Liberty of Contract in the "Gig" Economy

In the nineteenth century, the Thirteenth Amendment transformed the law of work in the United States, replacing unfree labor with liberty of contract.  But what did liberty of contract mean?  Did it mean a formal right to contract without any government assistance to exercise that right?  If so, did it prohibit government intervention affecting that right?  In our new gig economy, a fifth of workers are independent contractors and lack legal protections designed for employees.  Arguably, these workers enjoy maximum liberty of contract.  However, this liberty of contract comes at a cost to workers.  In this , Mark Schmitt details the perils of what he calls the “scam” economy, “where risk is shifted onto individuals and families.”  At this time of maximum liberty of contract, average Americans are increasingly vulnerable.

State intervention and regulation is necessary to protect consumers and address the power imbalance in employment relationships.  During the early twentieth Century, advocates for labor argued that their right to contract included the right to organize into unions, and the right to government intervention such as minimum wage and maximum hours laws.  During the New Deal,Congress adopted labor’s vision of a collective right to contract with federal measures protecting the right to organize, establishing a federal minimum wage, and regulating the hours and conditions of work.  In the 1960s and 1970s, Congress enacted measures prohibiting employment discrimination on the basis of race, gender, age or disability.  All of these measures enforce a different form of liberty of contract; a substantive right to a free contract, protecting workers exercising their right to contract and sell their labor.

In recent years, however, the structure of work has been changing from the traditional employment relationship to the gig economy of short-term contracts for work.  From Uber drivers to web designers, workers are no longer considered to be employees in long term relationships with their employers.  The recent tax bill provides incentives for more workers to act as independent contractors, because “pass through” business income is taxed at a lower rate than wages.  Gig workers have the flexibility to choose their work, when they can find it.

However, the gig economy workers must shoulder all the risk that is in inherent in their “liberty” of contract.  Gig economy workers job security and must constantly search for new work.  Most gig economy workers do not receive health insurance, pensions, or other benefits from their employers.  New Deal protections for workers and most anti-discrimination laws do not cover independent contractors.

Meanwhile, de-regulation and lack of oversight undermine protections for all US workers.  Ironically, employers increasingly subject low-wage workers to practices reminiscent of indentured servitude, including on-demand schedules and covenants not to compete.  In today’s economy, liberty of contract largely benefits only employers and purchasers of work for hire.  Workers gain little from liberty of contract in the twenty-first century.

This blog entry was first posted on on February 9, 2018.