The COVID-19 pandemic is likely a watershed moment for the traditional structure of America’s business workforce.  Although there is much uncertainty and opaqueness about the future, it seems clear that in the short term “remote” work arrangements – remote from large commercial office complexes and from concentrated city centers – will become more common for a substantial part of the workforce.

In the medium and longer terms, the pandemic may also support trends toward a more gig-based workforce in sectors of the labor market that are not currently significantly gig-based, specifically for workers in white-collar, business service industries.  We lay out below a few of the reasons to anticipate that result and briefly explore the principal legal implications for business.  As virtually all companies are considering the impact of the pandemic on their businesses, and specifically the cost-saving potential tied to remote work where feasible, they should take the opportunity now to also consider the possibility that gig-based workforce trends will impact them and how the steps they take in the short term may influence any such impact.  For many public companies, the trends and issues discussed below fall under the umbrella of human capital management strategy, as to which the board of directors may be expected to exercise oversight.[1]

  1. Trends and Expectations

The following summarizes the principal reasons that the pandemic may lead to an increase in the scope and size of the gig-based workforce.

First and foremost, the pandemic is requiring employers and employees who can do so to implement work-from-home arrangements.  These remote work arrangements will continue for some time for what are by now obvious health and economic reasons (such as reduced real estate expense, particularly in high-density city centers), as well as other practical reasons, such as the need to accommodate school closures and other loss of childcare.  Reports suggest that those cost-savings will prove to be tempting and durable.[2]  In fact, Facebook’s Mark Zuckerberg announced recently that he foresees transitioning permanently to a predominantly remote workforce over the next ten years.[3]  As the possibilities become concrete and prevalent, and the competitive impact of cost-savings are recognized, more employees will ask, and be asked, to work remotely.[4]

We believe that remote work arrangements will encourage, and will likely evolve into, an increase in the scope and size of the gig workforce – that is, we believe it is likely that the proportion of labor working as independent contractors rather than employees will grow significantly.  This shift is not, of course, inevitable – the evolution from remote work to independent contractor status is a big jump, and there are reasons to expect resistance from employers and employees to the shift – but the possibility is real enough to be taken seriously in current planning.

That premise is based on the view that remote work arrangements invariably loosen the ties between employers and employees, as employers lose the close touch with their employees that comes from having the employees show up at a central work location on a regular basis.  It is worth remembering, in that regard, that not so long ago, several high-profile companies which had a long-standing practice of having a significant portion of their workforce working remotely changed their policies and recalled some or all of their remote workforce, citing a desire to increase collaboration, innovation and productivity and a belief that remote work programs may be inconsistent with that goal.[5]

Will the cost savings associated with remote work, and the further potential cost savings associated with independent contractor status (summarized below), support a trend toward gig labor in areas of the economy where gig labor has not been prevalent so far, notwithstanding the downsides of remote, gig-based labor experienced in the past by companies like those cited above?  We think so, not for all service providers, but for a sizable portion of the total workforce.  While there are serious differences of view about the net costs and benefits of remote work arrangements,[6] the prevailing view already is that the negatives can be managed, meaning it is plausible to conclude that remote work can result in a happier workforce without increased turnover or losses in productivity.[7]  There is a significant likelihood that the new pressures arising from the pandemic will constitute a tipping point.

In sum, the trend to remote work seems inevitable as a result of the pandemic.  The phrase “absence makes the heart grow fonder” may express truth in certain areas of life, but probably not in the provision of personal services.  So, there is a substantial likelihood that the resulting loosening of ties between service recipients and service providers will result in many more of them – including those in non-traditional gig markets – gravitating toward viewing their relationship as that of contractual counterparties, rather than the more-encompassing employer and employee relationship.

Second, and more legalistically, there are a number of facts and circumstances tests in different parts of the law that set forth the factors for determining whether a service provider is acting as an employee or an independent contractor.[8]  Those tests in large part focus on the service recipient’s control of the manner in which the services are provided, including the business’ ability to dictate where the individual does the work.  Remote work arrangements therefore technically cut in favor of independent contractor status.  Other factors that may cut the same way and often arise in connection with remote work arrangements include when the work is done, what tools (e.g., computer, phone, etc.) are used and whether the individual is reimbursed for his or her costs (such as, for example, a home office).

Third, as remote work arrangements become more common, it seems likely that another factor in the classification guidelines will come into play.  It has been a trend for many years for downsized employees to be hired as “consultants” – that is, independent contractors – by their former employers, usually on a reduced schedule.  As consultants, they are frequently permitted to take on multiple clients.  Another long-time trend for employees a little farther down the seniority scale is to see work schedules cut, creating the need to find supplemental income sources through other work.  As remote work becomes more common, it seems likely that more employees will use their extra time on hand and their remoteness to engage in other income producing, entrepreneurial, activities.  These activities could be unrelated to the services being performed for the employer or involve concepts related to, or resulting from, those services.  Indeed, the idea is already a mainstream concept, going by the term “side hustle.”[9]  The pandemic has led to cuts in work schedules, furloughs, scaled-down operations that may not scale back up and other similar labor impacts that are playing out in unprecedented ways.  These could be expected to emphasize the long-term trends leading to a search for supplemental income activities.  Holding oneself out to provide services to two or more businesses is a technical hallmark of independent contractor status.

Fourth, for those members of the labor force who are pondering their happiness and life choices and have either the means or the relative lack of fixed expenses to manage it, the pandemic seems to be raising in a stark way lifestyle questions.  For some, this raises issues around urban living or living permanently in any one location.  For others, it raises questions around the treadmill of demanding job choices.  For still others, it raises questions about retirement decisions.  In all of those cases, one might predict that some portion of those so affected will consider switching their employment ties for less demanding consulting assignments.

  1. Potential Implications

The switch from employment to independent contractor status has a number of legal and compliance implications.  In some industries – for example, limousine services and computer programming – those implications have been explored in some depth and may be instructive if there were to be a substantial shift in the same direction in white-collar, business services industries.  Invariably, however, there will be legal uncertainties and new business lessons to be learned.  Companies trying to anticipate the evolution to more gig-based labor should consider the following.

A. Benefit Plan Coverage. A typical indicia of independent contractor status is ineligibility to participate in customary employee benefit plans.  Companies anticipating the trends suggested above should consider whether their benefit plan coverage is consistent with their desired characterization of workers.  Exclusions from eligibility should be very clearly reflected in plan documents, summary plan descriptions and plan-related communications.

Generally, independent contractors are not permitted to be covered by 401(k) plans and other tax-qualified retirement and savings plans.  However, pension reform passed in 2019 liberalized certain rules that limited participation by multiple (unrelated) small employers in a single 401(k) plan.  These rules may result in plans that creatively expand the opportunities for independent contractors to participate in 401(k) arrangements.[10]  Perhaps a shift along the lines suggested above would be accompanied by a further demand for Congress to look at the relative availability of such vehicles for independent contractors.[11]

Participation of independent contractors in employer medical and health insurance arrangements involves substantial complexity and would likely also have to be accompanied by legislative initiatives, with all of the political baggage that would entail.  First, existing policies, as a contractual matter, may dictate whether independent contractors are permitted to be covered.  In most cases, a substantial expansion in the coverage of independent contractors should be discussed and negotiated with carriers.  Second, the treatment of benefit payments, deductibles and co-pays for independent contractors under the tax law is in important respects not perfectly clear.[12]  Third, there is substantial uncertainty about the availability of coverage, for independent contractors and others, through the exchanges contemplated by the Affordable Care Act.

B. Payroll and Income Tax Withholding and Reporting. Companies would also have to consider their compliance practices in regard to employment and income tax withholding and reporting obligations.  Specifically, they should consider the consistency of their approaches to payroll and income tax withholding and reporting as between service providers across the organization.  Generally, (1) responsibility for payroll taxes for employees is split between the employer and employee, (2) income tax withholding is required and (3) payroll and income tax information is reported on a Form W-2.  Responsibility for the analogous self-employment taxes imposed on independent contractors is entirely allocated to the independent contractors, income tax withholding is generally not required, and reporting for employment and income taxes is on Form 1099.[13]  Employee and independent contractor misclassification issues have long been on the IRS’ compliance agenda and legislative changes are currently being discussed.[14]

C. Deductible Home Office Expenses. As a result of the 2017 Tax Cuts and Jobs Act, almost all employees are no longer permitted to deduct home office expenses through 2025, while independent contractors can continue to do so subject to applicable requirements, which consist essentially of conditions that their primary work location is at home and they have a dedicated space used “exclusively and regularly” in the conduct of their trade or business.  That could result in a real benefit to individuals working from home, who might become eligible to deduct not only office equipment to help them perform their work more effectively, but also a portion of home-related expenses, such as insurance, rent or taxes and mortgage interest, as a result of no longer being classified as an employee.[15]

D. State and Local Tax Issues. An uncertainty for companies arising from the pandemic is the impact remotely working employees may have on their state and local tax obligations.  Generally, states impose a hodgepodge of rules for determining whether companies have sufficient nexus to a jurisdiction for that jurisdiction to be able to impose income and other taxes on an allocable portion of each company’s activities.[16]  Having an employee working in a state is typically an important factor for these purposes.  Some states have provided helpful guidance in connection with temporary remote work of employees resulting from the pandemic.  However, it is unlikely that guidance will continue to generally apply as the emergency conditions arising from the pandemic abate, while remote work arrangements may continue to a material extent.  This may have the result that companies are receiving services, or supplying services to others, through remote workers (whether employees or independent contractors) that are working out of locations that they (rather than the company) chooses.  That could expose companies to state and local tax liabilities and filing obligations (e.g., income and sales taxes) that currently do not apply.  Separately, but relatedly, companies may incur new withholding and reporting obligations related to compensation paid to employees working remotely from locations in which companies have no other operations.[17]  While these issues may be mitigated for companies that utilize remote workers who are independent contractors, rather than employees, the status of a remote worker as an employee or independent contractor does not necessarily dictate the state and local tax consequences related to nexus and other reporting issues, and so companies will need to consider the state and local tax implications of utilizing a remote workforce.

E. Workers’ Compensation and Other Risk Insurance. The characterization of personal service providers as either employees or independent contractors can impact insurance coverages for work-related injuries.  In particular, properly classified independent contractors are not covered by state workers’ compensation laws.  A shift of employees to independent contractor status therefore can reduce workers’ compensation premium costs.  However, workers’ compensation laws protect employers from tort lawsuits for workplace injuries.  That protection is not available for independent contractors.  Remote work arrangements for white-collar, business service employees may mitigate risks of workplace injuries, which are less likely to arise at remote work locations (i.e., generally, at home) than in an office setting, but presumably will not mitigate some injuries, such as repetitive stress disorder injuries.

F. Human Resources Functions. Employee training, evaluation and feedback, employee assistance programs, hiring and separation arrangements, setting pay scales and negotiating pay arrangements, and other traditional human resources functions are likely to be impacted by companies experiencing a significant shift from a workforce composed almost entirely of employees to one composed in significant respects of independent contractors.  Human resources functions will have to adjust to that shift, and there will be training and other costs involved in doing so.

G. Protection of Intellectual Property. As part of any attempt to manage the shift to a more gig-based workforce, companies should also review and potentially revise the manner in which they seek to protect their intellectual property, including inventions, copyrighted materials and trade secrets.  Some doctrines that apply in an employment relationship and provide the employer with certain intellectual property ownership or use rights (such as the copyright “work for hire” doctrine or the patent “shop rights” doctrine) may not be applicable in an independent contractor relationship.  Moreover, trade secrets and other confidential information could be more porous in the hands of independent contractors working remotely than when handled by employees on premises.  Generally, to address these concerns, companies should utilize properly drafted intellectual property assignment and confidentiality agreements, which should be enforceable against independent contractors and are routinely used in independent contractor contexts where the contractor is likely to create or develop intellectual property in the course of the engagement.

H. Cybersecurity. Increased usage of a gig-based workforce may result in aggravated cybersecurity threats to the confidentiality, integrity, availability and security of company data and other data collected and stored by the company (including third-party personal data).  For example, gig workers may rely on private, unsecure information technology networks, they are likely to connect to company systems remotely and may use personal (non-company) devices.  All of these practices, and others often associated with the gig workforce, create significant information security vulnerabilities.  Companies should employ detection and prevention tools, as well as appropriate practices, procedures and strategies, in order to mitigate these vulnerabilities and threats.

I. Restrictive Covenants. Companies undergoing a shift in the status of their workforce should consider how their use of restrictive covenants – agreements not to compete and not to solicit employees or clients – may be affected.  The enforceability of these provisions against independent contractors involves some of the same considerations that arise in the context of employees, but there is an added twist.  Some of the considerations that would make a restrictive covenant agreement more likely to be enforceable against a service provider classified as an independent contractor also make the service provider more likely to be classified as an employee rather than an independent contractor.  Accordingly, there is a trade-off that needs to be considered by service recipients in the context of independent contractors that is not present in regard to employees, where reasonableness, but not classification, is a constraining factor.

J. Federal Fair Labor Standards Act and State Wage Laws. The overtime and minimum wage rules of the federal Fair Labor Standards Act, and the related requirements of state wage laws, generally would not apply to independent contractors, potentially providing additional cost-savings to companies shifting the balance of their workforce in favor of more independent contractors.  However, some states have taken steps to provide additional legal protections to gig workers in light of the absence of traditional employee protections.[18]  California has gone further in that direction, requiring companies to treat their workers as employees, instead of as independent contractors, if the work is a routine part of a company’s business.  We expect such protective legislation to become a trend, although it is likely to play out over many years.

K. Employment Discrimination and Labor Laws. Independent contractors are not generally covered by federal or state employment discrimination and labor laws, potentially providing yet another source of cost savings for employers considering a rebalancing of their workforce.  However, a significant expansion of the gig workforce could lead to a legislative push, at the federal or state levels, for broader coverage of these laws.  For example, the CARES Act, passed in response to the COVID-19 pandemic, permitted the extension of unemployment insurance coverage to independent contractors and other workers.

We note that while the National Labor Relations Act does not provide the same protections to independent contractors as it does to employees, union membership is available and can have benefits for independent contractors.  For example, a union can help secure health benefits and other insurance, provide advice and education and help find jobs.  Companies considering a rebalancing of their workforce should become informed about the possibility and impact of their independent contractors joining a union.

  1. Conclusion.

In sum, while it is too early to predict with confidence what the pandemic’s lasting impact on the labor markets will be, it seems very likely that there will be some.  As companies consider the potential savings and other benefits of remote work arrangements, they should also consider whether these arrangements will, building on existing trends, evolve into a substantial segment of their workforces becoming gig-based.  We have only briefly summarized above the issues that may be implicated by such a change.

Companies that may consider embracing and encouraging the evolution of more gig-based work should consider the risks involved.  The enhanced misclassification risks associated with a larger portion of a company’s workforce being classified as independent contractors gives rise to tax and employment law compliance issues, as well as risks relating to employee benefit plan eligibility.  The law could also evolve to provide independent contractors with greater protections and to minimize some of the potential cost-savings, or to change the balancing factors that distinguish between employees and independent contractors.  Furthermore, employees – the most valuable assets at many companies – may push back against the trend.

As companies consider the cost savings and other benefits associated with remote work, the complicated interplay between a large number of legal and business considerations, the very substantial legal uncertainties that exist and the importance of a motivated and functional workforce to the sustainability of their businesses should cause them to proceed carefully and thoughtfully in planning company strategy.

*Written with contributions from Jason Factor, Daniel Ilan and Mary Alcock.

[1] See

[2] See

[3] See

[4] A recent study by Jonathan Dingel and Brent Neiman at the University of Chicago found that 37% of jobs in the U.S. can be performed from home.  See (“We find that 37 percent of jobs in the United States can be performed entirely at home, with significant variation across cities and industries.”).

[5] IBM, Bank of America and Aetna were among the companies reported to have such views.  For a current expression of similar thoughts in connection with the COVID-19 pandemic, see (“Offices are necessary both for face-to-face meetings and because banking is an ‘apprenticeship business’ that requires human interaction, [said Citigroup CEO Michael Corbat]. That’s why Citigroup is re-examining everything from turnstiles to cafeterias to elevators and is considering new locations in the New York suburbs for employees ‘who might be uncomfortable getting on mass transit’ until a vaccine is widely available.”).

[6] See

[7] But see, e.g.,

[8] Classifications tests differ, mostly in subtle ways, for tax, employment law and copyright purposes.

[9] See;; and

[10] For example, will pooled plan providers set up pooled employer plans designed for participation by individual independent contractors?  See Section 101 of the Setting Every Community Up for Retirement Enhancement Act of 2019, amending Section 413 of the Internal Revenue Code of 1986 (the “Code”).

[11] See, e.g., Presidential Executive Order 13847, (“(i)  The Secretary of Labor shall examine policies that would: . . . (2)  increase retirement security for part-time workers, sole proprietors, working owners, and other entrepreneurial workers with non-traditional employer-employee relationships by expanding their access to workplace retirement plans, including” multiple employer plans (“MEPs”) and “the Secretary of the Treasury shall consider proposing amendments to regulations or other guidance, consistent with applicable law and the policy set forth in section 1 of this order, regarding the circumstances under which a MEP may satisfy the tax qualification requirements set forth in the [Code].”).

[12] Section 105 of the Code provides that: “Except as otherwise provided in this section, amounts received by an employee through accident or health insurance for personal injuries or sickness shall be included in gross income to the extent such amounts (1) are attributable to contributions by the employer which were not includible in the gross income of the employee, or (2) are paid by the employer” (emphasis added).  See, e.g., (“The best answer to whether non-employees can be offered coverage is that employers who wish to evaluate or pursue covering non-employees should consult their legal and benefit advisors.”).

[13] A significant shift of the labor force from employee to independent contractor status could have implications on tax collections and government funding of social security and other programs, but those issues are beyond the scope of this note.


[15] There is a considerable degree of uncertainty as to when home office deductions are allowable (beyond obvious items such as dedicated computer or communications equipment), and it is reasonable to expect increased audit activity around that question as more taxpayers try to claim those deductions.  As a business owner providing services to a company rather than an employee, some independent contractors might also be able to benefit from the 20% deduction on qualified business income under Section 199A of the Code (although there is a fairly broad exclusion for “specified service trade or business” work, as defined in Section 199A).

[16] There is a limited federal law overlay to those rules, in an effort to impose uniformity in limited situations.  See, e.g., the Interstate Income Tax Act of 1959, also known as Public Law 86-272.

[17] See

[18] See  California law now requires companies to treat their workers as employees instead of contractors if the work is a routine part of a company’s business.