On-demand economy and startups need new contractor law

By: Steve Porter Friday September 11, 2015 0 comments Tags: Steve Porter


Recent court cases have cast a light on a new phenomenon in the arena of employer-employee-contractor relations.

Decisions from courts across the nation have highlighted the need for a new model for companies that rely upon independent contractors to carry out portions of their business operations.

The biggest court case involves Uber, which enlists private drivers to make their vehicles available to transport riders who prefer not to ride in taxi cabs or use other forms of public transportation.

At the heart of the Uber case is whether drivers are indeed independent contractors – as Uber maintains – or in fact employees, as the plaintiffs in the case assert.

The Uber class-action lawsuit claims the drivers are actually employees because Uber requires them to follow “a litany of detailed requirements imposed on them by Uber” and are graded and subject to termination based on their performance, including what they are allowed to say to customers.

The drivers said as employees, Uber should compensate them for their expenses, including gas and vehicle maintenance.

But Uber may be just the tip of the iceberg for startups.

Most startup companies depend to some degree on the use of independent contractors to help them get their business up and running until they can afford to hire employees.

But the looming threat of lawsuits and court action due to an increasing filing of “misclassification” cases regarding ICs could have a chilling effect on their use.

A blog by Jonathan Matus  this summer on TechCrunch notes that the Uber case and others point to a need for new laws for the 21st century’s evolving “on-demand economy.”

Matus notes that “the on-demand economy has created a new category of worker, one that does not fit into either the employee category or the 1099/contractor category. More broadly, these 1099 decisions point out the simple fact that the innovation needed to build our 21st century economy means today’s business practices are often way ahead of existing laws and regulations.”

Matus says there needs to be a “third way” to classify workers in the on-demand economy. That third way must give workers the freedom and flexibility they want, but also allow on-demand companies to provide their workers with proper training and incentives without triggering the “W2-ification” of their workforce, he notes.

We agree, and while these current decisions are focused on “on-demand” workers, it seems plausible and even inevitable that run-of-the-mill startups will be -- or already are --  also facing this issue.

Changes in existing employment law will ultimately come through the courts and state legislatures. We hope a new employment status – such as the hybrid “contractee” status suggested by Matus – will help resolve this issue.

Steve Porter

About the Author: Steve Porter

Steve Porter, editor of InnovatioNews, has more than 20 years of newspaper experience in reporting, editing and managing news organizations. Steve brings a deep knowledge of the Colorado business landscape and award-winning writing and editing skills to the project.