Trial Magazine

The fight over the classification of gig economy workers—whether they are traditional employees or independent contractors—is essentially an old issue that has come to the forefront because of the rise of the “sharing economy” and companies such as Uber.¹ But this classification dispute is only part of the story about the evolving relationship between gig economy workers and their eligibility for employment benefits, especially workers’ compensation. For the past few years, economists and state and federal legislators have started advocating for a portable benefits scheme to adapt to the prevalence of gig economy workers.² But the design of and assumptions behind some of these schemes should alarm workers’ rights advocates.

Portable benefits are paid into an employer-sponsored plan and when a worker leaves, they are transferable to the new employer’s plan or to the individual worker.³ The idea is to detach responsibility for retirement, disability, and health care benefits from the employee-employer relationship to accommodate workers who take short-term or temporary positions, change jobs often, or are considered independent contractors.

In 2016, Massachusetts Institute of Technology economist Jonathan Gruber proposed catchall individual security and retirement accounts as alternatives to or replacements for workers’ comp and unemployment insurance.⁴ Gruber also proposed that benefits paid out under his plan would be taxable in contrast to workers’ comp benefits, which are not taxable.⁵

Economists Seth Harris and Alan Krueger have proposed another somewhat more worker-friendly portable benefits scheme, which would allow gig economy employers to “opt in” to state workers’ comp laws.⁶ This plan is designed to be paired with a new, third type of worker classification that would place gig economy workers somewhere between employees and independent contractors. But even this approach, according to AFL-CIO General Counsel Craig Becker, mainly serves to reduce labor costs for gig economy companies.⁷

Having such a tiered classification system for determining benefits would muddy the waters of the employment benefits and workers’ comp systems. Compensating one group of injured workers one way and another group of injured workers another way would seem arbitrary and unfair, especially when workers are injured. Such a scheme also seems to run afoul of equal protection guarantees in the U.S. and state constitutions.

For example, the Oklahoma Supreme Court overturned the so-called “Oklahoma option” that allowed employers to create alternative worker injury plans based on the Employee Retirement Income Security Act, which governs private disability insurance.⁸ The court struck down the law because it was an unconstitutional special law that “create[d] impermissible, unequal, and disparate treatment of a select group of injured workers.”⁹

Much of this ongoing discussion regarding portable benefits is happening at the federal level and neglects to address the traditionally state-based nature of workers’ comp laws.10 The federal tax code, as a prime example, significantly impacts the relationship between companies and their workers and how they are classified. Even if injured workers are classified as employees under a state workers’ comp law, they may not file a claim if they are classified as contractors under the federal tax code. The other mandated benefits that stem from the employee-employer relationship—unemployment, Medicare, and Social Security—are all effectuated in whole or in large part through the federal tax system. And recently passed changes to federal tax laws have encouraged workers to take independent contractor status.¹¹ Gig economy employers are also pushing the “NEW GIG Act” that would amend the internal revenue code to create a safe harbor for gig economy companies to treat their workers as contractors.¹²

To preserve the current workers’ comp system for our clients, we need to recognize and address the threat posed by portable benefits schemes as they are proposed—at both the federal and state levels.

Jon Rehm is a partner at Rehm, Bennett, Moore, Rehm, and Ockander in Lincoln, Neb. He can be reached at  jonrehm@rehmlaw.com.

Notes

1. See, e.g., Lydia DePillis, For Gig Economy Workers in These States, Rights Are at Risk, CNN Money (Mar. 14, 2018), http://money.cnn.com/ 2018/03/14/news/economy/handy-gig-economy-workers/index.html.
2. See Valerie Bolden-Barrett, GOP Lawmaker Says FLSA Rules Need Gig Worker Update, HR Dive (May 8, 2017), www.hrdive.com/news/gop-lawmaker-says-flsa-rules-need-gig-worker-update/442132/; Tyrone Richardson, Congress Still Seeks Ways to Adapt to Gig Economy, Bloomberg BNA (Mar. 1, 2017), www.bna.com/congress-seeks-ways-n57982084588/; The Hamilton Project, A Proposal for Modernizing Labor Laws for Twenty-First-Century Work: The “Independent Worker” 3 (Dec. 2015), www.brookings.edu/wp-content/uploads/2016/07/modernizing_labor_laws_for_twenty_first_century_work_policy_brief.pdf.
3. Investopedia, Portable Benefits, www.investopedia.com/terms/p/portable-benefits.asp.
4. Jonathan Gruber, Security Accounts as Short Term Social Insurance and Long Term Savings, The Aspen Inst. Future of Work Initiative 8 (2016), https://assets.aspeninstitute.org/content/uploads/2016/08/2security_accounts_final.pdf.
5. Id.
   
6. The Hamilton Project, supra note 2, at 3.
7. Becker also pointed out that creating a new class of workers may create more litigation when employers try to reclassify employees. The Hamilton Project, Modernizing Labor Laws in the Online Gig Economy 44–46. (Dec. 9, 2015), www.hamiltonproject.org/assets/files/labor_laws_gig_economy_krueger_harris_transcript_12-9-2015.pdf.
8. Vasquez v. Dillard’s, Inc., 381 P. 3d 768 (Okla. 2016).
9. Id. at 770.
10. See Richardson, supra note 2; see also Thomas A. Robinson, Is the Wall Strong Enough?, The Work Comp Writer (Feb. 2, 2018), www.workcompwriter.com/is-the-wall-strong-enough/.
11. Andrew Khouri, Uber Drivers, Freelancers and Other Independent Contractors Are Getting a Tax Cut, L.A. Times (Jan. 16, 2018), www.latimes.com/business/la-fi-independent-contractors-tax-20180116-story.html.
12. S. 1549, 115th Cong. (2017). This bill proposes a test for whether a service provider should be classified as an independent contractor rather than as an employee for tax purposes.