Stuck in the Middle: The Classification Problem in the Gig Economy

Credit: Beth LeBerge, KQED

Abstract

The rise of the gig economy has produced one of the most pressing classification problems in contemporary American labor law. As platform-based work becomes an increasingly common source of income, the legal frameworks governing worker classification have proven structurally ill-equipped to address it. The series of judicial tests used to determine employment status neglects the hybrid nature of many gig workers, who exist between full-time employees and independent contractors. Ultimately, this results in the misclassification of a significant portion of the American workforce. This Article aims to break down why the current judicial tests for employment classifications exist and their pitfalls for gig workers before evaluating ongoing initiatives and litigation on gig-economy cases to provide insight on pathways forward.

I. How are Gig Economy Workers Classified?

The term “gig worker” is a broad description for individuals who work in task-based labor through a digital platform rather than a traditional employment arrangement.¹ The rise of platforms performing these services, such as rideshare drivers, delivery couriers, and other freelance roles, has become a pillar of 21st-century life. The platforms are united not only by their ease and convenience, but also by a shared use of platforms that sets pricing and governs the terms of all transactions, while simultaneously discarding any formal employment relationships with the workers that power its service.²

As of 2021, 16% of Americans have at one point earned compensation on an online gig platform, with approximately 4% doing so as a primary source of income.³ For this latter group, the lack of employment recognition from platforms determines what rights they are, and are not, entitled to. Under the Fair Labor Standards Act (FLSA), those without a clear employee classification are not granted employee benefits such as access to minimum wage floors, employer contributions to social security and healthcare, rights to unionize, and anti-discrimination protections.⁴

Currently, gig workers are classified as “independent contractors.” Much as the name suggests, historically, the independent contractor classification was for entrepreneurial work, where forgoing traditional employment rights was the cost of independence.⁵ The key difference is that before the rise of gig-economy work, this classification was used as a title by those who were largely self-employed, rather than operating under a large platform. The misclassification of gig workers as independent contractors rather than employees is a significant barrier to individuals’ access to resources they would otherwise be entitled to.

The mutually exclusive categorization of employment creates new challenges for gig workers. This ambiguous gray area is not a passive force for platforms. It is not something that platforms merely exist within. It is something that gig platforms engineered their business models to exploit. The structural arrangement at the center of gig work further exacerbates this. Platforms simultaneously rely on workers as the core of their service while denying the existence of a traditional employment relationship. Workers are expected to provide labor that is both consistent and on behalf of a corporate-operated platform, yet they are formally treated as autonomous actors operating independent businesses. For many workers, this classification has tangible consequences that extend far beyond simple terminology. As gig work becomes an increasingly common source of income, the gap between the realities of platform labor and the legal categories used to describe it grows wider. This tension has made worker classification one of the central legal and policy debates surrounding the modern gig economy.

II. Why are Gig Workers Classified This Way?

The core problem is that American law does not apply a single test to determine whether a worker is an employee. Rather, a series of overlapping tests can be applied on a case-by-case basis. This patchwork of tests is inconsistently applied, resulting in a roulette in which the test used often dictates the classification outcome. To understand how these decisions are made, it is necessary to evaluate the effectiveness of contemporary tests applied in gig-economy cases.

IIa. Common Law Control Test

One of the most widely used tests in employment law cases is the Common Law Control Test. Established in Nationwide Mutual Insurance Co. v. Darden, the Supreme Court addressed what an “employee” is under the Employee Retirement Income Security Act of 1974 (ERISA). This statute did not determine who was eligible to receive the pensions it granted. The Court ruled that there should be a presumed common law meaning of employment, officially adopting the Common Law test as the standard for employment classifications.⁶ Under this framework, the Court issued a non-exhaustive list of factors, including the skill level of the work, the source of tools and instruments, location, duration, method of payment, and the provisions of employee benefits and tax treatment, as categories used to define “employee.”

This test’s broad nature was intended to make employment status flexible, even in an ever-changing labor market. However, its ambiguity is particularly disadvantageous for gig economy workers. Some gig platforms appear to offer flexibility, but they still maintain control through pricing algorithms and holding all access to the app. Because of this, the common law control does not fully account for the practical nature of this employment relationship. Hence, further standards to test the classification of employment were needed.

Until 2018, the test was used in conjunction with the Common Law agency test, which was the Borello test, as established in Borello & Sons, Inc. v. Department of Industrial Relations. In 2018, the Ninth Circuit’s ruling in Lawson v. Grubhub was considered one of the first cases in the modern gig-economy landscape. Lawson, a delivery driver, alleged that Grubhub violated California law. Specifically, that drivers were not entitled to minimum wage, overtime, and expense reimbursement laws that are granted to full-time employees but not independent contractors.⁷ Using the Borello test and the Common Law Control Test, it was concluded that Lawson was, in fact, an independent contractor and therefore was not entitled to benefits. If a worker performing the same labor can be classified as an employee in one jurisdiction and an independent contractor in another, the question is no longer whether the facts are unclear, but whether the law itself is doing the work.

IIb. The Economic Realities Test

Where the Common Law Control test struggles to account for the economic dependencies entrenched in gig work, the Fair Labor Standards Act Economic Realities Test offers, in theory, a more expansive alternative. Enacted in 1938, the Act established a federal minimum wage, overtime, and worker protection requirements. But it only provides coverage to “employees,” so gig workers remain in yet another classification limbo.

Another commonly used test is the Economic Realities Test, which was first used in United States v. Silk (1947).⁸ In that case, the Court rejected a rigid application of common law doctrine. Instead, it emphasized that employment status should be determined by examining the practical economic circumstances of the relationship.⁹ This test seeks to answer whether the employer exercises control over the manner of work, the economic realities test seeks to determine whether the worker is, as a matter of economic reality, operating an independent business or is instead dependent on the employer for continued employment.¹⁰

In theory, this framework should provide a more expansive scope of employment than the common law control test. Because the FLSA was designed to protect vulnerable workers, courts often emphasize that the economic realities question should be interpreted broadly in favor of employee status. In practice, however, the application of the test in gig-economy litigation has produced uneven results.¹¹

This inconsistency is evident in the Third Circuit Court’s ruling in Razak v. Uber Technologies, Inc., where the economic reality test was applied. In this case, a group of UberBLACK drivers brought a suit against Uber, arguing that the company’s control over their working conditions violated FLSA standards because they were classified as independent contractors.¹² When the Economic Realities Test was applied, the Court noted that factors such as drivers’ choice of when to work, the ability to drive for other services, and the payment of their own car insurance expenses were indicative of independent contractor status. While simultaneously finding that other factors like Uber’s set prices, imposed rules, and ratings, and controlled the overall customer experience were in favor of employee status.¹³

Rather than resolving the issue with a clear classification system, the case continues to leave UberBLACK drivers in a gray area. It shows that even a more lenient, open-ended test does not apply easily or consistently to gig workers. In another court, the same test could have resulted in a different outcome because there were no clear guidelines.

IIc. The ABC Test

In recent years, the limitations of the Common Law Control and Economic Realities Tests have been a topic of conversation. Some courts are beginning to adopt a more rigid standard known as the ABC Test. It rose to prominence after the Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court, in which the California Supreme Court held that workers are presumed to be employees unless the work fulfills the three specific conditions of the test:

(A) The worker is free from the control and direction of the hirer

(B) The work is outside the usual course of the hiring entity’s business; and

(C) The worker is customarily engaged in an independently established trade or business¹⁴

This marks a departure from earlier classification frameworks. Unlike the other tests, which weighed vague factors, this test has clear-cut criteria and begins with a baseline assumption that workers are employees. Consideration as employees, until proven otherwise, is advantageous for gig workers, but there is still significant difficulty in meeting all three functions. Prong B most directly challenges the role of the gig companies. It requires platforms to decide whether they are tech companies or service providers. In the Dynamex case, the Court had to decide if the usual course of Dynamex was first and foremost as a platform or as a delivery service.¹⁵

This was the very issue in O’Connor v. Uber Technologies, Inc, where UberX drivers argued they were misclassified as independent contractors. Under prong B, Uber maintained it was first and foremost a technology company rather than a driving service.¹⁶ Therefore, drivers operated outside the usual core or enterprise. This would deny them employee status and the benefits that come with it. Although the case was settled before a final decision, the Court was not convinced by Uber’s argument about Prong B under the ABC Test. This newest iteration of classification testing demonstrates a step in the right direction, addressing a previously neglected aspect by the other tests; namely, that a company should not be able to rely on workers to perform its main function while denying them employee status.

IId. Is There a Correct Test?

Persistent disputes over gig workers’ classification highlight that this may not be an issue of insufficient testing methods alone, but whether such testing is even possible. Perhaps the legal landscape has yet to adapt to the new contemporary workforce and reliance on gig-economy labor. The binary categorization of employee vs. independent contractor leaves many behind, gatekeeping the benefits of labor law from gig workers.

This system is supported by the continuous application of outdated tests from a completely different economic era, one in which the terms of employment were more clear-cut and stable. The more contemporary blurred lines around what it means to be a gig worker have led to drawn-out litigation over a mere difference in terminology. Yet this terminology is what provides reliable benefits and security to so many workers.

If the Common Law Control Test, the Economic Reality Test, and the ABC Test each produce independent results, the more fundamental question is whether any test can resolve the classification problem. There is an argument to be made that no such test can fulfill this need, but more test variants are not the solution either. The expansion and compounding of an ever-growing series of judicial tests do not address the root causes of problems for gig workers. Namely, that the problem is not methodological but structural. The binary classification system that underlies all three frameworks was built for a labor market that no longer exists, and continuing to apply its logic to the gig economy produces outcomes that are not merely inconsistent but systematically unjust.

III. New Initiatives

While there may not be a single clear test that absolves this situation of its complexity, statutory reforms have become a new method of change. Particularly following the Dynamex ruling, the assumption that one is an employee unless failing the ABC Test, rather than needing to meet additional standards, appeared to be a solid step for gig workers seeking employee classification. The intention behind this is that, rather than waiting for courts to resolve the issues through ongoing litigation on the employee-independent contractor divide, state-wide statutes are able to create a more tangible change without court intervention. This approach has produced some tangible gains in fast-tracking workers’ rights, but it does raise the question of whether reforms aimed at tweaking the status quo are a genuine solution. Does it fix the problem for gig workers at hand, or merely alleviate some of the most visible harms of misclassification without holding any corporations accountable for their treatment of gig workers?

This question comes to mind when evaluating the California Assembly Bill 5 (AB5), which passed in 2019. This bill expanded on the Dynamex decision and codified the ABC Test into law. The presumed employee status applied not just to wages, but also to the California Labor Code and Unemployment Insurance Code.¹⁷ It was the most expansive statutory protection for gig workers across the United States.

The promise of worker protection under this new law was, however, short-lived. In November 2020, California voters passed Proposition 22, a ballot initiative backed by Uber, Lyft, DoorDash, and Instacart. With over $200 million spent by gig platforms, it quickly became the most expensive ballot initiative in California history. Proposition 22 carved app-based transportation and delivery drivers out of AB5’s coverage entirely, reclassifying them as independent contractors by statute while providing a more limited set of benefits.¹⁸ Not only was this a setback for gig workers, who had just seen an expansion of rights under AB5, but it also quelled any optimism for future rulings on classification status with the ABC Test.

Credit: Juliana Yamada, CalMatters

A different model emerged in Massachusetts. In 2020, Uber and Lyft began to campaign for a similar ballot initiative to Proposition 22 after former Attorney General Maura Healey announced a lawsuit against Uber and Lyft in 2020 that would force them to classify their workers as employees under Massachusetts Wage and Hour Laws, which utilizes a similar ABC test to California.¹⁹ However, in June 2024, this multi-year litigation was resolved in a historic settlement between Uber and the State. Under this agreement, drivers who operate in Massachusetts were entitled to a minimum pay of $32.50 per hour while actively engaged on a trip, paid sick time accrual, and a healthcare stipend for those working above a minimum weekly threshold.²⁰ For workers concerned about the lack of wage and healthcare stability, this marked a direct improvement in the status quo. While it is a given that demonstrated progress, these would have all been factors if the classification of employees had been given outright. Rather than receiving a healthcare stipend, gig platforms would have to provide gig workers with healthcare outright.

The settlement reveals the underlying tension of the classification once more. The new minimum wage and benefits hinge on codifying the drivers’ independent contractor status. In what was essentially a negotiated exchange of one set of rights for another, gig workers effectively surrender their claim to ambiguity in classification — leaving no room for legal reclassification should they want it.²¹²² Both Massachusetts and California clearly highlight that there is an imperative need for broad sweeping reform. The current federal regulations hardly apply to gig workers. Both states argue the necessity of Uber reclassifying its workers as employees and granting them employee benefits. Neither has been able to shake the company from its use of the independent contractor classification.

Perhaps the most unique approach to reform is the newly enacted tipping code for rideshare drivers in New York City. The city enacted a new regulation for app-based delivery workers under the New York City Department of Consumer and Worker Protection Administration Code. It required a minimum compensation rate of $17.96 per hour after expenses and required platforms to pass through one hundred percent of customer tips to workers without offset against their base pay.²³ This was further upheld when it was challenged by platforms in Deliver Justice et al. v. City of New York in late 2023. The most useful tool this case provided is that it decoupled the idea of minimum labor standards from the classification question.²⁴ It broadly states that regardless of employment status, all drivers were entitled to benefits.

The primary concern is that decoupling the issues entirely will reduce pressure for full reclassification. Platforms are able to grant a minimum hourly earning while still forgoing gig-workers’ access to equal healthcare, organizing rights, anti-discrimination coverage, unemployment insurance, and other conditions they grant to employees of their corporate offices.²⁵ In all three types of reforms, the harmful classification binary still prevails; its sharpest edges are only slightly softened. What emerges from this established pattern of conceding some employee benefits while retaining the independent contractor label is the fundamental question for future initiatives: Is the goal of reform an endpoint or an opening term in a longer negotiation over the full scope of labor protections in the gig economy?

IV. Conclusion

The classification problem is not unsolvable, it has simply remained unsolved. The inconsistencies of judicial tests such as the Common Law Control Test, the Economic Realities Test, and the ABC Test have led gig-workers astray. But by no means does it reflect a fundamental impossibility of protecting gig workers. Instead, it showcases the failure of existing frameworks to evolve to the modern realities of the workforce. The patchwork of judicial tests, state statutes, and negotiated settlements between parties points to the fact that the American legal system has not failed gig workers by accident. It has failed them by design. Courts, policymakers, and voters are willing to accept large platforms at face value rather than challenge their authority. Gig workers do not need more tests, more settlements, or more narrowly tailored regulations. They need a reckoning with the structural conditions that have allowed misclassification to persist.

Edited by Annie Cayer and Emma Morgan

About the Author

Natalie is a third-year at Northeastern studying History, Culture, and Law with minors in International Affairs, and Law and Public Policy. This is her second semester in NUULR. Previously she wrote on education bussing policies following Milliken v. Bradley. She is very passionate about education policies and has enjoyed writing this article to expand her knowledge across other fields of the law.