“Adapt It, Fix It, or Suspend It”: In a First-of-Its-Kind Analysis, ITIF Outlines Three Pathways to Revamp U.S. Labor Law for the Gig Economy

WASHINGTON—The Information Technology and Innovation Foundation (ITIF), a leading technology policy think tank, today urged Congress to modernize U.S. labor law to better serve workers and companies in the so-called “gig economy” by abandoning the rigid and increasingly outmoded distinction between full-time employees and independent contractors.

In a new report, ITIF argues that the rapid growth of Internet market platforms such as Uber, Airbnb, and TaskRabbit has helped expose shortcomings in current U.S. labor law—which classifies workers according to centuries-old, common-law standards—and outlines pros and cons of three alternative pathways for reform. This report is the first to detail how all of the country’s major labor laws align to the realities of work arrangements that are common in the gig economy.

“The U.S. labor market has diversified considerably in recent decades, and more workers now fall somewhere between full-time employees of a single company and freelance contractors serving their own set of customers,” said ITIF Senior Fellow Joseph V. Kennedy, the report’s author. “Although Internet platforms like Uber and TaskRabbit still represent only a small fraction of this intermediate market, their rapid growth has shined a bright light on the shortcomings of current labor law. There is a clear need for Congress and the states to reform the country’s outdated law by either adapting it, fixing it, or suspending it.”

In the report, Kennedy explains that at both the federal and state levels, the distinction between employee and independent contractor is a relic of tort law and is not very relevant to the statutory purpose of most labor laws. It persists largely by default, imposing costs for workers, companies, and consumers; creating uncertainty in the marketplace; discouraging job creation; and limiting important benefits for workers.

Kennedy outlines three possible paths forward for Congress to reform labor law for the gig economy:

1. Adapt it. Create a new category of worker, between full-time employee and independent contractor. While this would be an improvement on the current system, it also risks replacing two rigid categories with three rigid categories, which still may not provide an optimal fit for all work arrangements.

2. Fix it. 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. Suspend it. Draft a carve-out temporarily exempting gig economy Internet platforms from ill-fitting labor laws. This would be easier to enact and would give Congress time to see whether platform companies respond in ways that improve the welfare of gig economy workers.

Kennedy notes that none of these legislative pathways for Congress 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,” Kennedy concludes. “But any of the three paths would jumpstart the process of updating U.S. labor law, which is long overdue.”

Read the report.