Liberty of Contract in the "Gig" Economy

In the nineteenth century, the Thirteenth Amendment transformed the law of work in the United States, replacing unfree labor with liberty of contract.  But what did liberty of contract mean?  Did it mean a formal right to contract without any government assistance to exercise that right?  If so, did it prohibit government intervention affecting that right?  In our new gig economy, a fifth of workers are independent contractors and lack legal protections designed for employees.  Arguably, these workers enjoy maximum liberty of contract.  However, this liberty of contract comes at a cost to workers.  In this Op ed, Mark Schmitt details the perils of what he calls the “scam” economy, “where risk is shifted onto individuals and families.”  At this time of maximum liberty of contract, average Americans are increasingly vulnerable.

State intervention and regulation is necessary to protect consumers and address the power imbalance in employment relationships.  During the early twentieth Century, advocates for labor argued that their right to contract included the right to organize into unions, and the right to government intervention such as minimum wage and maximum hours laws.  During the New Deal, Congress adopted labor’s vision of a collective right to contract with federal measures protecting the right to organize, establishing a federal minimum wage, and regulating the hours and conditions of work.  In the 1960s and 1970s, Congress enacted measures prohibiting employment discrimination on the basis of race, gender, age or disability.  All of these measures enforce a different form of liberty of contract; a substantive right to a free contract, protecting workers exercising their right to contract and sell their labor.

In recent years, however, the structure of work has been changing from the traditional employment relationship to the gig economy of short-term contracts for work.  From Uber drivers to web designers, workers are no longer considered to be employees in long term relationships with their employers.  The recent tax bill provides incentives for more workers to act as independent contractors, because “pass through” business income is taxed at a lower rate than wages.  Gig workers have the flexibility to choose their work, when they can find it.

However, the gig economy workers must shoulder all the risk that is inherent in their “liberty” of contract.  Gig economy workers lack job security and must constantly search for new work.  Most gig economy workers do not receive health insurance, pensions, or other benefits from their employers.  New Deal protections for workers and most anti-discrimination laws do not cover independent contractors.

Meanwhile, de-regulation and lack of oversight undermine protections for all US workers.  Ironically, employers increasingly subject low-wage workers to practices reminiscent of indentured servitude, including on-demand schedules and covenants not to compete.  In today’s economy, liberty of contract largely benefits only employers and purchasers of work for hire.  Workers gain little from liberty of contract in the twenty-first century.

Comments

[Bill Turnier]

As we move into the “gig” or “scam” economy with no retirement benefits or health insurance, we see the promoters or “right to work” laws and other precious gifts to workers crying out for cuts to “entitlements “ because their recently promoted tax cuts and increased spending on “national defense” are so irresponsible that cuts must be made in the few individual material security programs we now have.

[Deep State Special Legal Counsel]

"Meanwhile de-regulation and lack of oversight undermine protection of all US workers..."

I disagree. Perhaps that was the case during the early to mid-twentieth century. Since that time, our tort and employment law systems have developed and matured to where an individual with a good lawyer can sue and keep things in check. We have one million plus hungry lawyers roaming the landscape like hungry lions ready to pounce on any violation or harm.... That's the beauty of emphasizing rugged individualism and free markets....We don't need to be collectively protected, we just need to find ourselves a HEAVY HITTER who will file suit,

[Rebecca Zietlow]

Bill Turnier, yes, I too fear more cuts to our already weakened system of entitlements, which are the only security that low wage workers have.

[Rebecca Zietlow]

Deep State Special Counsel, lawsuits are no help for people who lack legal rights, and low wage workers can't afford to pay attorneys. Tort suits are no substitute for adequate regulation, as the new epidemic of black lung disease tragically illustrates. See https://www.npr.org/2018/02/06/583456129/black-lung-study-biggest-cluster-ever-of-fatal-coal-miners-disease.

[Deep State Special Legal Counsel]

^^^I agree with you. I never met a government regulation I did not like. I think government is a force for good. However, for the sake of argument, us lawyers are a potent force to be reckoned with. Immediately after 9/11, Bush focused and directed his ire toward LAWYERS, Insurance companies like State Farm strike out against LAWYERS with niceties in the form of TORT REFORM, Trump continues his attack against LAWYERS.

[Bill Turnier]

Rebecca, the wealthy are so adept at their marketing. Note the term used to describe the toxins, gig (used to be used by jazz musicians), right to work (aka freeload or turnstile jump). I willingly accept entitlement because after having paid FICA for almost 60 years, I do feel entitled. Ryan trys to make it a pejorative. Of course. FICA has run a vast excess for decades while our military and domestic spending was supported with it. Now that it is time to use general revenues to “repay” for that raid on the treasury, we get a giant tax cut. The scam artusts are at work. They never sleep.

[Deep State Special Legal Counsel]

^^^Welfare Queen, Willie Horton, Solendra, Bail Out, Socialized Medicine, Trial Lawyers, Tort Reform, Political Correctness, Section 8, Snow Flakes, Bussing, Tree Huggers, Radical Environmentalists, Haters, Intellectuals, Elites, Globalists, Limousine Liberals, Agitators, Anti-Law and Order, War on Christmas, Militant, Abortionists, Baby Killers, Femi-Nazis, LIBERAL, Bengazi, emails, Hillary, Weak on Crime/Terror, Inner City, URBAN, anything Muslim or immigrant.... Any label to get a white vote and divide they country.

[Litowitz]

Rebecca, good post. When I left in-house practice, I experimented with a few "gig" legal jobs. Aside from the usual problems such as lack of benefits and job security, the real problem is that you are given so little information that you cannot effectively represent the client.

The other day a large publisher offered me a "gig" writing anti-money laundering compliance 'content' for their subscribers. Well, I told them, the rules change depending on the client. If the client is a bank, there is an issue with correspondent banking; but if the client is a hedge fund, the issue is more with due diligence of investors; if the client is a multinational corporation that wants contracts, then the big obstacle is FCPA and deal with state actors. The 'gig' economy just throws you in the middle and says "do it!" But without context, you cannot solve it.

I have done 'gig' work on transactions where I was asked to do deal documents but didn't know if the key party was offshore (Cayman) or onshore (Delaware) -- and that has huge significance. You are sometimes asked to revise limited partnership agreements without knowing the story behind the amendment. You are asked to create voting classes without being told why, so you could be abetting a breach of fiduciary duty. Basically, you are not being a lawyer in any meaningful sense.

[Enrique Guerra-Pujol]

We are all independent contractors now! (Or, heading in that direction ...) In any case, how much of the "gig" economy is the product of all those wonderful worker protections put in place during the New Deal? Perhaps the problem here is not so much the concept of "liberty of contract" but rather the old legal distinction between "employees" and "independent contractors".

[Rebecca Zietlow]

Litowitz, thanks for pointing out the fact that many attorneys are now working as gig workers. You make a good point about the negative impact of gig work on the legal profession.

[Rebecca Zietlow]

Enrique Guerra-Pujol, how is the gig economy the product of New Deal protections? I certainly agree with you that those protections are inadequate to protect gig workers.