Monday, February 15, 2021

AFL-CIO and Airbnb take opposing views of SEC’s gig economy proposals

By John Filar Atwood

The SEC’s proposals to address the compensation of gig economy workers have drawn starkly contrasting comments from the AFL-CIO and Airbnb. The AFL-CIO asked the SEC to withdraw the proposals entirely because, among other things, platform workers could see their cash compensation reduced by up to 15 percent in exchange for securities that may be risky and illiquid. Airbnb feels that the rules will finally allow workers that have contributed to its success to benefit from the economic growth of the company.

The rules, proposed in late November, would allow companies, on a trial basis, to provide equity compensation for certain "platform workers" who provide services available through the issuer's technology-based platform or system. The proposals include certain limits and conditions, including that no more than 15 percent of the value of compensation received by a participating worker from the issuer during a 12-month period and no more than $75,000 of such compensation received during a 36-month period will consist of securities.

In its comment letter, the AFL-CIO said that existing rules provide ample opportunity for companies to offer equity compensation to platform workers if they would simply recognize those workers as employees with all the legal rights associated with traditional employment relationships. In the organization’s view, the fact that few platform companies have chosen to classify their platform workers as employees suggests that providing equity compensation to those workers has not been important to their business models.

Risky securities. The proposed rules will effectively treat platform workers as if they are employees for purposes of Rule 701 and Form S-8, the AFL-CIO noted, so platform workers could see their cash compensation reduced by up to 15 percent. In exchange, they would receive company securities that may be highly speculative, illiquid, and inherently risky, the group added. The organization feels that this loophole will increase the economic incentives for platform companies to misclassify their platform workers as independent contractors.

The AFL-CIO pointed out that unlike CEOs and other senior executives, many platform workers are struggling to make ends meet and cannot afford the risks associated with equity compensation. The proposed equity compensation arrangements would be more appropriate for platform workers if their companies would recognize them as employees with all the legal rights and protections that are provided to workers in an employment relationship, the organization stated.

When classified as independent contractors, the AFL-CIO continued, platform workers do not have the right to collectively negotiate the terms of their compensation under the National Labor Relations Act. Unlike employees, independent contractors do not enjoy a variety of legal protections including the minimum wage, overtime, unemployment insurance, workers’ compensation, equal employment opportunity, and family and medical leave, the group said. Moreover, as independent contractors, platform workers do not have access to employer sponsored 401(k) plans or pension plans.

The organization further noted that the majority of platform work is conducted on a temporary or part-time basis for supplemental income. As a result, platform workers do not have the same access to information about the financial condition of their platform company as compared to an employee of a technology startup venture. This information asymmetry increases the risk that platform workers will be defrauded if they are paid in unregistered securities, the AFL-CIO argued.

Arbitrary distinction. The group also opposes the proposed rules’ arbitrary distinction between platform workers and other workers who work as independent contractors. Platform workers would be eligible for equity compensation, it noted, but not other self-employed workers such as free lancers. The AFL-CIO believes the proposed rulemaking provides no justification as to why equity compensation should be permitted simply because independent contractors are hired through technological means.

The group’s final objection is that the proposed rules could lead to unexpected outcomes. The ambiguity in the proposed definition of a platform worker who provides "bona fide services" may result in the use of equity compensation for all sorts of economic transactions that go far beyond the provision of labor services as in a traditional employment relationship, the group said.

Airbnb’s support. Airbnb fully supports the proposed rules because they would make it possible for stakeholders on platforms to more fully benefit from the economic allocations of the public equity markets. In the company’s view, the proposals support President Biden’s call to more equitably share the benefits of capitalism.

The company noted that according to a 2020 Gallup survey, nearly half of all Americans do not own stocks. The company would like to help change that by allowing employees that have contributed so much to its success to participate as company shareholders.

Airbnb said that it has long sought broader pathways for its property hosts to own shares in the company. As part of its IPO, the company included a directed share program for certain eligible hosts. In addition, it previously advocated with the SEC for changes to the federal securities laws that would make it easier for companies to share equity with the people who help power their platforms.

To support its argument that the proposed rules could economically benefit middle-class platform workers, the company noted that in a 2020 survey, 53 percent of its hosts said that their Airbnb income helped them stay in their homes, 18 percent said hosting on Airbnb helped them avoid eviction or foreclosure, 12 percent said they are healthcare workers, and 14 percent said they are teachers or live with a teacher.