The growing freelance economy could be impacted in a big way as a legal fight unfolds between independent contractors and two hot start-ups over how workers are classified—and the employee benefits they might receive.
Last week, two separate San Francisco judges ruled juries will decide two landmark cases involving Uber and Lyft. Both companies are facing suits from drivers who want to be classified as employees, rather than independent contractors.
The outcome of both lawsuits would only affect California drivers, but the results would set a precedent. In the so-called sharing economy, independent workers leverage their independent contractor status, often declared on 1099 forms with the IRS. After the Great Recession, more Americans have filled the vacuum of full-time work and benefits with a patchwork of part-time gigs and projects that increasingly are accessed online and through convenient mobile apps.
Amid this backdrop, the issue of employee status and benefits has escalated as start-ups in this space are valued at millions or more amid a tech sector surge.
"For start-ups, it could make the relationship with workers a lot more expensive," said Gary Burtless, senior fellow of economic studies at the Brookings Institution. "It might very well make the expansion of such businesses less attractive, financially."
Freelancers broadly are no longer a fringe sector of the U.S. worker economy. More than 53 million Americans are freelancing—34 percent of the entire workforce. That's according to a September 2014 study by advocacy group the Freelancers Union and Elance-oDesk. The groups connect freelancers with jobs and related resources.
Beyond full-employee status, the plaintiffs are seeking reimbursement for expenses including gasoline and car maintenance costs, which they would normally receive if they had employee standing in California. Drivers for both companies currently are classified as freelancers, and drivers cover such costs themselves.