Gig-Economy Myths and Missteps
abstract. This Essay explores the rich history of flexible employment models from union hiring halls to alternative compensation structures. It explains how gig companies are responsible for popularizing the narrative that employment is inherently inflexible, unlike independent contracting, through corporate public-relations campaigns and lobbying. Grounded in this history, the Essay argues that “third-category” laws, which purport to resolve the tension between gig work and employment, simply reinforce existing labor market inequalities, undermine longstanding frameworks of employment and labor law, and legitimize misclassification as a form of wealth transfer from working people to corporations. Instead, it advocates for legislation that secures for employees the putative benefits of contracting. Finally, the Essay offers guidance for labor enforcers on avoiding the third-category trap in negotiated misclassification settlements.
Introduction
The popular origin story of the gig economy goes like this. New technology has effected a fundamental change in our labor economy, facilitating flexible, autonomous work. That work takes the form of “gigs” that cannot be accommodated by the rigid legal frameworks of traditional employment and labor law. Platform companies aggressively propagate this narrative, and many legislators, enforcers, courts, and workers accept it. Amid a growing ethos of employee dissatisfaction and ennui, the promise of flexible and independent labor has mass appeal. But multiple historical revisionisms underlie this understanding.
This Essay explores the rich history of flexible employment models, from union hiring halls to alternative compensation structures, to expose the fiction of inflexibility in the employment regime. In exploring this history, the Essay explains how gig-company lobbying and public-relations campaigns over recent decades are responsible for convincing so many that employment is inherently inflexible, while independent contracting is inherently flexible. Grounded in this history, the Essay builds on existing literature to show that “third-category” laws—which purport to resolve the tension between gig work and employment—simply reinforce existing labor market inequalities by conceding the classification question, regardless of the economic reality of the working relationship, and granting massive corporate subsidies from primarily minority workers to shareholders. Instead, this Essay advocates for legislation that secures for employees the putative benefits of contracting, like flexible scheduling laws. Finally, this Essay quantifies the billion-dollar price for workers and the state when labor enforcers accept the third-category sham in negotiated misclassification settlements.
I. the misclassification pandemic
A quick glance at the labor economy might inspire optimism: most workers who left the labor market during the Covid-19 pandemic have returned,1 the unemployment rate is low,2 and there are more jobs than workers.3 But closer inspection tells a different story. Workers’ compensation relative to economic output has declined over the past seventy years.4 Since the 1970s, a confluence of factors combined to stymie worker power and relative income: among them, steady de-unionization, globalization, and technological change.5 These factors have compounded the false promise of trickle-down economics, which further amassed corporate wealth at the expense of the working class.6 And the recent pandemic only amplified these bleak trends for working people, leaving many unemployed, underemployed, or unsafe at work.7
Post-2020, while the employment rate has rebounded, worker morale has not.8 Many attribute this to macroeconomic conditions: while wages have generally kept pace with inflation, prices remain high and housing affordability is at an all-time low.9 But several structural features of the American labor market itself, taken together, easily account for persistent worker disempowerment. Most American employees are at-will and can be fired at any time.10 Many workers, especially low-wage workers, have nonstandard work schedules or need multiple jobs to get by.11 Around twenty percent of the workforce is subject to noncompetes, which limit worker mobility and wages.12 Mandatory arbitration contracts and class-action waivers, which preclude workers from enforcing their rights in court or as a class, now bind more than half of the private-sector workforce.13 And despite recent high-profile union victories,14 union membership has declined to just six percent of the private workforce, compared to one-third of the private workforce in the 1950s.15
Within this bleak labor landscape, the misclassification of workers as independent contractors has exploded to crisis levels.16 Unlike employees, independent contractors are not entitled to federal or state labor protections, including minimum-wage pay for all time “suffer[ed] or permit[ed] to work” under the Fair Labor Standards Act (FLSA),17 overtime pay, sick leave, workers’ compensation, and protections from discrimination under Title VII, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and more.18 Independent contractors have no right to collective bargaining under the National Labor Relations Act (NLRA).19 Only employers must pay payroll taxes, including Federal Insurance Contributions Act taxes that fund Social Security and Medicare, as well as unemployment insurance, workers’ compensation, and, in some jurisdictions, paid sick leave.20 Whereas employers must pay or reimburse employees for business expenses, independent contractors bear all of their work-related costs and expenses.21 And whereas most employees have a right to know their rate of pay and any changes to it,22 independent contractors do not, and many platform companies secretly and algorithmically adjust worker pay.23
The logic of the employee/contractor distinction is that employees are economically dependent on and controlled by their employers and are thereby vulnerable to exploitation. In turn, they require benefits and protections that countervail corporate power, like the FLSA and the NLRA.24 In contrast, bona fide independent contractors are economically independent and not subject to corporate control—that is, they are independent businesses—so they do not need comparable protections from exploitation.25 For this reason, both the FLSA and the NLRA interrogate the true nature of the working relationship (what the FLSA calls the “economic reality”) in determining whether workers are employees or contractors.26 But when employers misclassify workers, they get the benefit of control over their workforce without any of the costs or liability of employment. And by shirking employment liability, misclassification begets wage theft.
In the absence of robust misclassification enforcement, it should be no surprise that misclassification is on the rise. Fewer benefits and protections for workers means lower costs and less liability for firms, allowing them to reap up to thirty percent cost savings on labor.27 On the flip side, misclassification reduces individual-worker earnings by tens of thousands of dollars on average annually.28 It also exacerbates existing inequities because women and people of color are overrepresented in occupations at the highest risk for misclassification.29 In addition to hurting workers, misclassification harms compliant businesses that cannot compete with the artificially low cost of misclassified labor.30 And more generally, misclassification hurts the economy by allowing companies to achieve significant cost savings through artificially depressed labor costs, rather than a legitimate competitive advantage like those gained from superior services or investment in research and development.31 All of these trends have distributional consequences: when labor is fissured, corporate gains are increasingly shared with and concentrated in the investor class, rather than the working class.32
The state of misclassification is changing rapidly. In 2014, David Weil documented decades of increased workplace fissuring, including misclassification, subcontracting, temp work, and offshoring.33 In the decade since, through the proliferation of gig companies that engage workers as contractors, fissures in the labor economy have only deepened. While the application-based gig model was previously associated primarily with transportation and delivery services like Uber and Instacart, it has now expanded to industries traditionally composed of employees, like nursing and elder care,34 as well as restaurant and bar-service work.35
To begin making sense of this crisis, the next Part explores a popular narrative about gig work from a historical and legal perspective.
II. the flexibility myth
One popular understanding of the gig economy, widely accepted by workers,36 is that new technology facilitates flexible, independent work that cannot be accommodated by historical legal frameworks for employment.37 As Uber’s CEO wrote in The New York Times, “Our current employment system is outdated and unfair. It forces every worker to choose between being an employee with more benefits but less flexibility, or an independent contractor with more flexibility but almost no safety net.”38 The conclusion follows that the unique benefits of contracting, like scheduling flexibility, are important enough for workers to forgo the traditional benefits and protections of employment. This perspective has even surfaced in judicial opinions.39 But multiple historical revisionisms underlie this narrative. In reality, there exists a rich history of flexible models of employment for seasonal, short-term, and gig work.
Consider union hiring halls. Historically, hiring halls—a type of union-run employment agency—facilitated gigs for workers in industries with a consistent demand for labor on a seasonal or short-term basis, like job-by-job or project-by-project work, especially in construction and shipping.40 Hiring halls operated either exclusively—that is, with exclusive contracts to provide labor to employers—or nonexclusively, where the hall would be one of multiple sources of workers.41 Employers seeking hiring halls’ services would need to enter a collective-bargaining relationship with the union operating the hall. While hiring halls functioned as intermediaries between employees and employers rather than as employers themselves, they were nonetheless subject to stringent rules regarding fairness in staffing decisions, recordkeeping, and transparency.42 For decades, union hiring halls performed a critical staffing function in industries with seasonal or project-based work and provided workers with all the attendant employment benefits, protections, and collective-bargaining rights.43
Notably, union hiring halls have not entirely disappeared. They persist in part in unions and guilds throughout the entertainment and service industry, where short-term, project-based work remains common. For example, the Actors Equity Association and the American Federation of Musicians (AFM) negotiate contracts and provide some staffing functions for professional theater employees and musicians, respectively.44 Both unions negotiate collective-bargaining agreements with union venues on behalf of member performers, who in turn are able to take gigs as employees with attendant benefits. Under this system, performers frequently retain significant flexibility. For example, AFM musicians who attain a chair in a Broadway show can retain their contracts while using substitutes for up to fifty percent of the time,45 and even performer substitutes are covered by the union agreement and treated as employees.46 A few strong service-industry unions—for instance, Las Vegas’s Culinary Workers Union, UNITE HERE Local 226—also maintain “training halls” that, like hiring halls, offer training and job placement in sometimes-seasonal industries like hospitality.47 Counterintuitively, as Sanjukta M. Paul observed, “Uber purports to perform exactly the same functions as a hiring hall: it brings together buyers and sellers in time and space, and it also sets the price of the ride.”48 But while hiring halls are granted an exemption from antitrust law in recognition of their unique pro-employee function, Paul argues firms like Uber that set prices for independent contractors should be subject to antitrust scrutiny for price fixing.49
Since the FLSA was passed, commission-based, piecework, and flat-rate compensation have also afforded flexible employment in many industries. In a commission system, workers are compensated for some unit of productivity, like items sold by a salesperson. In order for commissions to be bona fide, they must provide some sales or productivity incentive linked to compensation in a manner that decouples employees’ time worked and pay.50 Historically, commissioned employees typically worked in retail environments with seasonal variations in productivity. Many contemporary sales workers, particularly in real estate, remain compensated by commission. Similarly, under piecework or piece-rate pay, employees are compensated per “piece,” that is, per some unit produced. From the mid-nineteenth through mid-twentieth century, piecework proliferated in the agricultural, textile, and manufacturing industries.51 Piecework was commonly used by large companies to create “home work” for employees that could be completed off-premises, like garment, jewelry, or toy assembly.52 But early- and mid-century piecework was far from flexible or empowering: in particular, many women worked full-time hours from home for starvation wages in addition to shouldering domestic responsibilities.53 This plight motivated, in part, the passage of the FLSA and more stringent protections for piecework and home work in particular.54 Contemporary employees compensated through piece-rate pay typically work in construction, medical transcription, artisan production, and satellite installation.55 Finally, a variation of piecework is flat-rate pay, where employees are paid a flat rate per task regardless of how long the task takes to complete.56 Historically, mechanics were (and in some states still are) paid flat rates for standard services.57
Because employers do not compensate commissioned, piecework, or flat-rate employees strictly per hour, these compensation structures may afford employees greater flexibility to choose when and how much they work and respond to seasonal or other variations in demand for their services. But critically, under the FLSA, piecework, flat-rate, and commission compensation structures have never been excuses to pay workers exploitation wages: employers nonetheless must abide by minimum-wage laws.58 State wage laws also do not exempt commissioned, piece-rate, or flat-rate workers from employment protections, with the limited, misguided exception of New Mexico.59 Notably, the FLSA does exempt some commissioned employees from overtime pay, but only where the commission does not “offend[] the purposes of the FLSA” to protect vulnerable workers in positions where long hours could lead to accidents and injuries.60 (The irony of this rule is that many gig workers, like drivers and delivery workers, are precisely the type of vulnerable worker in a dangerous industry that the FLSA’s drafters recognized a need to protect, and yet they remain de facto exempt from overtime by virtue of misclassification.)
Piecework, flat-rate, and commission-based pay are not inherently superior or fairer methods of compensation; workers paid under these untraditional structures may also be misclassified as independent contractors or exploited like any others.61 Non-hourly pay can also be less predictable. But these untraditional structures reflect the historical and legal reality that the employment framework is robust enough to tolerate diverse work schedules and wage structures, without sacrificing employment law’s protection of minimum wages and standards for all time worked.62 And even within these untraditional wage structures, employees retain the right to bargain collectively under the NLRA, regardless of how much or little they work.
It would be shortsighted to reject the myth of inflexible employment without addressing the companion myth of flexible contracting. To start, at least half the work on gig platforms is done by full-time workers, so most gig company profit is actually driven by workers with regular routines, not flexible ones.63 And in reality, gig workers’ schedules are far from flexible. Gig drivers report that there are better and worse times to drive, so picking the hours that work best for them often means earning less.64 More perniciously, many gig companies offer modest “bonuses” to induce drivers to sign up for times or batches of jobs when forecasted demand is high but then decrease the number and quality of offerings to drivers over time, effectively “locking in” workers by creating expectations of future bonuses that never materialize.65 Gig companies routinely use “steering” tactics to drive workers towards longer shifts that effectively prevent workers from “multi-apping,” operating as de facto noncompetes.66 And critically, most gig workers do not choose gig work as a preference, but rather as a last resort in addition to another low-paying job.67
In short, gig work is not a new phenomenon. Historically, gig work has been, and in many industries remains, perfectly consistent with employment and its attendant benefits and protections through union hiring halls, guild clearinghouses, and piecework, flat-rate, or commission-based employment. Flexibility does not fundamentally inure to either employment or contracting. Rather, in the American labor economy, profit-motivated firms are incentivized to reduce the scheduling flexibility of workers—employees and misclassified contractors alike—wherever possible, to guarantee consistent productivity or match consumer demand. And, in the absence of effective misclassification enforcement, gig companies have a financial incentive to classify workers as contractors rather than competing for employees through wages and benefits.
III. the propaganda machine
This rich history of gig employment raises the question: what has led to the consensus among so many workers, scholars, enforcers, legislators, and even judges that contemporary gig work is irreconcilable with employment? Two answers emerge. First, while flexibility and employment are theoretically and historically compatible, the opportunities for flexible employment are decreasing, especially for low-wage workers.68 Part IV discusses legislative responses to this phenomenon. Second, as this Part describes, gig companies have for the past decade mounted aggressive legislative and public-relations campaigns to advance the narrative that second-class contractor status is the only way for workers to attain flexibility.
Since their origin, gig companies have churned out television and web advertisements for workers and consumers with slogans like “Flexibility Works.”69 Lyft has produced and promoted blogs and web series espousing the virtue of “flexibility so there’s time to pursue other passions.”70 Gig executives have penned op-eds regurgitating this logic.71 Not content to tell their own story, gig companies have repeatedly—and sometimes secretly—placed op-eds from gig workers celebrating flexibility and, on that basis, expressing a preference for contractor status.72 And gig companies have donated to local organizations that are purportedly progressive or pro-worker, and those organizations have in turn published articles that cynically tout the flexibility of gig work as a boon to minority workers.73
Behind the scenes, gig companies work together. Uber, Lyft, DoorDash, and Instacart formed a corporate lobby group called “Flex” that now includes Shipt, Grubhub, and HopSkipDrive as “corporate members.”74 Flex proselytizes: “Today’s flex work is inherently different from traditional employment. It’s an entrepreneurial opportunity facilitated by technology platforms . . . allowing workers to use their time on their own terms.”75 Through Flex, gig companies have commissioned surveys to demonstrate gig workers’ purported preference for flexible work and independent-contractor status.76 In turn, these same companies cite these survey results in their promotional materials.77 Flex has lobbied against pro-worker measures, including the new federal Department of Labor (DOL) independent-contractor rule,78 the Protecting the Right to Organize Act (PRO Act),79 and state anti-misclassification measures, all on the basis of protecting workers’ flexibility.80
Flex is hardly the only lobbying organization with multiple gig-company members. Amazon, DoorDash, Instacart, Lyft, Uber, Shipt, TaskRabbit, Rover, GrubHub, and GetAround are just some of the gig-company members of the lobbying organization TechNet, which spent almost $4.5 million in 2017 and 2018 on advocacy for the federal New Economy Works to Guarantee Independence and Growth Act.81 The Act would solidify gig workers as contractors, yet again in the name of worker choice and flexibility.82 Likewise, the Coalition for Workforce Innovation (CWI)—a corporate lobby group that includes Uber, Lyft, Shipt, and a wide variety of gig companies in the healthcare-staffing industry—claims its “coalition supports policy proposals that protect, empower, and enhance the choice, flexibility, and economic opportunity of individuals that choose nontraditional work arrangements.”83 CWI has lobbied aggressively in support of the Workforce Flexibility and Choice Act, which would formalize gig workers as nonemployees.84 Several gig companies have resisted efforts to increase transparency regarding their lobbying efforts.85
In addition to forming corporate lobby guilds, gig companies have retained credentialed economists and former political appointees to author favorable, seemingly independent studies touting the gospel of flexibility (and occasionally, failing to disclose their financial support for these studies86).For example, soon after its launch, Uber engaged Alan B. Krueger, economist and former Assistant Secretary of the Treasury for Economic Policy to President Obama, as a consultant.87 Krueger teamed up with then-employee and Uber shareholder Jonathan Hall to publish a paper under the reputable auspices of the National Bureau of Economic Research. The paper summarized the findings of a survey—the methodology and interpretation of which have since been rebuked88—to report that drivers were by and large “very satisfied,” were motivated by a preference for flexible work, and preferred to be independent contractors rather than employees.89 Krueger subsequently partnered with Seth D. Harris, former United States Deputy Secretary of Labor under President Obama, to author a paper insisting that “emerging work relationships arising in the ‘online gig economy’ do not fit easily into the existing legal definitions of ‘employee’ and ‘independent contractor’ status,” which laid the groundwork for laws that enshrine gig workers as contractors.90
When legislators and enforcers attempt to regulate gig companies in progressive states, gig companies escalate the conflict. The starkest example exists in California. In 2020, the state legislature passed Assembly Bill 5 (AB 5)—a law containing the worker-friendly ABC test for determining employee status, which would have likely resulted in liability for many gig companies as employers.91 In response, gig companies spent a combined $220 million to mount a successful ballot initiative, Proposition 22 (Prop 22), to reverse AB 5—an initiative that gig companies styled as “[p]rotecting the ability of Californians to work as independent contractors . . . so [they] can continue to choose which jobs they take, to work as often or as little as they like, and to work with multiple platforms or companies.”92 To pass Prop 22, gig companies bombarded voters with (occasionally dishonest) advertising centering flexibility and worker choice.93 Ironically, after Prop 22 passed with 58% of the vote, the companies began to reduce incentive compensation to drivers, resulting in overall lower driver pay statewide compared to pre-Prop 22 ($5.64/hour, compared to the $15.60/hour promised under Prop 22)94; only 15% of California drivers were able to claim any benefits like healthcare stipends95; and many voters expressed remorse.96
Following the Prop 22 playbook, after the Massachusetts Office of the Attorney General (MA OAG) sued Uber and Lyft, a coalition of companies led by Uber, Lyft, DoorDash, and Instacart called “Flexibility and Benefits for Massachusetts Drivers” broke state campaign-spending records97 in lobbying for multiple third-category-reform ballot initiatives for November 2024; if successful, the initiatives would enshrine drivers’ status as contractors and provide some minimum pay for driving time.98 The same companies, through Flex, mounted expensive advertisements in Washington, touting gig workers’ enviable “work life balance,” in support of an eventually successful third-category law, avoiding the companies’ need for a referendum in that state.99
These gig-company tactics are not new but rather borrow from companies in other industries seeking deregulation, like oil, tobacco, and guns.100 Just like these companies before, gig companies now use self-serving legislative advocacy and downright deceptive advertising campaigns to insist that individual workers’ preferences for flexibility justify predatory business models—ignoring the reality that, for many workers, gig work is not a preference but a last resort.
IV. the third-category sham
The increasingly popular approach to regulating gig work is “third-category” legislation, which purports to resolve the fictional tension between gig work and employment. Under third-category laws, gig workers are neither employees or standard independent contractors, but a “third category” of worker who forfeits employment in exchange for narrow benefits like minimum-pay protections, paid sick leave, or healthcare stipends.101 Despite the name, third-category laws universally enshrine gig workers as independent contractors. Armed with the understanding that, legally and historically, gig work and employment cohere, worker advocates should be skeptical.
While the limited benefits afforded by third-category laws may appeal to some gig workers, there is a straightforward reason why the gig industry embraces them: third-category workers are dramatically cheaper than employees. While third-category laws purport to set minimum-pay standards, they only compensate workers for active time, like time that Uber/Lyft drivers spend driving a passenger or Instacart/DoorDash workers spend completing a delivery. While employers must pay minimum wage for any time an employee spends engaged for the benefit of the employer,102 including time spent waiting to be assigned a ride or a delivery job, gig companies shirk these costs with impunity under third-category laws. Unsurprisingly, lobbying organizations like Flex, TechNet, and CWI have spent millions of dollars in support of third-category proposals.103
While third-category laws offer immediate, limited support to gig workers, they ignore the central dilemma of misclassification: firms retain extreme control over working conditions while shirking the responsibility of employment. In other words, under the FLSA, the economic reality of the relationship between a worker and a company determines whether the relationship is one of employment,104 but under third-category laws, the economic reality of the relationship is irrelevant. By exempting employers or industries from scrutiny under the economic reality framework and by formalizing companies’ ability to shirk labor costs, third-category laws amount to a victory for corporations in their ongoing fight for deregulation and wealth transfer from workers to corporations and their shareholders. And as scholars like Veena Dubal have noted, third-category laws reinforce existing labor-market inequalities by conceding the classification question and solidifying independent contractors—most of whom are Black or brown—as low-status workers.105
The experience of California gig workers post-Prop 22 highlights the ultimate third-category scam: Prop 22 promised California gig workers higher minimum wages and healthcare stipends rather than employment, but many California gig workers report that their companies are not meeting even these limited promises.106 Without the ability to sue in court (due to arbitration clauses), the protections of employment (including the ability to appeal to state employment authorities), or the right organize, California gig workers have virtually no recourse to demand even their paltry promised benefits under Prop 22.107 Likewise, in New York City, local legislation promised drivers a fluctuating minimum pay rate tied to all time worked (including time spent waiting for riders).108 But rather than actually paying for waiting time, the companies have instead starting locking drivers out of their platforms altogether at sporadic hours to limit recorded (and therefore compensable) waiting time.109 Without employment, New York City drivers have no recourse against lock-outs.110 For gig companies, that promises of minimum pay and benefits are virtually unenforceable without employment, is a feature—not a bug—of third-category laws.
But surprisingly, organized labor has also supported third-category laws in many instances.111 For example, in Massachusetts, the Service Employees International Union (SEIU) backed multiple November 2024 third-category ballot initiatives, including a successful initiative, Question 3, that gives drivers limited bargaining rights.112 (Of course, unions are not a monolith: the Teamsters opposed this referendum and any measures short of reclassification.113) The most straightforward and charitable explanation for SEIU’s support is the lack of viable alternatives. Most gig workers have been forced to waive their right to challenge classification in court or in a class.114 While in rare cases, workers may successfully challenge classification and win individual relief in arbitration, these decisions are not precedential, are secret, and only affect one worker.115 Where individual or class action is barred, workers’ only hope for reclassification is an enforcement suit by the federal DOL or a state attorney general.116 Given that a minority of states have dedicated worker-protection resources, this is cold comfort. And even where state attorneys general have brought misclassification suits, gig companies have stalled litigation to a crawl by attempting to compel arbitration, launching protracted procedural challenges, and mounting decisive ballot initiatives like Prop 22.117 In light of this defeat, some unions have decided to take what they can get, including third-category reforms, particularly if they come with quasi-collective-bargaining benefits.118 For example, Question 3 grants gig drivers sectoral-bargaining power. Specifically, it authorizes a driver organization to become the exclusive bargaining representative for gig drivers after collecting signatures from twenty-five percent of active drivers, and it permits a state Employment Relations Board (but not the NLRB) to hear unfair work practice allegations.119 On the one hand, it is reasonable to believe that limited organizing rights, like those under Question 3, could improve some workers’ circumstances, at least in the short term, even without reclassification.
But this piecemeal approach is ultimately ill-fated: as drafters of the FLSA recognized, wage-and-hour protections and collective-bargaining rights are both necessary to protect and empower workers, but neither is sufficient on its own.120 With wage-and-hour standards but no collective bargaining, employers would have a financial incentive to pay minimum wages without the deterrence of a protected-employee strike. On the flip side, collective-bargaining rights with no wage-and-hour standards means negotiations would proceed without any objective baseline for pay or conditions, likely leading to more contracts with sub-minimum living wages and working conditions.121 (Not to mention that bargaining rights under third-category initiatives like Question 3 do actually entail the threat of NLRA-protected strikes.) Moreover, even where third-category legislation extends some bargaining rights to gig workers, it typically only extends to workers who perform a minimum amount of work on the platform, leading to the ironic result that workers who use the platform sparingly—that is, flexibly—are categorically excluded from even the limited benefits.122
To be sure, there are even more cynical explanations for labor’s support of Question 3 and similar initiatives: namely, unions—but not necessarily workers—stand to benefit from increased membership and dues under sectoral bargaining.123As critics of sectoral (industry-wide) bargaining point out, these unions are less dependent on a strong, engaged base and do not require organizing to grow, leading to weaker solidarity and fewer pro-worker outcomes.124
Given that legislative efforts like AB 5 in California have not succeeded in the face of corporate third-category countermeasures like Prop 22, it is reasonable for legislatures to be pessimistic about their ability to improve gig work directly. (And if a Prop 22-style referendum is inevitable, perhaps an AB 5-style law is not advisable). But this does not mean legislatures should wash their hands of gig workers. Unlike third-category laws that identify limited benefits of employment and extend them to gig workers, an alternative paradigm is preferable: securing for employees the perceived benefits of contracting, namely, flexibility. After all, contractors and employees do not exist in separate labor markets—the very same worker may move in and out of employment and contracting throughout their career—so creating better work experiences requires thinking holistically. And many employees, especially low-wage employees, face increasingly variable and unpredictable schedules,125 which creates flexibility for employers at the expense of employees.126 All of these practices shift business risk from firms onto employees.
Some states and cities have already passed laws that guarantee employees’ flexibility, like part-time pay parity,127 the right not to have to find coverage,128 schedule transparency and notice requirements,129 compensation for schedule changes,130 the right to request scheduling accommodations,131 first right of refusal for existing employees,132 breaks between shifts,133 split-shift pay,134 protections from reduced hours,135 reporting pay,136 and paid time off.137 Like any pro-worker measure, flexible employment laws will face industry pushback. But many progressive jurisdictions have already succeeded in passing some of these laws, 138 which cannot be said of states’ and cities’ legislative efforts to reclassify gig workers, which pose a more existential threat to gig companies. And if a number of progressive states and cities passed comprehensive flexible-employment laws, at least some gig workers would surely opt for traditional employment. Likewise, some of the frustration that drives workers into the informal gig economy would be diminished.139
V. the enforcer’s prerogative
When legislative attempts to combat misclassification are defeated decisively, we would hope to see enforcers and courts, perhaps less susceptible to corporate influence, curb misclassification. But so far, we have not. Ideally, the solution to the misclassification crisis would be robust federal enforcement but, to date, the federal DOL has been far from a leader here: DOL has yet to take on any of the largest platform companies.140 On a modest positive note, in January 2024, DOL issued a final rule that reinstated a worker-friendly version of the economic-realities test for determining whether a worker is an employee under the FLSA.141 But, while the rule stands, its impact is limited given that most gig workers never see a day in court due to forced arbitration and class-action waivers.142 Further, outcomes of misclassification litigation are stochastic, regardless of the legal standard applied.143 In fairness, federal resources are grossly insufficient.144 But for over a year, DOL has had the strongest pro-worker rule likely to exist anytime soon—which the current Trump administration is likely to roll back entirely145—yet it still has not taken any significant action to combat misclassification.146 So, in reality, DOL’s lack of recent leadership is more likely a reflection of political priorities or industry capture, rather than pragmatic considerations.147
In the absence of federal anti-misclassification action under democratic leadership, and under the certainty of inaction by the current republican leadership, states and cities must move the needle. A handful of jurisdictions have begun to take on the gig economy through litigation: offices of attorneys general in Massachusetts, Minnesota, California, and Washington, D.C., have all filed misclassification lawsuits against gig companies, but none have yet been litigated to their merits.148 Attorneys general in other states like New York and New Jersey have commenced formal misclassification investigations or issued administrative assessments regarding misclassification.149 But as revealed by the experience of the Office of the Attorney General of California—which has been in litigation against Uber and Lyft since 2020150 and endured the whiplash of AB 5 and Prop 22—litigating misclassification cases to their merits is extraordinarily time-consuming and resource-intensive. While slow litigation can be an artifact of civil procedure, it is also a strategy adopted by gig companies that stand to benefit from delays: in the time that litigation is pending (like in California), they can lobby for legislative changes (like Prop 22) that eliminate litigation risk.151
For all these reasons, misclassification settlements may be a more realistic or desirable avenue for change from the perspective of enforcers, as compared with judicial merits decisions.152 But just as legislators’ choices about gig work have distributional consequences, so too do settlements. By reviewing recent gig misclassification settlements, this Part offers a taxonomy of settlement types, which primarily vary in terms of injunctive relief (i.e., what changes they require of companies). These range from no injunctive relief to prospective reclassification of contractors as employees to eviction of the company from a jurisdiction altogether. And in the middle of this spectrum rests an alternative that entails some alternative transformation of the business relationship or the firm’s treatment of workers.
A. No Injunctive Relief
Parties could settle with no injunctive relief, that is, no change to workers’ classification, but with backwards-looking monetary relief for workers or the state. As an example, in 2022, Uber paid $100 million, representing unemployment taxes and penalties for a five-year period, to resolve an administrative assessment from the New Jersey DOL.153 The assessment implicated misclassification in all but name because only employers are obligated to withhold and remit unemployment taxes from employee paychecks, which fund unemployment benefits for workers that lose employment. Effectively, the resolution required Uber to pay its unemployment tax bill for a short backwards-looking period, but it did not require Uber to pay for any of the other harms of misclassification (like wages owed workers) or require Uber to do anything differently moving forward, including with respect to unemployment-insurance taxes.154
The benefits of this resolution are obvious: it provided an immediate and significant influx of cash for the state unemployment fund. Equally obvious are its limitations: it put nothing directly into workers’ pockets, changed nothing about Uber’s ongoing treatment of drivers, and merely reset the clock on any misclassification investigation. Critically, because the resolution did not require any conduct changes or release Uber from any claims outside the period of 2014 to 2018, it fully preserved the misclassification question and offered the company no prospective peace. As a result, the New Jersey DOL could sue Uber again today for the same conduct postdating 2018 and achieve the exact same result, while suing for misclassification-related remedies for drivers in the meantime. This approach may appeal to states and workers insofar as it provides immediate relief. But pursuing repeat settlements without systematically changing firm behavior is obviously inefficient: here, the investigation leading to settlement spanned more than three years.
B. Reclassification
Perhaps most simply, settlements could require prospective reclassification of workers as employees. As one example, in February 2024, the San Francisco City Attorney’s Office announced a settlement with Qwick to resolve a lawsuit alleging misclassification.155 Pre-settlement, Qwick provided on-demand staffing to the hospitality industry through independent-contractor servers, bussers, bartenders, and dishwashers. Post-settlement, Qwick will convert its workers to full employees and function as a traditional staffing firm in the restaurant industry.156
While this may be an ideal outcome from an enforcer’s perspective—and may be their default starting position in negotiations—it is naturally the hardest sell to companies given the increased costs of employment. And, realistically, because many gig companies’ entire business model is based on misclassification, reclassification would be a death knell. But where gig companies participate in an industry with existing and profitable employment business models, like the restaurant industry, this approach may be feasible.
C. Eviction
An alternative simple approach is to require the firm to dissolve within the relevant jurisdiction—that is, to stop doing business there. As one example, in April 2024, the D.C. Attorney General reached a settlement with Arise Virtual Solutions, Inc. (Arise), a gig company that engages independent-contractor “agents” who perform customer-service calls for client companies.157 Under the settlement, Arise must cease all business in D.C. (Notably, Arise has been tactically pulling out of states with the most progressive labor laws for years in a game of whack-a-mole with enforcers.158)
This settlement outcome might be unappealing to firms and enforcers alike: eliminating an entire market is bad business for firms and, on the flip side, eliminating any form of economic activity may be undesirable optics for a political official, especially an elected attorney general with business-community constituencies. But where reclassification is economically impossible for the firm and no viable alternative short of reclassification would render the business model compliant, this may be the only way to avoid lengthy litigation with a functionally equivalent result.
D. Transformation
Lastly, a settlement could require the company to make changes to its business short of reclassification. This split-the-difference option may initially be the most appealing for targets and enforcers, but it is by far the most distributionally significant and should be approached cautiously. Transformation settlements fall into two categories: (1) transforming the nature of the business relationship or (2) transforming workers’ wages or working conditions.
Consider a recent example in the first category. In May 2023, the San Francisco City Attorney announced a settlement with Handy, a gig-economy company that offers in-home domestic services.159 Under the settlement, in addition to providing restitution for workers, called “pros,” Handy agreed to let pros set their own minimum hourly rates and negotiate hours and pay with customers.160 Handy also agreed to relinquish certain forms of technical surveillance and control over pros, including real-time geolocation information.161 Handy is also barred from penalizing pros for being selective about which jobs to take.162 All things considered, the Handy settlement effectively requires business-model changes that bolster pros’ classification as bona fide independent contractors. While the settlement does not set minimum wages for pros or offer any sick leave (the domain of employment), its terms are clearly geared toward providing genuine independence to pros, evidenced by pros’ new ability to negotiate prices, their unrestricted ability to choose jobs and hours, and their freedom from company surveillance.
Compare this to two other recent high-profile settlements in the latter category (i.e., requiring changes to workers’ wages or working conditions). In November 2023, the New York Office of the Attorney General (NY OAG) announced a settlement with Uber and Lyft for $328 million combined to resolve its misclassification investigation of the companies.163 Most recently, in July 2024, MA OAG also reached a settlement with Uber and Lyft for a combined $175 million, after finishing the vast majority of its misclassification trial against both companies.164 Both settlements require a minimum pay for drivers—$26 per hour in New York and $32.50 per hour in Massachusetts—but only contemplate payment for “engaged time,” that is, time driving to pick up a rider or completing a ride, not the substantial time spent waiting to be offered jobs.165 Both settlements provide paid sick leave that accrues at a rate of one hour of leave per 30 hours of active time (up to 56 hours per year in New York and 40 hours per year in Massachusetts).166 Under the MA OAG settlement (but not that of NY OAG), the companies also must obtain occupational accident insurance for drivers and contribute to a “portable health fund,” which will provide cash stipends for healthcare plans for drivers who average enough weekly engaged time.167
Unlike the Handy settlement, the NY OAG and MA OAG settlements do nothing to bolster drivers’ statuses as independent contractors: they do not offer drivers the ability to negotiate rates, choose jobs without restriction or influence, or be free from company surveillance. But both settlements nonetheless offer the companies a broad release from misclassification liability.168 In other words, the settlements concede classification in exchange for modest driver protections and benefits that fall far short of employment, all without increasing drivers’ independence in any way. While the settlements offer minimum-pay standards that may appear generous (above minimum wage) on their face, the settlement terms do not compensate drivers for all time worked (unlike pay protections for employees) and do not require the companies (unlike employers) to reimburse business expenses like gas and auto insurance. As a result, considering all time worked and all expenses incurred by drivers, drivers will almost certainly continue to earn subminimum wages, notwithstanding the settlement. Ironically, while the settlements offer drivers some benefits like sick leave, these benefits accrue slowly based on engaged time, and therefore likely do not inure to drivers who work sporadically and infrequently—the very workers whose “flexibility” the companies claim to promote. (Even those drivers who work enough to accrue these benefits will not be eligible for overtime pay.) And, unlike employees, drivers impacted by these settlements still do not have collective-bargaining rights,169 are not covered by workers’ compensation,170 and are not presumptively covered by other state employment protections.
Quantifying how much these settlements left on the table is difficult because neither jurisdiction has published comprehensive data on the companies. But helpfully, Massachusetts has conducted enough public research to facilitate some estimates. First, consider damages owed to workers for waiting time.171 According to a study conducted by the state, Massachusetts ride-hail drivers were paid $1,428,574,247 in 2023.172 While studies differ somewhat,173 ride-hail drivers spend about 34% of their working time waiting for a ride offer.174 Combining these statistics, if employees, Massachusetts drivers are owed $735,932,188 in damages for waiting time for 2023.175 Given that MA OAG releases Uber for all backwards-looking conduct, this number should be multiplied by at least three years, the statute of limitations: $2,207,796,560.176 And Massachusetts has mandatory treble damages where an employer fails to timely pay wages,177 so in litigation, the companies’ exposure for waiting time is more than $6.6 billion. Consider just one other category of damages available to misclassified workers: business expenses. According to one study, drivers’ business expenses equal 49 cents on the dollar earned.178 Using the estimate of drivers’ dollars earned, including waiting time ($2,164,506,430), we can estimate an additional $1,060,608,150 per year in liability—another $9.5 billion in exposure for three years with treble damages.
Finally, consider damages left on the table for the state—unpaid workers’ compensation payments and unemployment insurance contributions. The same Massachusetts study, using the estimated $1,428,574,247 in driver earnings (excluding waiting time), estimates $52,285,817 in lost workers’ compensation payments and $20,714,327 in lost unemployment insurance payments for 2023.179 Considering all time worked (including waiting time), this methodology yields $79,220,935.30 in lost workers’ compensation payments180 and $31,385,343.20 in unemployment-insurance payments181 for 2023. Multiplying by three years yields exposure of $237,662,806 for workers’ compensation and $94,156,029.60 for unemployment insurance.
Economically, the MA OAG settlement was by no means a good deal for drivers or the state: combining the above estimates, it left a minimum of $16.5 billion dollars on the table. While no public estimates of New York drivers’ time exist, it is safe to assume the math works out similarly badly for the NY OAG settlement. So why would the states agree to such a bad deal—particularly the MA OAG, which not only was at the conclusion of years-long litigation and a trial, but also proclaimed at the end of trial that it was sure to win the case on its merits?182
The MA OAG offered one limited explanation: after the MA OAG sued the companies, a coalition including Uber and Lyft backed a third-category ballot initiative for November 2024 to enshrine drivers’ status as contractors.183 As a condition of the MA OAG settlement, the companies agreed to cease all support for the initiative.184 The Massachusetts Attorney General explained: “A win in court might have given drivers restitution for pay they were owed in the past, but a successful ballot initiative would have wiped out its impact . . . . Our deal with Uber and Lyft made sure that drivers can have both.”185
Yet on its face, the Attorney General’s explanation falls far short. Under the settlement, drivers receive neither complete restitution nor forward-looking protections and benefits equal to employment.186 And while a successful Prop 22-style initiative would be devastating, a misclassification determination on the merits would have been the first of its kind, sending a clear message that Uber and Lyft’s labor model defies longstanding law. It would also expose the companies to billions of dollars in liability, a price tag that might actually impact their bottom line, unlike a mere multi-million dollar deal.187 And even if these settlements were the best attainable result for Uber and Lyft drivers under the gun of ballot initiatives, the agreements nevertheless negatively impact the fight for employment protections for gig workers more broadly, by conceding that corporate power—not economic reality—determines which workers get the protections of employment.188 Here, in a surprisingly antidemocratic move, the MA OAG made the political determination that its settlement terms, under which drivers remain contractors and are shorted billions of dollars, are more desirable than a merits decision and subsequent ballot initiative, under which drivers would also remain contractors.189
Put simply, the New York and Massachusetts Uber/Lyft settlements fall for the third-category sham. Given NY OAG’s and MA OAG’s positions that drivers are misclassified—the premise of the enforcement actions—and given that neither settlement substantively changes the relationship between the companies and drivers, the agreements effectively bless ongoing labor violations. (Tellingly, nowhere in the Massachusetts Attorney General’s justification of the settlement did she express that the companies persuaded her on the merits; quite the opposite, she expressed confidence that her office would prevail on the merits.190) So while the settlements will cost a modest one-time sum, they permit the companies to continue shirking the costs and responsibilities of employment while maintaining control over their drivers—an overwhelming win for the companies. And Massachusetts drivers, like California drivers post-Prop 22, will have little to no recourse if the companies fail to abide by the settlement,191 which some drivers have already complained about.192 Meanwhile, Uber has already imposed a new fee on riders in Massachusetts, called a “Drivers Benefits Surcharge,” to recoup the costs of the settlement.193 And Uber has released multiple nationwide advertisements touting its “agreement” to pay higher wages, as if it was purely voluntary, and proclaiming the terms of the settlement “good for drivers, good for Massachusetts.”194
Just as legislatures should avoid the third-category sham and be wary of its ahistorical justification and industry origins, so too must enforcers. If states are not prepared to fight for merits decisions on misclassification, or hold the line on principled settlements that avoid the third-category trap, then they should not take on gig companies at all.195 Because when even progressive attorneys general concede that some workers do not need to be paid and protected for all time worked, regardless of the economic realities of the working relationship, employment protections like the FLSA, the NLRA, and their state equivalents virtually lose all meaning, and the result is billions of dollars in corporate subsidies at the expense of primarily minority working people.196
Conclusion
The NLRA and the FLSA were hard-won legislative responses to a national crisis of overworked, underpaid, and endangered workers. Just under a century after their passage, a new economy of exploited workers has emerged in some of the most dangerous contemporary industries, outside the protections of the NLRA and the FLSA. With the proliferation of contract gig work and the advent of third-category laws, workers’ right law is at an inflection point—an existential crisis for employment as a framework. When the protections of employment do not cover all people working for a company’s benefit and under its control, we legally cede to corporations the power to decide which workers deserve protection. Course correcting will require reckoning with multiple realities: employment and flexibility are theoretically and historically compatible, and the purported flexibility of contracting is illusory. Workers’ rights will never be won at the expense of employment, the FLSA, or the NLRA through third-category legislation or settlements. And protecting vulnerable workers will require both challenging misclassification and legislating better flexible-employment options.
Assistant Attorney General, Workers’ Rights and Antifraud Section, Office of the Attorney General of the District of Columbia. All opinions and errors are strictly my own. Many thanks to Jesse Tripathi, Sejal Singh, Charlie Sinks, Jessica Micciolo, Taylor Cranor, and the Yale Law Journal Forum editors, especially Yang Shao.