Workers’ Comp and the Gig Economy: Status Quo Remains, for Now

By | April 1, 2019

The rise of an on-demand economy once threatened to put workers’ compensation insurers in the hot seat, in large part because the question of how the sector could, or should, cover these individuals remained uncertain.

Today, insurers aren’t exactly rushing to transform their workers’ comp approach for gig workers. Instead, they are contemplating mixed data on the gig economy’s size and impact and are waiting for court and legislative decisions to establish clarity before making monumental changes. Some observers see the market as already doing its job for gig workers without further action needed, providing plenty of options for gig workers and other sole proprietors.

“The individual market for workers’ compensation has always existed. This is not new, and sole proprietors are numerically the largest single type of business in America,” said Robert Hartwig, a former head of the Insurance Information Institute and current professor of finance risk management and insurance at the University of South Carolina. “They are not always compelled to purchase workers’ compensation, but for those who do, solutions have been around for decades.”

Gig Economy Realities

While the gig economy has grown, it isn’t as large as some predicted. A study released by JPMorgan Chase last fall pointed to a gig economy stunted by workers who faced dropping pay, forcing them to seek more traditional jobs, depleting the growth trajectory of the sector as a result. Also, court conflicts about how to classify workers as “gig” employees or full-time staff continue. Still, temporary labor on a broader scale has become a significant part of the overall economy, now at 41.5 percent of an average company’s talent pool, according to a white paper from Ardent Partners (that doesn’t mention gig workers by that name). In the face of mixed data, carriers haven’t rushed to reinvent the wheel to meet early expectations of a relentless flood of gig workers facing a potential workers’ comp coverage gap. “There were a lot of questions and concerns in the early days of the gig economy and the sister problem of the so-called shared economy (Airbnb). Largely, those insurance issues have been sorted out,” Hartwig said.

Hartwig pointed out individual gig workers have “had no individual problem securing workers’ compensation cover anyway” if they want it, noting the issue was the predicted volume of gig workers rather than their insurance needs. State laws have maintained sole proprietors don’t have to carry workers’ comp cover, he said, and “by definition, if you are a gig worker, you are in effect a sole proprietor.”

“The decision to purchase workers’ compensation is the result of the individual and not the result of being declined coverage,” Hartwig said.

Gig workers’ growth, Hartwig said, hasn’t put pressure on states or insurers to provide new workers’ comp coverage options. States can use the residual market to provide workers’ comp protection, but from what Hartwig said he has seen, the size of these markets hasn’t expanded in the past five years because of any gig market expansion.

The Courts Will Decide

AmTrust Financial Services is one of the largest workers’ comp insurers in the U.S. Matt Zender, the insurer’s senior vice president for workers’ comp strategy, said the company has watched court challenges seeking to define gig workers’ status. The courts haven’t yet made any big change to the status quo, he said.

“At this point, there doesn’t appear to be a guiding light [or] any court action that has caused us to change anything operationally,” Zender said.

He said AmTrust covers few gig workers because the bulk of its business is workers who would be classified as employees. Zender added gig workers have still been classified as independent contractors that aren’t subject to workers’ comp coverage. That will change with the resolution of some court cases and challenges into gig or contract worker status, such as one in San Francisco recently that redefined strippers at a local gentlemen’s club as employees rather than contract employees, Zender said. There have been other legal advances as well.

In the U.K., as reported by Bloomberg and others, rideshare company Uber recently lost a U.K. appeal in a lawsuit that challenged its designation of drivers as contract workers. The law firm Fisher Phillips on its GIG Employer Blog cited a related case in North Carolina involving a $1.3 million settlement in a class action suit by drivers challenging their classification as contractors rather than employees. In April, the California Supreme Court adopted a new legal standard designed to make it harder for businesses to classify employees as independent contractors. As Fisher Phillips noted in a legal alert announcing that decision, the court expanded the definition of “employee” under California law, and it forces companies to prove independent contractors are properly classified.

The firm noted the decision stems from the nearly 20-year-old Dynamex case, where drivers at the courier and delivery company sued because they had been reclassified as independent contractors rather than employees, even though they did the same tasks under each designation. Zender said he expects court cases like Dynamex and others to force major changes as to who can be defined as employees deserving of workers’ comp benefits, and at that point, AmTrust will act accordingly to adapt. “There has been a lot of movement recently, just the attention and the courses to try and clarify workers’ classification. [The courts] are trying to reconcile these two worlds, [and we need clarity] among the courts in what way we define workers and in what way that applies to be able to take any action really,” he said.

With ongoing debates and court challenges, Zender recommends other insurers and observers “stay tuned.”

“This is clearly an issue, [and] there is going to be a lot going on,” he said.

About Mark Hollmer

Hollmer is a veteran business journalist and editor of's daily e-newsletter for the property/casualty insurance industry C-suite. He may be reached at More from Mark Hollmer

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Insurance Journal West April 1, 2019
April 1, 2019
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