As we continue to shift further into gig economy employment, defining employee-employer relationships is increasingly challenging in the area of workers’ compensation. Workers’ Comp Matters host Alan Pierce talks with Roger Finderson about what the term “gig economy” really means and how to draw the distinction between employees and independent contractors. They explain the use of factors tests, the need for adaptations in workers’ comp law, and how the advent of “Handy” legislation is creating problems for injured workers.
Roger Finderson is managing attorney at Finderson Law LLC in Fort Wayne, Indiana.
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Workers Comp Matters
Defining Employment Relationships in the Gig Economy–Can It Be Done?
Intro: This is Workers Comp Matters, hosted by attorney Alan S. Pierce, the only Legal Talk Network program that focuses entirely on the people and the law in workers’ compensation cases. Nationally recognized trial attorney, expert, and author, Alan S. Pierce, is a leader committed to making a difference when Workers Comp Matters.
Alan S. Pierce: Welcome to another edition to Workers Comp Matters here on the Legal Talk Network. I am Alan Pierce with Pierce, Pierce & Napolitano. We are a claimant law firm practicing law in Salem, Massachusetts and today, we are bringing you a special edition of Workers Comp Matters from the Bacara Hotel in Santa Barbara where the Workers Injury Law and Advocacy Group is having its annual meeting, and as a result we have a guest attorney Roger Finderson from Indiana who I am going to introduce in a moment. And we’re going to be talking about the Employment Relationship in the Gig Economy, Does it Survive?
Before we begin and before I introduce you to Roger, I want you to visit one of our sponsors.
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Over the last year or two or perhaps longer, we’ve done several shows here on Workers Comp Matters talking about the changing nature of the economy and how workers compensation is adapting or not adapting to the changes in the workforce. And if you’ve heard any of the more recent episodes, you’ve heard a lot of references to the so-called gig economy, but we’ve never really dealt very much into and done a show specifically on what is the gig economy and more importantly, what is the distinction between independent contractor and employer-employee relationships and how that is at variance in various jurisdictions.
So my guest today presented a paper here and a talk here at the WILG Annual Meeting. His name is Roger Finderson. I have known Roger for some time. He is a colleague of mine. He practices law at Finderson Law in Fort Wayne, Indiana. He is a graduate in my neck of the woods of Brandeis University in Waltham, Massachusetts.
He earned his law degree at Indiana University Law School. He has a variety of memberships in all sorts of professional organizations including the AAJ and WILG. He is a frequent speaker both in Indiana and nationally. And I want to welcome Roger to Workers Comp Matters.
Roger Finderson: Thank You Mr. Pierce. I appreciate being here.
Alan S. Pierce: All right. So let’s get right into it. Let’s start by some definitions. Generally speaking, what is — what do we mean by the gig economy?
Roger Finderson: Alan when we protect injured workers, we’re looking for workers who are employees. So when you hear about the gig economy, what we’re really talking about is undermining protecting those injured workers.
The gig economy, whoever came up with that terminology, is brilliant, but is no friend of the injured worker, because if you think about a gig, your ban that goes down to the local bar, that’s a gig is a one-time event, they have an opportunity to perform and then they’re done.
Employment is more lengthy. It is more consistent and whenever somebody says gig economy, they are already setting the subconscious up for thinking about it in terms of an independent contractor, not an employment relationship. It also sets us up for undermining the traditional way of determining the employment relationship which is under a factors test.
So understanding a little bit about what they mean with a gig economy is important to understand the nature of the relationship. With the advent of technology, we can use something that they like to call the Marketplace Platform. It’s basically an app on your phone and it connects people who need either services or goods with somebody who can provide those services or goods.
So the gig economy if you will, I like to call it the electronic economy, simply because you’re using the technology to connect the customer and the service provider. The gig, as I said before, undermines the employment relationship and hurts the injured workers even more so.
So the gig economy essentially is using electronics and our technology to connect customers and their service providers.
Alan S. Pierce: So let’s take it one step further. I think most of us — I think when we start to think about the gig economy, we think of the most common example that we’re familiar with which are the drivers now for Uber and Lyft. What other types of occupations or work come under this sort of umbrella of gig economy?
Roger Finderson: There is a company called Handy that has been pressing some legislative agenda to statutorily define the working relationship between these customers and these service providers as independent contractors, but what they do Alan is they are taking the painter or the contractor that come in and do your plumbing or electricity and finding customers for them or the other way around the customers will find those service providers.
So in essence, you’re using again an app on your phone, the technology to turn into to connect these two customers with service providers.
Alan S. Pierce: Okay, so Handy is never coming Handy Technologies. So let’s before we get deeper into that, generally speaking as a workers’ comp practitioner, how have we been typically and Industrial Boards or Commissions and Lawyers Insurance companies, how have they been drawing the distinction between who and who is not an employee versus an independent contractor?
I know there’s common law tests, there’s statutory tests, sometimes it’s a case law. From your perspective both in Indiana and more broadly across the country what — how do you generally distinguish whether worker A is an independent contractor of Company B or an employee of Company B?
Roger Finderson: Alan, generally the states have taken an approach called a factors test. They weigh the dynamics of the relationship between worker and company to determine whether the employment relationship actually exists.
For example, you might use the extent of control how you were paid, who provides the instrumentality tools, what not to get the job done, whether or not you have other people that you are doing the work for or is it just a singular company that you’re doing the work for. This factors tests looking at each individual factor and weighing them in terms of the relationship is generally how we historically have determined whether there’s an employment relationship.
Alan S. Pierce: And in this factors test, it’s basically sort of adding up all of these factors and giving them additional weight or I know the right of control and the exercise of control is usually the most important factor.
What if, for example, a painting company hires a bunch of painters and they sign a document that says we understand that we are going to be independent contractors of the ABC painting company, we will be paid via a 1099 document for our taxes. There will be no withholding taxes and we understand that our relationship with the ABC painting company is of an independent contractor relationship. However, in all other respects they are controlled and paid and provided tools and equipment by ABC.
So when you look at it, it looks like an employment relationship notwithstanding this document. Does that document, that contract, that agreement hold any weight?
Roger Finderson: The document itself will control what people think of the relationship, in other words the company and the worker and that is one of the factors that we use in the test to determine the employment relationship, but it is not determinative by itself.
As you pointed out Alan sometimes the employer will control where I show up, what I do, how I do it and provide me all the tools and instrumentalities to perform the job, and I won’t do it for anyone else but them. And that control will likely outweigh the document that says I’m an independent contractor.
Alan S. Pierce: So now that we’ve got these sort of unique work situations, somebody driving for Uber or somebody delivering food delivery and there’s other types of work, somebody gets injured and they bring a workers’ comp claim, what has been the experience around the country as to whether these Uber drivers are employees for purposes of workers’ comp or not?
Roger Finderson: Alan, that’s — it’s unclear how each and every state would handle it.
Up to this point before the Handy legislation started to permeate around the country, it had been the factors test and each individual who was heard in that fashion would have the factors test applied.
What I found is mostly it’s been the employment relationship because the control has been exerted by the company over the worker and the independent contractor concept was defeated. But with the Handy legislation that is starting to turn the tide.
Alan S. Pierce: Okay. So the Handy legislation, what jurisdiction did that come out of and by the way Handy I think is the name of the purported employer or the disputed employer, Handy Technologies. I know you talked about it a little briefly. What does Handy Technologies do for — what’s their business model? What state did this come out of and under what context?
Roger Finderson: Handy originally had tried this legislation in New York and failed but they have been successful in other states, but what Handy’s concept is as similar to Uber and Lyft, they have developed a computer program which when you put it on a handheld device, we call them apps, and they then use that app to promote their workers and connect customers to those workers using that technology.
So the handheld device using an app I find my customers, that’s what the worker does. And so, what they have tried to do now is say hey, we’re just a computer company, we just developed this computer program, we’re not an employer, we’re just letting people use it.
But of course, that is misguided in my opinion and I think in most jurisdictions under the factors test would also be misguided, because they’re just mischaracterizing the nature of the relationship between the company and the worker.
Alan S. Pierce: Okay, so the jurisdictions that adopt the Handy test, it’s clear then that anybody who obtains work through that app would not be covered if they were injured. Is that my understanding?
Roger Finderson: That’s correct. So basically under the Handy Legislation, you are legislatively defining the relationship between company and worker as an independent contractor. So if I use a — what we call it, they use it, I don’t call it that, but the Marketplace Platform, that’s the name for the app, the Marketplace Platform, if I’m using that and I connect myself with a customer and provide a service or good to that customer, legislatively, I am an independent contractor.
Alan S. Pierce: And are there other states or jurisdictions that have adopted the Handy test, again the Handy Technologies test and by the way when did the Handy case come down?
Roger Finderson: Well, Handy has been going around the country trying to pick off what I call the low-hanging fruit. And so some states are easier to push that through than others. Right now, Arizona, Florida, Iowa, unfortunately Indiana, Kentucky, Tennessee, and Utah have versions of the Handy Legislation, but it has failed as I mentioned earlier in New York and Alabama, California.
So there has been some resistance to it.
Alan S. Pierce: All right, and you know what, I may have misunderstood. So when we talk about the Handy test, we’re not talking about a decision from a jurisdiction, we’re talking really about legislation that uses this particular philosophy?
Roger Finderson: That’s correct, Alan. What we’re doing is looking at a legislative agenda to alter the nature of the employment relationship.
Alan S. Pierce: At this point, we’re going to take a brief break and we’re going to get back with attorney Roger Finderson and discuss the effects of so called Handy Legislation on the field of workers comp and the ability of workers to collect benefits if injured. We’ll be right back.
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Alan S. Pierce: Okay, welcome back to Workers Comp Matters. We’re continuing our discussion with Roger Finderson. Let me ask you a question. In Massachusetts, we have among other types of like Craigslist and things, we have something called Angie’s List, I don’t know if that’s national or if that’s particular to either northeast or Massachusetts.
But basically Angie’s List is you need a plumber, you need anything, you want a florist, you want a caterer, you want a window washer, Angie’s List gives you recommendations or people to call. Now, would this somehow if I hired a roofer that was recommended to me by Angie’s List, would it be Angie’s List that would be the purported employer because they maintain the program that allowed me to connect.
Is that similar to what the Handy Technologies issue is all about or is it different?
Roger Finderson: Alan, I think what you’re alluding to is the slippery slope that we’re chasing with this advent of Handy legislation, because anytime I use an electronic platform to connect workers with customers potentially could fall underneath this legislation, which would thereby define statutorily the nature of the relationship as an independent contractor.
So potentially Angie’s List, Craigslist, those kinds of platforms could potentially fall under this Handy legislation and define that as independent contractors. But I think that because there is — it is more of the Craigslist, the Angie’s List is more open, meaning it’s not necessarily controlled, for example with an Uber or Handy company, and in that situation, I think looking at who has been retained to perform those services is important as well.
But the slippery slope is the argument could be that these are independent contractors.
Alan S. Pierce: And in fact, a lot of them may be independent contractors or maybe I would say a hybrid, they maybe something in between what we classically define as an independent contractor as opposed to what we classically define as an employee and I think what we’re seeing is the whole nature of these relationships aren’t really one or the other.
There’s something in between and it’s the something in between that is the problem. Somebody gets hurt at work, somebody’s making money off their labor and if they’re not in business for themselves and incurring that risk of being the employer and the self-employed employer, and therefore or an independent contractor, what in view of this developing source and number of people that are out there working and ultimately some of them unfortunately getting hurt, if they’re not going to be covered by workers comp or put another way, if somehow they can be legislatively covered by workers comp even though they may not be technically an employee, what are the ways that their wages and medical expense can be protected in the event of an injury? Are there other types of insurance they could purchase, could they purchase their own workers comp, could there be some other type of marketing of occupational injury insurance that doesn’t depend on the workers comp system?
How are we going to compensate and I think at one of our prior shows somebody estimated that there could be 40 million workers in the not-too-distant future that would be sort of would fall under this not clear definition of who they are. So how do you predict that they may be entitled to benefits if they get hurt?
Roger Finderson: Alan, it’s my argument that the Handy Legislation is going to hurt injured workers and is a cost shifting mechanism. Shifting the cost from the employers would generally and historically provide the workers compensation insurance for injured workers to basically the public.
Because as a practical matter, if I’m driving a vehicle on behalf of Uber and I get hurt, if I don’t carry my own workers compensation insurance and I am in one of the states where Handy legislation says I am an independent contractor, then I’m going to have to figure out how to pay for my medical expenses and replace my income on my own.
So I’m going to have to have purchased for myself workers comp insurance, purchased for myself short-term and long-term disability programs and if I don’t have those, I’m going to be looking for Medicaid, Medicare, Social Security income and that shifts from the worker to the public, but it should have been the employer in the first place.
Alan S. Pierce: All right. So you see Uber because they make money off of each trip transaction customer as standing in the role of an employer despite the fact that they just merely connect the driver to the customer?
Roger Finderson: Understanding how that works. I mean the customer actually pays Uber. Uber takes a cut and then pays the driver. And so, they are absolutely benefiting from this all the way around just like a classic employer has done over the years whether I’m working in a factory or somewhere else.
So given the nature of the way Uber makes its money, they need these drivers and yet they’re cutting them loose, so the injured worker is left to fend for themselves.
Alan S. Pierce: All right. Well you’ve given us a lot to think about it. Do you have any closing comments or points you want to make before we wrap this up?
Roger Finderson: Injured workers need to be protected. We need to figure out how we can do that most effectively. I don’t believe a one-size-fits-all legislative agenda is the way to do it. We should use the laws that we’ve been using historically all these years under the grand bargain to determine the nature of the relationship and not shift the cost to the taxpayers.
Alan S. Pierce: And in Indiana, somebody who is in a gig relationship, can they — are they legally entitled to purchase workers’ comp insurance? I know in some jurisdictions the owner of the company unless they’re incorporated and are an employee of the corporation, if they are a sole proprietor, simply filing as an individual or even under Schedule C, they cannot be an employer and employee at the same time.
I know in Massachusetts, we passed legislation maybe about 15 years ago that would allow a sole proprietor to be deemed an employee for purposes of buying a workers’ comp policy. Can an Uber driver purchase a workers’ comp policy if he’s not a corporation?
Roger Finderson: Sure. The sole proprietor in State of Indiana can purchase their own workers’ comp insurance and if they want it to be more formal, it’s very easy to set up an LLC and conduct their business that way.
Alan S. Pierce: All right. Well again, Roger, I want to thank you very much for giving us a little more context to the vexing problem of trying to define who and who is not covered under workers’ comp and where the responsibility for injuries lie. I know this is going to be an evolving concept as our workforce continues to change and we continue to create new versions of relationships between providers of goods and services and the workers who deliver those goods and services.
So I want to thank you very much for being a guest here on Workers Comp Matters and I want to thank our audience for listening, and please tune in again for our next edition of Workers Comp Matters, but in the meantime, go out and make it a day that matters. Bye bye.
Outro: Thanks for listening to Workers Comp Matters today on the Legal Talk Network, hosted by attorney Alan S. Pierce, where we try to make a difference in workers’ comp legal cases for people injured at work. Be sure to listen to other Workers Comp Matters shows on the Legal Talk Network, your only choice for legal talk.