An Incomplete Conversation: Tax Law and the Worker Clarification Fights in the Sharing Economy

An Incomplete Conversation: 

Tax Law and the Worker Classification Fights in the Sharing Economy

 

Shu-Yi Oei & Diane M. Ring

Abstract

Over the past few years, a significant global debate has developed over the classification of workers in the sharing economy either as independent contractors or as employees. While Uber and Lyft have dominated the spotlight lately, the worker classification debates extend beyond ridesharing companies and affect workers across a variety of sectors. The vitality of this debate is likely due to the fact that the role of the worker and the nature of work have experienced important shifts in an economy transformed by technology, communication, and interconnectivity. In the world of contemporary work, classification of workers has arguably become uncertain, given the gaps between existing case law and new workplace realities and worker expectations. Many find this uncertainty troubling, because these labels do, in fact, matter. Classification of a worker as an employee, rather than an independent contractor, can carry a range of implications for worker treatment and protections under labor law, anti-discrimination law, tort law, and tax law, depending on the legal jurisdiction. 

The conventional wisdom in these debates (reflected in current litigation, labor ruling requests, petitions, and reform proposals for a dependent contractor status) has generally been that employee status affords greater protections than independent contractor classification. This Article argues, however, that this conventional wisdom is based on an incomplete analytical foundation. For the most part, the ongoing conversation about worker classification has paid inadequate attention to the effects of taxation. Rather, the debate has focused on the non-tax consequences of worker classification, such as labor law consequences. This inattention to the impact of taxation permeates discussions among legal scholars and policymakers as well as conversations among workers themselves. The inattention is problematic because the classification of a worker as an independent contractor or as an employee can carry significantly different tax consequences. In some cases, these tax consequences support the conventional wisdom of the greater protectiveness of employee classification, but in others, the tax law may upend the conventional wisdom. Thus, tax law sometimes embellishes the worker protections afforded by labor and other laws but also sometimes works to detract from them. This role of taxation as alternately a facilitator of and a friction against worker protections has gone unnoticed in the academic literature.

This Article remedies this dearth of analysis by examining the ways in which tax law impacts the consequences of worker classification. We also investigate why the effects of taxation have, for the most part, passed unnoticed in the debate, and advocate for a more comprehensive consideration of tax within the broader sharing economy debates.