Legal Issues in the Gig Economy: Tips for Freelancers/Independent Contractors

If you’ve ever found work as a freelancer or independent contractor, you’ve likely been a part of the “gig economy.” 

While this type of work can offer flexibility and autonomy, it also brings with it a host of legal issues that can be challenging to fully understand. 

In this blog post, we’ll explore the legal implications of working in the gig economy, including contract disputes, misclassification, and the lack of benefits. We’ll also discuss how these legal matters may require the assistance of a lawyer. 

Whether you’re a seasoned gig worker or just starting out, understanding the legal landscape of the gig economy is crucial to protecting your rights and securing your future.

From Jazz Musicians to Uber Drivers, What Is the Gig Economy?

The term “gig” was coined by early jazz musicians to refer to their one-off temporary performances, similar to the short-term jobs available to gig workers today. However, the term “gig economy” has regained popularity in recent years with the rise of online platforms like Uber, DoorDash, and TaskRabbit, which connect freelancers to customers.

The worldwide COVID-19 pandemic and recession have driven even more people to take on gig work, with a recent survey finding that 36% of the American workforce (or about 59 million people) freelanced in the past year.

Essentially, the gig economy is where workers complete tasks on a project-by-project or client-by-client basis rather than regularly working for a single employer. Examples include drivers for ride-sharing services, freelancers in various industries, temp workers, Airbnb hosts, and workers for online platforms like Fiverr, Guru, and Elance. 

The Pros and Cons of Being an Independent Contractor in the Gig Economy

The gig economy and the rise of independent contractors have changed the nature of work and the way in which people make a living. 

In the gig economy, a worker is typically considered an independent contractor rather than an employee. The distinction between the two is important because it affects the legal rights and benefits afforded to workers.

Independent contractors work for themselves and are hired on an as-needed basis, while employees work for an employer regularly. 

Independent contractors enjoy greater flexibility in terms of their work schedule and the type of work they do. However, they typically do not receive benefits such as health insurance, paid vacation or sick days, and retirement benefits. They also have fewer legal protections against discrimination and harassment, and they are not eligible for legally protected or paid family leave or unemployment benefits.

The primary legal difference between an independent contractor and an employee is the level of control the employer has over the worker. If the employer has a significant amount of control over how the work is done, the worker is more likely to be considered an employee rather than an independent contractor. 

By hiring independent contractors instead of employees, employers can avoid paying federal taxes, state unemployment compensation insurance, and worker’s compensation insurance. They can also avoid paying for benefits such as 401K matching and health insurance.

Gig workers and independent contractors are often paid on an hourly or project-based basis, and they have more freedom and flexibility in terms of completing their work than traditional employees. However, they also carry greater responsibilities, including self-employment taxes, benefits, maintaining their own equipment, and professional liability insurance.

Legal Challenges Faced by Freelancers in the Gig Economy

In the gig economy, freelancers often work for multiple employers or clients, which can create legal challenges for them. 

Taxation

One major issue that arises is taxation, as working for multiple employers can complicate tax filings. When working for multiple employers, it can be challenging to keep track of income earned from each employer and the associated taxes. 

For example, let’s say a gig worker drives for Uber, delivers food for Grubhub, and does freelance graphic design work on the side. Each company may issue a 1099 form reporting the income earned, but the worker is responsible for reporting and paying taxes on the combined income.

If the worker fails to accurately report all income, they could face penalties and fines from the Internal Revenue Service (IRS). Additionally, the worker may miss out on deductions or credits that could lower their tax liability. To avoid these issues, freelancers have to keep detailed records of income earned from each employer and potentially hire a tax professional.

Competition

Competition in the gig community can also cause legal issues for freelancers. 

For instance, let’s say two freelancers are bidding on the same project. One freelancer lowers their price drastically to secure the job, which causes the other freelancer to lower their price as well. This kind of price-cutting war can drive down the value of the work being done, leading to lower quality work and ultimately harming the client. In such a situation, the client may sue both freelancers for not delivering the agreed-upon quality of work.

Another example is when freelancers cut corners to complete projects quickly or to reduce their costs. For instance, a freelance graphic designer may use copyrighted images or fonts without permission, which can lead to a lawsuit for intellectual property theft.

Additionally, freelancers can face legal liability if they take on too much work and don’t deliver on their promises. For example, let’s say a freelancer takes on multiple projects with overlapping deadlines but cannot deliver on all of them. This could lead to payment issues and potentially harm the client’s business, resulting in a lawsuit against the freelancer.

Multiple Employers

In addition to tax issues, having multiple employers can create conflicts with contractual obligations. 

Some employment contracts may prohibit freelancers from working with other companies, taking on additional gigs or projects, or participating in certain activities that could be seen as a conflict of interest. Violating these terms could lead to legal action by the employer or other parties involved.

For example, a freelance graphic designer may work with multiple clients, including a marketing agency that provides regular work. The agency may have a contract that states the designer cannot work with any of their competitors or take on similar projects for other clients. If the designer violates this term, they could face a lawsuit from the agency or lose their contract altogether.

Having multiple employers can also lead to disputes over intellectual property or ownership of work created by the freelancer. In some cases, multiple employers may claim ownership of the same work, leading to legal battles over who has the right to use or distribute it. This could prove especially problematic in industries such as software development, where intellectual property is highly valued and fiercely protected.

Find Legal Help for Your Gig Economy Legal Issues with LegalMatch

Freelancers in the gig economy face a number of legal issues that can affect their income, taxation, and employment status. Freelancers need to be aware of these issues and take steps to protect themselves, such as carefully reviewing contracts and understanding their employment classification.

At LegalMatch, we are committed to helping freelancers navigate the legal challenges they may face in the gig economy. Our network of experienced attorneys can provide guidance on employment contracts, tax law, and other legal issues that arise for gig workers.

If you are a freelancer in need of legal assistance, we encourage you to contact a lawyer through LegalMatch today. By working with a qualified attorney, you can ensure that your rights and interests are protected as you navigate the complex world of the gig economy.