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October 15, 2020

Since the previous recession in 2008-09, the so-called gig economy and platform work have been growing globally and in Canada. The growth is mainly due to technological and economic changes and the desire for greater flexibility by workers and employers.

However, the legal employment framework remains outdated. The COVID-19 crisis has a strong potential to exacerbate the trend by shifting more working-age Canadians into temporary or contracted employment, rather than traditional stable and permanent employment.

There is still limited consensus on what the gig economy is, how to classify gig workers and, consequently, how to address concerns about protections for gig workers. There are three approaches to defining the gig economy that overlap somewhat, but can cause some confusion.

The most common approach is based on work structure, employment relationship and how gig workers get paid. The gig economy includes a wide variety of non-traditional arrangements that are temporary or based on projects or tasks, such as freelancing, self-employment and subcontracted or on-demand online work.

A second approach focuses on the nature of work, including scheduling, flexibility and types of daily activities that are not traditional.

The third approach is based on the classification of workers by employment laws and tax status. When workers are considered employees, their income is subject to payroll tax deductions (for Employment Insurance, for example), while earnings of independent contractors are not.

Given the broad types of gig work and complexity around defining and classifying gig workers, measuring the gig economy is not an easy task. Estimates over the past few years range from Statistics Canada’s 8.2 per cent (using a narrow definition of gig workers) to about 30 per cent from Randstad Canada and the Bank of Canada. The latter number is consistent with those in the United States and the EU 15 countries, in which 20 to 36 per cent of the work force is engaged in non-standard work. And these shares are expected to grow.

Gig work has advantages and disadvantages that make it appealing to some workers, but not suitable for others. On the positive side, it offers a great range of flexibility and independence that can provide work-life balance. Consequently, most gig workers engage in independent work by choice (60 per cent to 80 per cent), particularly those who do so though digital platforms.

The downside of the gig economy, however, is the lack of financial security and predictability, paid sick leave and other benefits and work-place protections.

There is also some confusion about who should be considered as gig workers and how they should be treated in terms of taxation, employment benefits and severance packages. Much of this confusion is due to the misalignment of the definition and classification of independent contractors under employment standards set by regulatory bodies on one side, and tax laws enforced by the Canada Revenue Agency on the other.

The COVID-19 pandemic has highlighted the need for stronger safety nets for workers involved in non-standard employment and precarious work, including gig workers. The Canada Recovery Benefit attempts to address the income support challenges of these workers. The program is temporary, but the concerns about income-related stability and uncertainty are not.

To address issues around financial security, governments in jurisdictions such as Europe and California have recently decided to apply traditional employment and employee models and reclassify many gig workers and independent contractors as employees. This includes app-based transportation workers who are major contributors to the rapid growth of the gig economy in the United States, such as Uber and Lyft drivers in California.

Uber in Canada is also facing a class-action lawsuit that may lead to the designation of its drivers as employees and consideration of a minimum wage, vacation pay and other protections under Ontario’s Employment Standards Act.

The potential consequences of such changes in classification of workers in the gig economy are not clear yet. But several outcomes are possible, including reducing flexibility for workers and businesses, limiting market entry, slowing down the growth of gig work, job losses and hours cuts. These outcomes can affect the growth of non-standard work and its potential key role in post-COVID-19 economic recovery.

Workers generally face a trade-off between flexibility and independence needed for the modern work places on one hand, and financial security and benefits offered in the traditional employment model on the other. However, the CEO of Uber says that, with the help of government, it is possible to maintain the flexibility needed for economic recovery and address some concerns about the lack of a safety net for workers. Otherwise, employers in the gig economy may have to reduce hours or the number of employees because of the increased costs related to a traditional employment model.

Regulations can certainly affect how gig work is established and developed. Therefore, finding the right balance between flexibility and protection is critical.

Previous C.D. Howe Institute research highlights the idea that Canada should focus on policies that provide proper supports for workers in non-traditional jobs – for example, through an expanded Employment Insurance system – while maintaining a dynamic labour market.

Canada also needs to make sure there is an alignment between tax and labour standards on the definition and classification of gig workers and enforcement of regulations.

Finally, the key to understanding the gig economy and making appropriate policy decisions to support it and gig workers is to have access to better, more comprehensive data that include all types of work arrangements. It is also time to consider more diverse employment classifications to be able to set out employment laws and develop social security frameworks suited to each category.

Published in the Globe and Mail 

Parisa Mahboubi is a senior policy analyst at the C.D. Howe Institute.

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