Unbundling Employment: Flexible Benefits for the Gig Economy

Abstract

Federal labor law requires employers to give employees a rigid bundle of benefits, including the right to unionize, unemployment insurance, worker’s compensation insurance, health insurance, family medical leave, and more. These benefits are not free – benefits cost about one third of wages – and someone must pay for them. Which of these benefits are worth their cost? This article takes a theoretical approach to that problem and proposes a flexible benefits solution. Labor law developed under a traditional model of work: long-term employees who depended on a single employer to engage in goods-producing work. Few people work that way today. Instead, modern workers are increasingly using multiple technology platforms (such as Uber, Lyft, TaskRabbit, Amazon Flex, DoorDash, Handy, Moonlighting, FLEXABLE, PeoplePerHour, Rover, Snagajob, TaskEasy, Upwork, and many more) to provide short-term service-producing work. Labor laws are a bad fit for this “gig economy.” New legal paradigms are needed. The rigid labor law classification of all workers as either “employees” (who get the entire bundle of benefits) or “independent contractors” (who get none) has led to many lawsuits attempting to re-define who is an “employee” in the gig economy. This issue grows larger as more than one fifth of the workforce is now categorized as an independent contractor. Ironically, the requirement to provide a rigid bundle of benefits to employees has resulted in fewer workers receiving any benefits at all. This article argues for unbundling employment benefits so workers in the gig economy can obtain a more optimal mix of benefits and wages. This article also provides a framework for a more flexible system of employee benefits. This article thus makes three contributions. First, this article demonstrates how a rigid requirement of employment benefits can harm workers. Second, this article shows how labor law should incorporate advances in economic theory that heretofore it generally ignored. Third, this article presents a flexible framework to solve the refractory problem of rigid worker categorization.