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INSIGHT: The Gig Economy Could Change How Employers Gear for Next Recession

Sept. 17, 2019, 8:01 AM

I gave up prognosticating in about . . . 2016. Let’s see, I think it was in November.

But as we move toward some level of recession, likely in the next year or two, the obvious question is how might this one be different from the Great Recession of 2008 and what should employers prepare for? Traditional notions of what the American workforce looks like appear to be changing rapidly and should compel us all to think creatively about the implications of these changes in a recession economy.

But first, let’s get our lexicon down. I think we can all agree that the Great Recession wasn’t so great, so let’s just call it R08 (Recession ’08). Second, let’s not talk about “if” there’s another recession on the horizon—it’s “when.” We know that some level of recession is coming and it’s likely to happen in the next year, two, or three. That’s just a market force thing.

For any number of reasons, and no matter who you want to blame, our economy will inevitably meet the textbook definition of a recession—two consecutive quarters of negative economic growth. So, assuming some level of recession is going to hit within the next 12 to 24 months, what should those of us working in the employment law area be helping our clients anticipate?

The temptation is to focus on the obvious: Has your HR team exercised its RIF (reduction in force) muscles recently? Do they know how to put together a RIF structure, focusing on the right factors in light of the myriad ways the work force dynamics have changed since R08? These questions inevitably lead to how has your business been adapting to or reacting to the gig economy.

The Rise of the Side Hustle

Although there are other factors to consider, R08 is largely viewed as the catalyst for the growth of the gig economy, in which more and more workers started picking up side “gigs” wherever they could find them. But if job losses were primarily responsible for this trend, then we’d expect this gig economy to be slowing down as the economy has strengthened. But it isn’t, especially for part-time gig workers.

Businesses and regulators are trying to figure out how much of this continuing trend is driven by wide-spread desire for more flexibility and attempts at work/life balance and what are the implications—in good times and bad? Should the way organizations analyze how to restructure change? What happens if, as statistics seem to show, a majority of gig workers don’t want traditional jobs anyway?

The 2017 Freelancing in America study by the Freelancers Union and Upwork estimated that nearly 57.3 million Americans—or 36% of the nation’s workforce—are now engaging in some level of freelancing, most of whom do so by choice (63%).

This is not just drivers—almost any business that dispatches employees via digital interfaces could shift to a model that would potentially afford its workers greater freedom and flexibility, and potentially save the company a significant percentage of its overhead.

There are estimates that a work force of employees costs companies 20% to 30% more than a work force of contractors . . . so far.

Corporate Greed Versus Worker Protections—Is it That Simple?

According to many of the businesses, and lobbyists assisting them in making headway in various states to achieve some level of exemption for gig workers such as drivers, part of their motivation is to seek the ability to provide benefits to their contractors, like health care and retirement-savings vehicles.

In the “no good deed goes unpunished” category, such benefits are strong indicators of an employment relationship so, as any good management-side employment lawyer would advise, you can’t do that.

The other side of that coin, according to worker advocates, is that these pushes to create limited exemptions for certain gig workers in the name of “freedom” is just an effort to chip away at broader exemptions that will ultimately hurt workers and enhance corporate profits.

To the extent companies are ultimately able to offer their contract workers benefits, the costs savings of a non-employee work force will inevitably be reduced. In such a scenario, isn’t the cost-savings delta just as a result of not paying the employer’s share of employment taxes and ultimately reducing the well from which other worker protections are funded?

Interestingly, “freedom for workers to live a balanced life” is the argument made by both sides in this debate. A significant number of gig workers are not eager to be characterized as employees because of what is perceived to go along with that—a lack of individual control. But if they have to work longer hours for less pay, is that really the freedom that they’re after? The answer to that is highly individualized and should inform our thinking going forward.

Don’t Let Sound Advice Stifle Innovative Thinking

This is arguably the most important debate that is going on in our fast-changing world and is not going to be solved any time soon. So, in the meantime, with a recession looming, what is our advice to clients?

Most experts agree that bad economic times make people more afraid to change jobs and take economic risks, but if a significant percentage of the American workforce is “freelancing” by choice, will that trend hold?

Management side employment lawyers almost reflexively caution businesses to avoid straying too far afield of traditional lines between employees and contractors. However, this caution should not stifle innovative approaches to structure work arrangements that allow employees to achieve much of what they’re after in their independent gigs.

In addition to the obvious factors of more flexibility and autonomy, it turns out that showing gratitude is a significant factor in a workers’ satisfaction with their work, in the form of expression of thanks and, of course, bonuses. Does this mean that HR teams won’t have to exercise their RIF muscles during a recession?

Probably not, but it does mean that how businesses decide to restructure will be very different. And, the degree to which the traditional workforce wants to come back into the fold during the recovery probably will depend on whether businesses have been able to adapt to their fundamental needs.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Lisa Hogan is the chair of the Employment and Labor Group at national firm, Brownstein Hyatt Farber Schreck, where she and her team litigate and counsel a wide array of clients in all aspects of employment law, including trade secret, discrimination, and contract-based disputes, as well as due diligence considerations.