Three Paths to Update Labor Law for the Gig Economy

People who make all or part of their living through Internet-based market platforms such as Uber, Airbnb, and TaskRabbit are poorly served by U.S. labor laws that rigidly categorize all workers as either regular employees or independent contractors. This paper argues Congress and the states should reform labor law for the so-called “gig economy” by amending all major labor statutes—from the Occupational Safety and Health Act to the Employee Retirement and Income Security Act—so they apply only to work relationships where they make sense. In lieu of that, the paper argues Congress should create a narrow exemption for Internet market platforms, so they can experiment with new ways to help their workers.

Many labor laws regulate the relationship between an employer and its employees. In contrast, independent contractors are presumed to be able to look out for themselves when negotiating contracts with different clients. But the laws leave little space in between, which is where most of the gig economy exists. Moreover, the irony is that, at both the federal and state levels, the distinction between regular employees and independent contractors is a relic of tort law and is not very relevant to the statutory purpose of most labor laws. It persists largely by default.

This creates a problem, because outmoded labor laws are imposing costs on the gig economy. First, they introduce a great deal of uncertainty, by linking significant policy consequences to highly subjective and shifting criteria for who is considered an “employee.” Second, they discourage the creation of the flexible and varied job opportunities that Americans increasingly need by banning certain relationships and subjecting gig platform companies to large potential liabilities. Finally, as gig platforms offer people an expanding array of work arrangements, current labor laws do a poor job of benefiting the workers they are intended to protect

This paper describes three possible paths forward in reforming labor law for the gig economy:

1. The first path would be to create a new category of worker, between full employee and independent contractor. While this would be an improvement on the current system, it risks replacing two rigid categories with three rigid categories, which still may not provide an optimal fit for all work arrangements.
2. The second path would be for Congress to revisit each of the country’s major labor laws and carefully tailor them to achieve their specific goals. This would be ideal, but it would involve a long and difficult political process.
3. The third path, which would be easier in the near term, would be to draft a carve-out for workers who depend on Internet platforms to find gig work. A well-crafted statute would ensure that workers, customers, and platforms all benefit from reform.

None of these would entirely solve the problem, because each state also has its own labor laws. Without similar changes at the state level, many of the benefits of reform would remain out of reach. But any of the three paths would jumpstart the process of updating U.S. labor law.