A Key Consideration in the New Industrial Revolution: Remaining Competitive and Relevant While Mindful of Employment Laws

This morning I have a thought-provoking article written by my colleague and friend, Manuel Cairo. It provides an interesting op-ed perspective for those with independent contractors or who are thinking of utilizing them.

man jumping on 3d boxesAmerica is experiencing an industrial revolution not unlike that which it went through in the early twentieth century. Then, America’s industrial revolution was characterized by mass consumption that required the likes of Henry Ford’s assembly line to quench the demand of thirsty consumers. A byproduct of that mass consumption was consumer access to products and services previously reserved for a select subset of society. The character and nature of the economy forever changed and it is happening again now.

According to The Economist, technological advances and ingenuity is again delivering consumers access to products and services previously unobtainable. See Workers on Tap, The Economist, Jan. 3rd-9th, 2015, at 9, 17-20. Take for example Uber, which operates a mobile app that allows individuals to effectively and efficiently have a private chauffeur. Stated differently, Uber, like so many other new businesses, is harnessing the power of technology to provide products and services whenever required by the consumer creating what the publication calls an “on-demand economy.” So powerful is this trend, The Economist reports venture-capital investment in the on-demand economy by this country approached nearly $1.5 billion in 2013—an exponential growth compared to total investments from 2009. It appears, then, the “on-demand economy” may very well be here to stay and all businesses will have to adapt to remain competitive and relevant.

As businesses begin adapting to this new business paradigm, they should keep in mind that the marketplace often evolves faster than the regulatory system. Therefore, businesses should remain mindful of employment laws when developing strategies to compete, such as how to classify its employees. Indeed, employers contemplating these strategies often consider classifying workers as independent contractors instead of employees because the former classification can provide greater flexibility in responding to consumer demands while affording substantial savings that in turn allows for the cheap and quick delivery of products or services. The federal government recognizes businesses are tempted by the lure of the independent contractor classification and has long warned that it “presents a serious problem for affected employee, employers, and the entire economy. . . . Misclassified employee are often denied access to critical benefits and protections . . . and [misclassification] generates substantial losses [to local, state, and federal governments].”

This Workplace Word is not intended to discuss any particular case or legal doctrines concerning the independent contractor classification. Surely, much has already been written on the topic. Instead, this Workplace Word is meant to encourage business owners—large and small—to maintain a big-picture view on this issue. Considering the use of independent contractors involves a multidisciplinary analysis. For example, the independent contractor classification is important in determining application of laws concerning traditional labor, tax, employee benefits, wage and hour, anti-discrimination, immigration, worksite enforcement, heath care, worker’s compensation, and unemployment. Moreover, the proper analysis for each of these areas is different. Tests include “right to control,” “economic realities,” and various modified versions of each of them adopted at both the federal and state level.

Suffice it to say, an independent contractor agreement is generally not enough to overcome the presumption that workers are employees, not independent contractors. Business owners must think about this issue more broadly and approach it with greater nuance and care. The breadth of potential consequences from misclassification is merely a corollary of the multidisciplinary nature of this area and should further cause business owners to think carefully about how they classify workers.

The Economist may be right in spotting the beginnings of a twenty-first century industrial revolution. If true, businesses will have to adapt to these new trends so as to reinvent how they deliver products and services to an ever changing and demanding consumer. In doing so, businesses will undoubtedly turn to the workforce to find solutions for effective evolution. While classifying workers as independent contractors may seem tempting because of the cost savings and flexibility, it could prove expensive if not fatal in the long run for a number of reasons business owners should consider.

About Ashley Kasarjian

Attorney at Snell and Wilmer in Phoenix, Arizona, and publisher of the blog, Employment and the Law.
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