States Clarify Worker Classification in the Sharing Economy

Several states have given businesses in the sharing economy something to celebrate: legislation that would clarify the independent-contractor status of individuals who obtain client opportunities through technology platforms.

These legislative initiatives take two forms, namely, bills narrowly focused on transportation network company drivers (e.g., individuals who drive for ride-sharing companies such as Uber and Lyft), and broader bills that apply to individuals who use a technology platform to obtain access to clients seeking service providers of any type, which the bills call qualified marketplace contractors.

The legislative initiatives currently pending are described below.

Transportation Network Company Drivers

To specifically address the transportation segment of the sharing economy, more than a dozen states introduced bills during the 2015 and, thus far in the 2016 legislative sessions, that would clarify the independent-contractor status of individuals who drive a motor vehicle for customers obtained through a transportation network company (“TNC”). These measures generally provide that a transportation network company driver is an independent contractor relative to a TNC, provided certain criteria are satisfied. The specified criteria often includes the following:

  • The transportation network company does not prescribe specific hours during which a transportation network company driver must be logged into the transportation network company’s website, digital platform, or software application;
  • The transportation network company imposes no restrictions on the transportation network company driver’s ability to utilize a website, digital network, or software application of other transportation network companies;
  • The transportation network company does not assign a transportation network company driver a particular territory in which transportation network company services may be provided;
  • The transportation network company does not restrict a transportation network company driver from engaging in any other occupation or business; and
  • The transportation network company and transportation network company driver agree in writing that the transportation network company driver is an independent contractor of the transportation network company.

During 2015, Arkansas, Indiana and North Carolina enacted TNC driver laws, and thus far in 2016, Mississippi (H.B. 1381), Utah (S.B. 201) and West Virginia (H.B. 4228) have done so as well.

Qualified Marketplace Contractors

Recently introduced Qualified Marketplace Contractor bills would clarify an individual’s independent-contractor status in the broader sharing economy. These bills typically provide that for purposes of all state and local laws, regulations, or ordinances, a qualified marketplace contractor (“QMC”) will be treated as an independent contractor relative to a qualified marketplace platform (“QMP”) so long as (i) the QMC is compensated based on service or output, but not based on hours of service, and (ii) there is a written agreement between the QMC and the QMP that contains the following elements:

  • That the qualified marketplace contractor is providing services as an independent contractor, not as an employee;
  • That all or substantially all of the payments for the services performed by the qualified marketplace contractor are directly related to the performance of services or other output, rather than to the number of hours worked;
  • That the qualified marketplace contractor is allowed to work any hours or schedules he or she chooses, provided that if a qualified marketplace contractor elects to work specified hours or schedules, a contract may require the qualified marketplace contractor to perform work during the selected hours or schedules;
  • That the contract does not restrict the qualified marketplace contractor’s ability to offer services to other entities, including other qualified marketplace platforms;
  • That the qualified marketplace contractor shall bear all or substantially all of his or her own expenses;
  • That the qualified marketplace contractor shall be responsible for tax on the qualified marketplace contractor’s own income; and
  • That the qualified marketplace contractor may terminate the contract and the association created thereby without cause upon reasonable notice given to the qualified marketplace platform.

For purposes of these bills, a QMC is commonly defined as a person that enters into an agreement with a qualified marketplace platform to use the qualified marketplace platform’s digital platform to obtain access to third party customers seeking their services.

A QMP generally means a person that operates a digital platform that enables qualified marketplace contractors to gain access to third party customers seeking their services.

The proposed legislation, in some cases, would also address relationships that occurred prior to the enactment of the bill by retroactively treating a QMC as an independent contractor so long as the QMC and the QMP satisfy the compensation and contractual requirements discussed above.

Thus far in 2016 Qualified Marketplace Contractor bills have been introduced in Alabama (H.B. 434), Arizona (H.B. 2652), Mississippi (H.B. 1242 & S.B. 2531), and Oklahoma (H.B. 1343).

Effects

A common feature of all of these bills is that they would create greater certainty for individuals and technology platforms that a platform will not be treated as the employer of an individual who uses the platform to gain access to customer opportunities.

While many State and Federal government agencies are increasing enforcement efforts targeting companies that do business with independent contractors, the bills discussed above demonstrate that many states are interested in preserving and protecting legitimate independent-contractor relationships.

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