Misclassification in the Gig Economy: Legal Remedies and Future Outlook

The “gig economy” refers to the recently developed labor market dominated by short-term or freelance work where workers receive pay on a per job or project basis, as opposed to permanent employment where workers receive an hourly wage or salary. One of the significant legal issues that has arisen in the gig economy in the past few years involves the classification of gig workers under labor laws. Misclassification can have severe ramifications for workers, who may have legal remedies against the companies that hire them.

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Classifying Gig Workers

Companies that employ gig workers can classify workers in two ways: employee or independent contractor. An employee, also called a W-2 worker, has the means and method of their work controlled by their employer. Employees work specific hours at locations designated by their employer. Employers typically provide employees with tools, equipment, and uniforms. Employees typically must perform the work assigned to them and may not contract someone else to perform that work.

An independent contractor, also called a 1099 worker, works as a self-employed individual. Independent contractors hold themselves out as a business available for companies to hire to perform specific tasks. Independent contractors generally control the means and methods of performing their work, including working whatever hours they want. They can even hire employees or subcontractors to perform tasks under the contract. Independent contractors usually furnish their own tools and equipment.

Government agencies and courts use various legal tests to classify workers as employees or independent contractors. However, the various classification tests frequently focus on whether the worker gets to control the means of their work and holds themselves out as a business for hire rather than working for a specific company.

The Increasing Focus on Misclassification

The rise of the gig economy has blurred the line between employees and independent contractors. Although many may perceive the gig economy as people picking up odd jobs, making gig workers seem more like independent contractors, various companies in the gig economy have treated their workers more like employees while legally classifying them as independent contractors.

Misclassification can have severe financial and personal consequences for gig workers. Gig workers classified as independent contractors become responsible for remitting income taxes and paying self-employment tax; conversely, employers typically bear the responsibility for deducting income taxes from employees’ paychecks and paying payroll taxes. And unlike employees, independent contractors cannot obtain workers’ compensation benefits if they get injured while working for another company.

Legal Remedies for Misclassified Gig Workers

Gig workers who feel that their company has misclassified them as independent contractors may have options for obtaining financial and legal relief. Workers can file claims under wage/hour or workers’ compensation laws to obtain minimum wage, overtime pay, or workers’ compensation benefits. Multiple gig workers working for a business might band together to file a class action lawsuit to obtain collective relief. Workers can also turn to state and federal labor regulators to intervene and take regulatory action against companies that misclassify gig workers.

The Future Legal Landscape for the Gig Economy

Courts and state/federal labor agencies have issued decisions or regulatory actions in recent years that have addressed the tension over the misclassification of gig workers. State and federal legislators have also regularly proposed legislation to clarify the treatment of gig workers under labor laws. While the gig economy will likely continue to grow in future years, gig workers may feel increasing pressure to advocate for better pay and benefits that come with classification as employees rather than independent contractors. Efforts by labor advocates and organizing among gig workers themselves may lead to court cases or legislation that changes the legal landscape of the gig economy concerning employee/independent contractor classification.

Contact Woods Lonergan PLLC Today

When you find yourself in a dispute over the classification of gig workers, let an experienced attorney guide you and help you protect your interests. Contact Woods Lonergan PLLC today for an initial consultation to discuss your legal options with our team.

About the Author

James F. Woods is Founder and Managing Partner of Woods Lonergan. He has tried more than 60 jury cases to verdict as first-chair trial counsel, beginning his career as a prosecutor, and resolves complex commercial and real estate disputes valued at $1M to $100M+ for business owners, principals, and middle-market enterprises across the New York metro area. He appears regularly in the New York Commercial Division and in the federal district courts for the Southern and Eastern Districts of New York, and has argued appeals in the Appellate Division and the Second Circuit.

His practice covers complex commercial litigation, real estate and asset litigation, partnership and shareholder disputes, fiduciary breach and corporate fraud, and cooperative and condominium governance. He counsels corporate and cooperative boards throughout New York.

The Legal 500 United States ranks James in its New York Elite rankings for Commercial Disputes, and his peers have recognized him with Martindale-Hubbell's AV Preeminent rating. Woods Lonergan is ranked in Chambers USA: Spotlight New York for Litigation: General Commercial and Real Estate. James serves on the Commercial & Business Litigation Committee and the Business Torts & Unfair Competition Committee of the American Bar Association Section of Litigation, and on the Cooperative & Condominium Law Committee of the New York City Bar Association. His commentary on New York commercial and real estate disputes has been quoted in The New York Times, The Washington Post, Bloomberg Law, Law360, and Forbes.