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Workers' Compensation

A Growing Issue in the Gig Economy

Opinions vary on the best way to ensure that gig economy workers have access to workplace injury and illness coverage.
By: | June 29, 2017 • 5 min read

The rapid growth in the gig economy has many companies taking a closer look at their workers’ comp policies.

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Some experts say there is a need for alternative or universal coverage arrangements to protect companies from liabilities and workers from injuries while performing on-demand jobs. Legislators in New York, Washington and other places are considering systems that would require online platforms to pay into workers’ benefit funds.

While such issues will be debated at the state level, there is growing consensus that the growing volume of gig economy workers will necessitate a new model that offers portable and universal workers’ comp.

Blurring Lines

On-demand platforms and companies that use such workers may be at risk for misclassifying their employees as independent contractors.

In October 2016, the Washington State Department of Labor and Industries ordered San Francisco delivery company Postmates to retroactively pay two years of workers’ comp premiums.

And since its inception, regulators in many states have questioned Uber’s classification of drivers as independent contractors.

Gig economy jobs are typically defined as those where workers connect with clientele through a digital platform.

These new work platforms are increasingly blurring the lines, not only for Uber drivers but for the tens of millions of tech and administrative workers who work remotely from their homes.

Most companies that use such models, such as Uber, Upwork and TaskRabbit, serve as an intermediary between the worker and customer.

Jared Staver, attorney, Staver Law Group

Jared Staver, an attorney with Staver Law Group in Chicago, Ill., said the distinction between employee and contractor has become a growing source of debate in the gig economy. Companies that misclassify workers as independent contractors could face fines, be forced to retroactively pay workers’ comp premiums, and have no protection in the event of an injury lawsuit.

“If it’s determined you didn’t carry comp insurance [and were required to], you can then be taken to civil court where there are no caps on the amount of money that someone can recover,” Staver said.

The difference between an employee and a contractor isn’t exactly black and white and can come down to the state, legal opinions and factors such as how the work is done, who provides the tools and equipment, and how work is scheduled.

Staver said these new work platforms are increasingly blurring the lines, not only for Uber drivers but for the tens of millions of tech and administrative workers who work remotely from their homes.

“It ultimately comes down to control over the worker, and that’s a big question in many of these new jobs,” Staver said.

Calls for a “Third Class” of Worker

A 2015 study by the Economic Policy Institute found that up to 20 percent of employers in some industries misclassify workers as independent contractors.

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John Rehm, attorney at the law firm of Rehm, Bennett & Moore in Lincoln, Neb., said while misclassification has been common in fields like driving, cleaning and construction, it “seems to be a part of the business model” for many of these new companies.

Uber’s business model is specifically designed to position drivers as contractors by ensuring they use their own vehicles and by allowing them to work when they want through the app. Yet Rehm said many gig economy models leave workers unprotected and companies exposed to wage and hour litigation.

Many experts say the growing on-demand economy calls for a new classification of worker to meet the needs of both business and worker.

John Rehm, attorney, Rehm, Bennett & Moore

Deborah Berkowitz, Senior Fellow at the National Employment Law Project, said the employment model built 100 years ago provided things like pensions, health benefits, Social Security, workers’ comp and unemployment insurance.

Some states are already trying to address the issue. In New York, the state-run Black Car Fund offers workers’ compensation benefits to participating member’s drivers. Uber is now required to participate in the fund and charges an additional 2.4 percent for each fee.

“Workers’ comp benefits work best when it has universal coverage. We actually think many [gig economy] workers are employees for the purchase of worker’s comp,” Berkowitz said.

Portable and Universal Policies

Rehm said instituting a third class of worker could present challenges, including the fact that it would likely lead to more litigation about how workers are classified.

Any policies to cover gig economy workers would also need to be portable and universal to meet the needs of gig economy workers. As many of these workers perform services for multiple platforms, their sources of income can be scattered through multiple companies and across state lines.

“If you are hurt at a part-time job or a gig job, comp only pays you based on the wages for that job. It doesn’t pay you for wages lost in other jobs because of the work injury in another job,” Rehm said.

Deborah Berkowitz, senior fellow, National Employment Law Project

Berkowitz said the Affordable Care Act has already opened up citizens and businesses to the idea of portable benefits, and that New York’s model could be replicated in other states.

NELP recently collaborated with the Roosevelt Institute to produce a paper on worker benefits and said there is growing political support for making universal many benefits once tied to the workplace.

Legislators in Washington posed a bill earlier in the year that would require such platforms and contracting companies to make contributions to a portable benefit fund equal to 25 percent of a worker’s income, or up to $6 per hour.

And the Portable Benefits for Independent Workers Pilot Program Act introduced in May would allocate funds under the Department of Labor to make grants to state for testing and piloting portable benefit programs.

“We do think there’s a growing need for a third class of worker but there is also a sense that we need to expand the public safety net and think about [other] benefits,” Berkowitz said.

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]

More from Risk & Insurance

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Risk Focus: Workers' Comp

Do You Have Employees or Gig Workers?

The number of gig economy workers is growing in the U.S. But their classification as contractors leaves many without workers’ comp, unemployment protection or other benefits.
By: and | July 30, 2018 • 5 min read

A growing number of Americans earn their living in the gig economy without employer-provided benefits and protections such as workers’ compensation.

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With the proliferation of on-demand services powered by digital platforms, questions surrounding who does and does not actually work in the gig economy continue to vex stakeholders. Courts and legislators are being asked to decide what constitutes an employee and what constitutes an independent contractor, or gig worker.

The issues are how the worker is paid and who controls the work process, said Bobby Bollinger, a North Carolina attorney specializing in workers’ compensation law with a client roster in the trucking industry.

The common law test, he said, the same one the IRS uses, considers “whose tools and whose materials are used. Whether the employer is telling the worker how to do the job on a minute-to-minute basis. Whether the worker is paid by the hour or by the job. Whether he’s free to work for someone else.”

Legal challenges have occurred, starting with lawsuits against transportation network companies (TNCs) like Uber and Lyft. Several court cases in recent years have come down on the side of allowing such companies to continue classifying drivers as independent contractors.

Those decisions are significant for TNCs, because the gig model relies on the lower labor cost of independent contractors. Classification as an employee adds at least 30 percent to labor costs.

The issues lie with how a worker is paid and who controls the work process. — Bobby Bollinger, a North Carolina attorney

However, a March 2018 California Supreme Court ruling in a case involving delivery drivers for Dynamex went the other way. The Dynamex decision places heavy emphasis on whether the worker is performing a core function of the business.

Under the Dynamex court’s standard, an electrician called to fix a wiring problem at an Uber office would be considered a general contractor. But a driver providing rides to customers would be part of the company’s central mission and therefore an employee.

Despite the California ruling, a Philadelphia court a month later declined to follow suit, ruling that Uber’s limousine drivers are independent contractors, not employees. So a definitive answer remains elusive.

A Legislative Movement

Misclassification of workers as independent contractors introduces risks to both employers and workers, said Matt Zender, vice president, workers’ compensation product manager, AmTrust.

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered.”

Misclassifying workers opens a “Pandora’s box” for employers, said Richard R. Meneghello, partner, Fisher Phillips.

Issues include tax liabilities, claims for minimum wage and overtime violations, workers’ comp benefits, civil labor law rights and wrongful termination suits.

The motive for companies seeking the contractor definition is clear: They don’t have to pay for benefits, said Meneghello. “But from a legal perspective, it’s not so easy to turn the workforce into contractors.”

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered in the eyes of the state.” — Matt Zender, vice president, workers’ compensation product manager, AmTrust

It’s about to get easier, however. In 2016, Handy — which is being sued in five states for misclassification of workers — drafted a N.Y. bill to establish a program where gig-economy companies would pay 2.5 percent of workers’ income into individual health savings accounts, yet would classify them as independent contractors.

Unions and worker advocacy groups argue the program would rob workers of rights and protections. So Handy moved on to eight other states where it would be more likely to win.

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So far, the Handy bills have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah and Indiana. A similar bill was also introduced in Alabama.

The bills’ language says all workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control schedules, prohibit them from working elsewhere and meets other criteria. Two bills exclude transportation network companies such as Uber.

These laws could have far-reaching consequences. Traditional service companies will struggle to compete with start-ups paying minimal labor costs.

Opponents warn that the Handy bills are so broad that a service company need only launch an app for customers to contract services, and they’d be free to re-classify their employees as independent contractors — leaving workers without social security, health insurance or the protections of unemployment insurance or workers’ comp.

That could destabilize social safety nets as well as shrink available workers’ comp premiums.

A New Classification

Independent contractors need to buy their own insurance, including workers’ compensation. But many don’t, said Hart Brown, executive vice president, COO, Firestorm. They may not realize that in the case of an accident, their personal car and health insurance won’t engage, Brown said.

Matt Zender, vice president, workers’ compensation product manager, AmTrust

Workers’ compensation for gig workers can be hard to find. Some state-sponsored funds provide self-employed contractors’ coverage.  Policies can be expensive though in some high-risk occupations, such as roofing, said Bollinger.

The gig system, where a worker does several different jobs for several different companies, breaks down without portable benefits, said Brown. Portable benefits would follow workers from one workplace engagement to another.

What a portable benefits program would look like is unclear, he said, but some combination of employers, independent contractors and intermediaries (such as a digital platform business or staffing agency) would contribute to the program based on a percentage of each transaction.

There is movement toward portable benefits legislation. The Aspen Institute proposed portable benefits where companies contribute to workers’ benefits based on how much an employee works for them. Uber and SEI together proposed a portable benefits bill to the Washington State Legislature.

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Senator Mark Warner (D. VA) introduced the Portable Benefits for Independent Workers Pilot Program Act for the study of portable benefits, and Congresswoman Suzan DelBene (D. WA) introduced a House companion bill.

Meneghello is skeptical of portable benefits as a long-term solution. “They’re a good first step,” he said, “but they paper over the problem. We need a new category of workers.”

A portable benefits model would open opportunities for the growing Insurtech market. Brad Smith, CEO, Intuit, estimates the gig economy to be about 34 percent of the workforce in 2018, growing to 43 percent by 2020.

The insurance industry reinvented itself from a risk transfer mechanism to a risk management mechanism, Brown said, and now it’s reinventing itself again as risk educator to a new hybrid market. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected] Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]