Islamabad High Court Judges wrote a letter to Supreme Judicial Council.pdf
The On-Demand Economy
1. THE ON-DEMAND
ECONOMY:
HIDDEN DANGERS OF “UBERIZING”
YOUR BUSINESS MODEL
Presented by the Entrepreneurial Law Clinic
of Thomas R. Kline School of Law, Drexel University
Student Lawyers:
Joshua Goren Dylan Caplan
Mark Hildebrand Michelle Paznokas
Clinic Director: Steven Rosard
Featuring: Randal White, Fox Rothschild LLP
2. WHAT IS THE ON-DEMAND
ECONOMY?
Platform
(form of communication)
Supply
(drivers, short-term
rentals, etc.)
Demand
(customers
MUTUAL NEED
PRODUCTS
CUSTOMER
DATA
CUSTOMER
DATA
PRODUCT
AWARENESS
5. UNDERSTANDING THE TENSION
• Sharing platforms defy traditional notions about the way civic resources
should be used
• Example: Using a house as a home, not a hotel room
• Professionalized and regulated incumbents allege unfair competitive
advantage
• Example: Taxi coalitions versus Uber
• “Local governmental powers are at their strongest when regulating property
markets through zoning powers, regulating hotel and restaurant markets
with tools like taxes and safety inspections, and regulating transportation
through direct oversight and city-provided services”
6. THE HEAVY HITTERS’ GAME PLAN
• Step 1: Develop a customer base before obtaining regulatory approval
(create “facts on the ground”)
• Step 2: Claim that the company is not a service provider, but merely
connects third-parties to one another
• Shifts the regulators’ focus to individual independent contractors
• Step 3: Utilize a loyal consumer base to influence politicians and
regulators
• This is not a viable game plan for every company
7. LICENSES & PERMITS
• Do companies in the sharing
economy require the same
permits and/or licenses as
traditional operators?
• Who is liable for not getting a
license (i.e., the platform, or the
worker)?
• How can a platform mitigate
that liability?
8. LICENSES & PERMITS:
HIGHLY REGULATED
MARKETS
• The question of whether on-demand companies need the same
licenses and/or permits as traditional operators is, unfortunately,
largely unanswered
• Based on recent examples, the expectation fluctuates based on the
then-current government involvement in the specific industry
• Highly regulated industries, like transportation and lodging, as opposed to
industries traditionally reserved for independent contractors (e.g., TaskRabbit
and “handymen”)
• Example: High barriers to the NYC taxi market
9. LICENSES & PERMITS:
BURDEN OF
RESPONSIBILITY
• Common sense and current
regulatory trends dictate that the
worker is responsible for
obtaining license
10. LICENSES & PERMITS:
BURDEN OF
RESPONSIBILITY
• Companies may be held liable for
failing to encourage and/or
require proper licensing and
permits
• “Connectors of people” argument
• The company is not the service
provider, thus does not need a
license
11. TAXING SHARING ECONOMY
TRANSACTIONS
• How should (or could) sharing economy transactions be taxed?
• Burden to adhere to applicable taxes often falls on the worker
• If the worker fails to pay, the company may have to instead
• Sharing economy companies often “strike deals” with local governments to
remit taxes
• Should these companies pay specialty taxes (e.g., hotel occupancy
taxes) and/or federal income tax?
• Like all legal questions… “it depends”
12. PREDICTING THE FUTURE
REGULATORY LANDSCAPE
• Retrofitting old regulations
• Local/state governments have been revamping old regulations (e.g., “cottage food
laws” and “bed and breakfast” classifications) to account for the emerging sharing
economy
• Creating new regulations
• Some localities have been writing completely original laws targeted at the on-demand
economy
• Example: “Transportation Network Companies” in California and Colorado
13. A BRIGHT FUTURE (MOST LIKELY)
• Will the response in the U.S. be the
same as in Europe?
• Probably (and hopefully) not
• Successful interactions between local
regulators and peer-to-peer platforms
• Uber-type apps in D.C.
• Getaround in Portland
• Free street parking in Denver
• Uber in Chicago
• Governor Wolf’s recent decisions
regarding Uber and Lyft in Philadelphia
14. REPORT FROM THE
FEDERAL TRADE
COMMISSION
• Discusses many of the consumer protection and
“unfair competition” questions raised by both
critics and proponents of the gig economy
• Not an authority, but will be extremely instructive to
regulators and companies
• Generally speaking, the Commission has taken
the position that regulators should adopt a
narrow focus so that they are only as restrictive
as is absolutely necessary
• Link to the report: https://www.ftc.gov/reports/sharing-
economy-issues-facing-platforms-participants-regulators-
federal-trade-commission
15. TAKEAWAY:
We must continue to monitor regulators’
interactions with industry-specific markets.
The more regulated the industry, the more
careful a company in that industry must be.
17. COMMON ON-DEMAND SERVICES
• Car services
• Housing accommodations
• Grocery delivery
• Food prep and delivery
• Home cleaning and handyman
services
• Personal assistant and concierge
services
• Dog-walking
• Laundry and dry-cleaning
services
• Giftwrap and delivery
• Flower delivery
18. CONSEQUENCES OF
MISCLASSIFICATION
• Back wages and overtime pay
• Employee benefits
• Disability payments and workers’
compensation
• Tax and insurance obligations
• Liquidated damages
• Civil monetary penalties
19. WHAT IS AN
“INDEPENDENT CONTRACTOR?”
• Provide services in exchange for compensation
• Works for multiple entities
• Independent contractors typically:
• Charge fees for service
• Engage only for the term required to perform an identified service or task
• Retain control over the method and manner of the work itself
• Retain economic independent
• Are responsible for paying income, social security and Medicare taxes
• NOT protected by most federal, state, or local laws designed to protect employees
20. ADVANTAGES OF HIRING
INDEPENDENT CONTRACTORS
Federal employment laws which cover employees, but do not
usually apply to independent contractors:
• Fair Labor Standards Act (FLSA)
• Title VII of the Civil Rights Act (Title
VII)
• Equal Pay Act (EPA)
• Age Discrimination in Employment
(ADEA)
• Americans with Disabilities (ADA)
• Genetic Information Nondiscrimination
Act (GINA)
• Uniformed Services Employment
Reemployment Rights Act (USERRA)
• Occupational Safety and Health Act
(OSHA)
• Worker Adjustment Retraining
Notification Act (WARN)
• Family and Medical Leave Act (FMLA)
• Employee Retirement Income Security
Act (ERISA)
• National Labor Relations Act (NLRA)
21. BENEFITS THAT DO NOT APPLY TO
INDEPENDENT CONTRACTORS
• Health, life, and disability insurance
• Retirement or pension plans
• Stock options
• Paid vacation and sick days
• Fringe benefits
• Taxes that Companies Avoid with Independent Contractors:
• Federal, state, and local income taxes (1099-MISC instead of W-2)
• Social Security and Medicare taxes (owed under Federal Insurance Contributions Act
(FICA))
• Insurance taxes under the Federal Unemployment Tax Act (FUTA)
• State unemployment insurance taxes
• Workers' compensation insurance
22. SPECIAL IRS CLASSIFICATIONS FOR
STATUTORY NONEMPLOYEES
•Direct sellers
•Licensed real estate
agents
•Companion sitters
23. AMBIGUOUS CLASSIFICATION
• On-Demand companies provide a means to maximize
underutilized resources
• The owners of those assets are the workers
• Uber drivers; AirBnB hosts
• Employment Concern: Take away the Assets and the
company no longer exists
24. GUARDS AGAINST MISCLASSIFICATION
• Motto: “Control the Result and Not the Means”
• Main Areas of Concerns:
• Control and Supervision
• Integration of Business
• Length of the Relationship
• Method of Payment
25. RESTRICTING ON-DEMAND
WORKERS
• Restrictive Covenants are enforceable at least to the extent that
restrictive covenants are enforceable against employees
• Ensure restrictive covenants are narrow and limited in time and
territory
• Misclassification may eliminate restrictive covenants
• Possible Solution: Enter into separate restrictive covenant agreements
• Possible Solution: Limit to narrowly tailored confidentiality and non-solicitation
agreements
26. PLAN FOR THE RISK
• There is no clear consensus on whether on-demand workers are
independent contractors or employees
• Refrain from controlling the means and focus on the result
• Adapt business models to anticipate different tiers of misclassification
concerns
• At-will termination may reign supreme to threat of misclassification
• Customer ratings systems may reign supreme to threat of misclassifications
27. TARGETS OF ENFORCEMENT AND
LITIGATION
• Construction
• Transportation and trucking
• Cable and internet companies
• Janitorial services
• Landscaping and nurseries
• Security Services
• Nursing
• Child care
• Home health care
• Restaurants and catering
services
• Staffing services
• Hotels and motels
• Oil and gas
28. MITIGATING THE RISKS OF
MISCLASSIFICATION
• Conduct an audit; Train personnel on classification issues; obtain a ruling from the
IRS; and Draft agreements that document the independent contractor distinctions
• Avoid using the word “control”
• Specifically place responsibility for taxes, insurance, business licenses and the like on
the Independent Contractor
• Require only compliance with industry standards when possible
• Specify that the IC determines the manner and means of the work and that the
Company is only interested in the final result
• Do not require progress reports
• Avoid payment by the hour, day or week, try to pay per project
• Avoid specifying hours of work, or where to work
29. MITIGATING THE RISKS (CONT.)
• FLSA Independent Contractor Test, Department of Labor’s
Interpretive Guidance, IRS Independent Contractor Test
• Include waivers of any right to participate in company benefits
• Specify the length of the contractual relationship instead of leaving it
open-ended
• Specify the IC’s can perform services for others; Avoid contract
provisions allowing for termination at will
• Specifically state that the independent contractor provides all
necessary tools, equipment and related items
• Do not require IC’s services to the company
30. MITIGATING THE RISKS:
RECORDKEEPING
REQUIREMENTS
• Parties’ written agreement, including expired and revised
agreements
• Independent contractor’s federal Employer Identification Number
(EIN or FEIN)
• Payments made
• Copies of 1099-MISC
• Contact information
• Documents that may evidence worker’s independent contractor
status
32. HIDDEN DANGER NO. 3:
USER
DISSATISFACTION,
PROPERTY DAMAGE,
& PERSONAL
INJURYMark Hildebrand
33. VICARIOUS LIABILITY
• Worker classification matters!
• If the service provider is an employee, then the platform would
most likely be found liable for any contract breach, property
damage, or personal injury the service provider commits
• If the service provider is an independent contractor, then the
platform is much less likely to be found liable for the contract
breach, property damage, or personal injury which the service
provider commits
34. WAYS TO MITIGATE THESE RISKS
• Set Standards
• Example: Community Guidelines
• If violated, Service Provider may lose access to the platform
• Vet the Service Provider
• Example: Customer Rating System
• Reward quality Service Providers with prominence on the Platform
• However, do not outright terminate low-rated Service Providers
35. WAYS TO MITIGATE THESE RISKS:
TERMS OF SERVICE
AGREEMENTS
• Define the Platform as a Request Tool or a Connector of Service
Providers and Customers and not a party to any contracts between
the Service Provider and the Customer
• Define that the Service Providers are Independent Contractors
• Disclaim any liability for any misrepresentation of services, property
damage, or personal injury
• Require Service Providers and Users to indemnify and hold the
Platform harmless
• Require Service Providers and Customers to waive the right to sue
the Platform
36. WAYS TO MITIGATE THESE RISKS:
INSURANCE
• Rely on your service providers to
insure themselves
• Configure a hybrid insurance
coverage split between the
service provider and the
Platform
• Seek new On-Demand Economy
specific insurance policies
37. RELYING ON YOUR SERVICE
PROVIDERS TO INSURE THEMSELVES
• EXAMPLE:
• In 2008, Airbnb launched and did not provide insurance
coverage for their hosts
• Hosts relied on their personal homeowner insurance policy
• PROBLEMS:
• Insurance Gap
• Personal homeowner insurance policies do not cover damages
when the dwelling was used commercially
• Commercial version of the personal insurance policy was often
far too expensive for the Service Providers
38. SPLIT INSURANCE COVERAGE BETWEEN THE
SERVICE PROVIDER AND THE PLATFORM
• EXAMPLE:
• Initially, Uber relied on their Driver’s personal automobile
insurance policies to cover injury or damage occurring while the
Driver was waiting for a request and while the Driver drove to
pick up a passenger
• Uber’s insurance would cover while the Driver transported the
Customer to their destination
• SAME PROBLEMS:
• Insurance Gap
• Personal automobile insurance policies did not cover damages
when the vehicle was used commercially
39. RELYING ON YOUR SERVICE PROVIDERS TO
INSURE THEMSELVES
OR
SPLIT INSURANCE COVERAGE BETWEEN THE
SERVICE PROVIDER AND THE PLATFORM
• Litigation Expenses
• If the Service Provider cannot compensate a victim, then the
victim will likely bring the Platform into court
• Triggering State Regulators’ Attention
• Uncompensated Injuries or damage eventually trigger the
attention of State regulators
40. THE SOFIA LIU CASE
• December 31, 2013 (New Year’s Eve), San Francisco, California:
• Uber Driver killed Sofia Liu, a 6-year-old girl
• The driver’s personal insurance could not cover the damage and
injuries
• Uber denied that its insurance policy applied to this case and
would not compensate the victims
• The family sued the Driver and Uber….
• ...and almost immediately California began writing a new law
regulating the ride-sharing industry
• 26 other states followed California’s lead in regulating
this sector of the on-demand economy
41. SEEK THE ON-DEMAND ECONOMY-
SPECIFIC INSURANCE POLICIES
• THE FIRST: MetroMile
• ESTABLISHED INSURANCE COMPANIES:
• United States Auto Association
• Farmers Insurance Group
• GEICO
• AllState (HostAdvantage)
• Mercury
• State Farm
• USAA
• START-UPS: Slice Labs Inc.
43. 1. REGULATORS
• More Regulation in the Industry =
More Precautionary Measures
(And make sure to read the FTC Report!)
2. WORKER MISCLASSIFICATION
• Always consider your level of control and set
narrow restrictions
3. USER DISSATISFACTION,
PROPERTY DAMAGE, & PERSONAL
INJURY
• Find an Industry-Specific Broker and Get
Insured!
THE HIDDEN DANGERS IN REVIEW
44. QUESTION & ANSWER SESSION:
RANDAL S. WHITE
• Partner at Fox Rothschild LLP
• Practice areas include:
• Labor & employment
• Employment counseling, policy developments, & audits
• Employment litigation
• Employment training
• Wage & hour law
• Unfair competition & trade secrets
45. Please join us for
a reception in
the Third Floor
Gallery!
The slides from today’s presentation will also
be made available on SlideShare:
www.slideshare.net/DrexelELC