Research & Insights

By Alek Felstiner, May 25, 2010

Regulating Distributed Work (Part One: Employment Classification)

On May 10th I presented at the Crowdflower Distributed Distributed work Meetup, talking about employment law and regulation. As it turned out, my 15-minute presentation turned into an hour and a half of exploring the legal issues involved in crowd work. The group of clients, workers, and crowdsourcing vendors displayed a real hunger for guidance on how the courts might apply existing laws to crowd work. Our long and involved discussion illustrated how little is actually out there to help people understand these issues.

By way of a recap for those with the good fortune of not having had to endure my fleeting law professor fantasy, I’ve broken up the presentation into a few parts, which I’ll post here. This segment looks at the basic reasons why applying our current law is so difficult, and the threshold question of how to properly classify crowd workers. The next one will deal with civil liberties and group rights in virtual work, and the final one (if I get that far) will present my best case for immediate regulatory intervention. If you don’t want to wait, you can find a thorough (and probably boring) treatment of this topic here.

The Basic Problem: Old, Stale Law

Most of our employment laws – the ones dealing with minimum wage, union organizing, health and safety, etc. – were written in middle of the 20th Century, in response to a period of rapid industrialization. The people who wrote these laws had a particular concept of employment in mind, one characterized by physical worksites, long-term employment relationships, and one-to-many connections between firms and workers. By the 1990s (if not earlier), the rise of contingent and temporary labor, complex subcontracting structures, and remote work had substantially eroded the principles relied upon by the original drafters of the law. But nobody did much of anything to update that law, and as a result, huge swaths of people whose work would have been covered under the employment arrangements of the previous generation just fell into a regulatory vacuum. (For a dense but compelling description of this process, and its legal implications, check out Katherine Stone’s From Widgets to Digits).

Distributed work, microwork, crowd work, whatever you want to call it, threatens to basically nullify existing employment laws, and the 20th Century conception of employment upon which they were based. That’s why, when you ask questions like “Should Turkers be entitled to minimum wage?,” no one seems to have a very good answer. Most people confronted with that question revert to considering the Turkers themselves, and trying to decide whether a college student or a stay-at-home mom “deserves” the legal protections afforded to more traditional employees, rather than trying to assess whether the work itself should fall within the scope of statutory employment.

But someone is going to have to answer the hard legal questions eventually, because the industry is growing too quickly to be ignored. It might be the courts, it might be the legislatures, it might be the IRS or the Department of Labor, but one way or another our regulatory systems will be forced to take a position.

Twenty Thousand Independent Contracts?

The first big threshold question is whether crowd workers are independent contractors or statutory employees. To lawyers, “employee” doesn’t just mean “someone who works for me.” “Employees” are a creature of statute, with a special meaning. They are a particular class of workers who, because of their lack of power in relation to their employers and their various other vulnerabilities, have received specific protection from Congress and the states in the form of minimum wage, organizing rights, etc. By contrast, independent contractors (at least in theory) are specialist entrepreneurs who bargain for their services and execute contracts to perform those services. They should have no relationship with the employer apart from the contract (hence, “independent”), and any disputes that come up should be decided by interpreting the contract language, under contract law.

This distinction between independent contractors and statutory employees really matters. Independent contractors are not covered by federal or state minimum wage/overtime laws, nor are they covered by OSHA (health and safety), Title VII (employment discrimination), FMLA (family leave), or the NLRA (union organizing). And they don’t receive workers compensation or unemployment unless they pay into the state funds themselves.

Now let’s look at a typical crowdsourcing platform to see where the workers fall. Here’s simplified structural diagram.

We know what governs the relationship between workers and vendors, and what governs the relationship between firms and vendors – the terms of use that you have to sign in order to gain access to the platform (aka the participation agreement). But we don’t know much about the relationship between workers and firms, and it’s the nature of that relationship that determines whether a worker is an employee or an independent contractor. Unsurprisingly, the vendors try to fill in the content of the worker-firm relationship by inserting a bunch of language into the only legal document that does exist: the participation agreement. One of the most important “inserts,” and the vast majority of crowdsourcing vendors use it, is a requirement that crowd workers provide services as independent contractors. The typical language goes something like this (from oDesk)

“Provider’s relationship with Buyer will be that of an independent contractor, and nothing in this Agreement should be construed to create a partnership, joint venture, or employer-employee relationship.”

For a more comprehensive list, check out this slideshow. Fortunately for crowd workers, the labels put on the relationship by the parties, or by some third party, aren’t the end of the story. Courts go further, trying to understand whether the relationship is really an independent contract or an employer-employee scenario. They consider a variety of factors, depending on what law the parties are trying to apply. For example, the Department of Labor suggests a seven-factor test for application of the Fair Labor Standards Act, the federal law that establishes minimum wage and overtime rules (Alexander Sorokin performed a nice summary of the factors in an earlier post on this blog). But the test changes with the law to be applied, and also with the jurisdiction, the industry/type of work, and the particular situation presented to the court. Some tests focus on the employer’s right to control. Others look at whether the worker has an opportunity to function as an entrepreneur or is dependent on the employer. I won’t go through all the tests here – suffice it to say that there’s a lot of variation, and right now crowd workers fall squarely into the gray area between employees and independent contractors.

Personally, I find the notion of independent contractors quite fitting in some contexts, such as eLance or Guru, and essentially ridiculous in others – such as Mechanical Turk and LiveOps. The concept of a rapid succession of independent contracts, perhaps hundreds in a row for a particular worker, tens of thousands per day on a platform like Mechanical Turk, just runs contrary to the underlying rationale for distinguishing independent contractual agreements from statutory employment. Does clicking an “Accept HIT” button and agreeing to tag ten minutes worth of video truly create a separate, independently bargained contract? I’m not sure such a proposition would pass the laugh test, even for a fairly conservative judge.

The problem is that there aren’t any other categories into which we can place this kind of work. A conservative judge may find ludicrous the idea of a ten-minute long, unbargained, anonymous “independent contract,” but he’s not going to just award a bunch of clickworkers minimum wage when hundreds of thousands of contingent workers and permatemps don’t enjoy the same protection. There simply isn’t a good fit, because employment and labor law has not kept pace with the emergence of our information economy.

Which brings me back to my original point. Our existing law is archaic and broken. We’re all waiting for the first group of Turkers to file a wage and hour class action, so we can find out what happens next.