Could a 3rd category of worker resolve flexibility versus benefits disputes?

In the face of a rising gig economy that moved the battle over worker misclassification to the forefront of labor law, some attorneys say that a third category between employee and independent contractor might be the answer.

"The employee-independent contractor dichotomy, having only those two categories, does not fit many workers, not only in the gig economy but many other sectors of the post-industrial workforce," said Charles O. Thompson of Greenberg Traurig LLP.

If California "is going to remain at the top as far as work environments and professional environments, we're going to have to come up with a way to think outside the box and not apply old rules that don't work for everybody," said Wendy M. Lazerson of Sidley Austin LLP.

Gig economy juggernauts like Uber and Instacart, which rely on armies of workers classified as contractors, saw their business model turned topsy-turvy in the course of a day last year when the state Supreme Court instituted a stringent employee-presumptive test in Dynamex Operations West Inc. v. Superior Court. Since then, those businesses have been bombarded with misclassification lawsuits.

While the plaintiffs claim the companies abuse the independent contractor designation to dodge paying benefits, the employers say it allows their drivers to choose their own schedules.

According to a University of Oxford study last year, many drivers enjoy that flexibility.

Surveys also show, however, that ride-share drivers often feel underpaid. They also bear the costs of their vehicles, maintenance and gas, downsides to their status that echo complaints from the trucking industry and other historical battlegrounds for classification.

Creating a hybrid categorization could solve that problem. The rub then, is which parts from each column make sense.

In 2015, Seth D. Harris of Cornell University and Alan B. Krueger of Princeton University wrote a proposal for a third category they called the "independent worker." In that hypothetical, the worker would gain the ability to collectively bargain, tax withholdings, and workers' compensation insurance while surrendering wage and hour protections, which are complicated by their fluid work schedules.

Attorneys are less certain which exact pieces make sense. Plaintiffs' attorneys see the difficulties, but are reticent to surrender any protections for workers.

"Whether a third category of worker is defined or not, the key to leveling the playing field and treating workers fairly is ensuring that all protections of existing law that apply to employees apply to this category," said Michael Rubin of Altshuler Berzon LLP.

Glenn Danas of Robins Kaplan LLP said that minimum wage guarantees and other protections need to endure, and employers need to give ground as well.

"Perhaps collective bargaining and other organizing could address some of those concerns, but any federal legislation would do well to place some restrictions on the platforms' control if such platforms are to be something less than 'employers'," he said.

Rubin said giving gig workers collective bargaining abilities and tax withholdings are good ideas, but he remains "unconvinced" that tracking time worked is so difficult it necessitates giving up wage and hour guarantees.

Employers' attorneys say allowing workers flexibility under the labor code simply creates too much legal exposure with gig economy workers.

"Many of the onerous provisions like premium pay, like restrictions on piece rate, meal and rest periods, they simply don't apply if you're going to have a compromise between the protection of the individual and the freedom of the individual," said Ron Holland of McDermott Will & Emery.

Rubin said some compromise might be possible on allowing workers to waive mandated rest periods, which employers say are hard to track for contractors setting their own hours, so long as workers are still encouraged to take them.

"There are many concepts like meal and rest breaks that don't require much in the way of changes," he said. "But the resolution should be to encourage breaks and not penalize someone for taking breaks."

On the flip side, employers' attorneys say that relaxing overtime regulations to weekly calculations for a third category could help; for example, allowing a worker to put in 16 hours in two days by working 12 one day and four the next.

"The need to track daily hours and control whether the person is working 10 hours one day and two the next [if they are an employee] is an issue in California because they're subject to our overtime and minimum wage laws even though they're defining their schedule," said Todd B. Scherwin of Fisher & Phillips LLP.

"In the case of transportation, many workers will have multiple apps on at the same time, which would make it impossible to track meal and rest breaks. Overtime compensation doesn't work in the on-demand economy but the owner could agree to pay some fraction of benefits and workers could pool to make up the difference based on a pro rata share," Thompson mused.

While the gig economy and Dynamex elevated misclassification disputes, the issues are not new. Before Instacart, the debate arose over truckers, exotic dancers, hairdressers and other traditional contractor jobs.

In the 2015 proposal, Harris and Krueger suggested that something like Dynamex could actually help. They wrote that creating a clear presumption of status on one side would make it simpler to formulate a third category. In the past, hazy multifactor tests meant that companies using contractors might avoid offering benefits to workers for fear they would stray too close to the line and accidentally reclassify their workforce.

Opponents of the Dynamex test might call it outdated and overly strict, but few call it unclear.

Despite the apparent market demand for a solution like this, however, most everyone agrees it would take a comprehensive, national solution for which the political will does not currently exist.

"Searching for a new third category makes sense, but we are in a political climate where taking action is a nonstarter," said Jeffrey S. Horton Thomas of Akerman LLP. "I look at the benefits they propose to offer for the third category, and I can't identify a constituency large enough in numbers or well-funded enough that's motivated to move this sort of proposal forward right now."

Rubin concurred: As a practical matter, that restructuring is not on the foreseeable horizon. Unless there's comprehensive reform, there's little to be gained by piecemeal fixes."