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Labor & Employment News Alert

The Gig Economy and CARES Act Q&A

April 17, 2020

By: Wendy G. Adkins, Jason L. Ott, and Derrick L. Maultsby, Jr.

The Coronavirus Aid, Relief, and Economic Security (CARES Act) provides unemployment benefits for gig economy workers.  What is the impact on the workers and the businesses that hire them, and what could be next?

What is the Gig Economy? 

The gig economy describes the market of short-term contract or freelance workers as compared to the traditional permanent jobs, whether full-time or part-time. The gig economy has been around for over 100 years but, the gig economy expanded significantly with the introduction of technology and the digital age. Today, household names such as Uber, Airbnb, TaskRabbit, and other tech companies contribute significantly to the gig economy. 

Before the CARES Act, what rights did Gig Workers have? 

Gig workers have generally been classified as independent contractors. Why is this classification important? The protections afforded by the Fair Labor Standards Act (FLSA), National Labor Relations Act (NLRA), and the Family Medical Leave Act (FMLA) cover employees, not independent contractors. An employer must also withhold federal and state income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to employees, not compensation paid to independent contractors. In addition, an employer pays insurance premiums (health benefits and workers’ compensation) for employees, not independent contractors.  

Over the past few years, Gig workers have contested their independent contractor classification with some success. For example, in 2019, California passed a law (AB5) making app-based workers (those working for Uber, Lyft, TaskRabbit, etc.) employees unless proven otherwise. The law went into effect on January 1, 2020 and is a landmark state law providing protection to gig workers. Most state and federal courts, however, are faced with several different fact-driven tests to consider and apply on a case by case basis, resulting in inconsistent results across the country about whether gig workers are employees or independent contractors.   

How Does the CARES Act impact the Gig Economy? 

Although the classification of gig workers is far from consistent, the CARES Act allows all gig workers, like traditional employees, to claim unemployment benefits under certain circumstances. Under the CARES Act, a gig worker may receive unemployment benefits if the individual is unable to work because: 

  • He or she is diagnosed with COVID-19;
  • He or she has symptoms of COVID-19 and is in the process of seeking a medical diagnosis;
  • His or her household member has been diagnosed with COVID-19;
  • He or she is providing care to a household member with COVID-19;
  • A child or other person in the household for which the individual is the primary caregiver is unable to attend school or daycare due to COVID-19;
  • The individual is unable to reach work due to a quarantine;
  • The individual is unable to attend work because a healthcare professional advised him or her to self-quarantine;
  • The individual is scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of COVID-19;
  • The individual is the sole wage earner in his or her household due to death of the head of household as a direct result of COVID-19;
  • The individual was required to quit his or her job as a direct result of COVID-19; or
  • The individual’s place of employment closed as a direct result of COVID-19. 

 

The Department of Labor (DOL) has provided general guidance on payment of benefits to individuals who are typically ineligible, but state unemployment benefit offices have to implement the provisions of the CARES Act, create procedures and forms through which gig workers to apply for such benefits, and make eligibility determinations.  

Will the New Treatment of Gig Workers Have Long Lasting Effects? 

An unanswered question is whether the significantly increased cost of the unemployment benefits afforded to gig workers under the CARES Act will ultimately pass through to the businesses who utilize gig workers, since the businesses have not paid unemployment tax for gig workers to fund those benefits. Under the Families First Coronavirus Response Act (FFCRA) gig workers are not counted as employees for purposes of whether an employer has more than 500 employees, and businesses are not required to afford gig workers emergency FMLA leave or paid sick leave. The exclusion of gig workers from emergency FMLA leave and paid sick leave is consistent with how gig workers have previously been handled under FLSA and FMLA. However, the CARES Act has thrown the traditional treatment of gig workers for purposes of unemployment benefits for a loop that may lead to increased unemployment insurance contributions rates for businesses who utilize gig workers.  

Another question is whether this temporary treatment of gig workers will lead to permanent benefits and protections for gig workers. The temporary government actions taken through the FFCRA and the CARES Act were necessary to address the emergency needs of the entire U.S. workforce during the COVID-19 pandemic. Those emergency needs, however, will ultimately resolve. As a result, the emergency FMLA leave and paid sick leave afforded to traditional employees under the FFCRA expires on December 31, 2020. Likewise, the financial assistance being afforded to gig workers under CARES Act expires on December 31, 2020. COVID-19, however, has highlighted the critical role that gig workers fills in today’s workforce, such as personal grocery shoppers or food delivery drivers who are providing essential services at great personal risk. This spotlight placed on gig workers by COVID-19 may extend beyond the pandemic and lead to other states passing legislation, like the California legislation, affording a rebuttable presumption that gig workers are employees eligible for additional benefits or wage and hour protections.  State courts may also be influenced by the COVID-19 spotlight on gig workers and have a better understanding of the important role that gig workers play in the U.S. workforce. Most recently in March, 2020, the New York State Court of Appeals declared that delivery drivers employed by Postmates are considered employees entitled to unemployment benefits, a timely decision given the number of gig workers that will likely seek unemployment benefits in New York state.  Further, the Postmates decision may have repercussions for employers who utilize similar business models (Uber, Lyft, Grubhub, etc.).

Congress is also debating additional action. For example, in February Senator Mark Warner (D – Virginia) reintroduced a bill for states and nonprofits to offer employment benefits to gig workers. Recently, representative Warner tweeted that the COVID-19 crisis is an example of why the bill is necessary. In addition to legislation, court rulings are also imperative to monitor.

 

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