Domestic Workers a Way To Get Benefits and Paid Time Off, Fast Company, Dec. 11, 2018, https://www.fastcompany.com/90278942/this-new-service-gives-domestic-workers-a-way-to-get-benefits-and-paid-time-off.
 David Rolf, et al., Aspen Inst., Portable Benefits in the 21st Century 3–4 (2016), https://assets.aspeninstitute.org/content/uploads/2016/07/portable-ben-21stcent.pdf?_ga=2.71541907.1605673233.1586528020-1677866451.1586528020.
 David Rolf, Building a Portable Benefits System for Today’s World (Jan. 23, 2017), https://ubernewsroomapi.10upcdn.com/wp-content/uploads/2018/01/Portable-Benefits-Principles-FINAL.pdf.
 What Is FinTech and Where Does It Live? (July 26, 2016), https://www.finextra.com/blogposting/12890/what-is-fintech-and-where-does-it-live.
 Mastercard and Stride Team Up to Bring Portable Benefits to Gig and Independent Workers, Mastercard,
 Jessica Ellerm, Gig Workers Are on the Rise Post COVID. Fintech Pirkx Stands to Benefit, Daily Fintech,