Following the birth and rapid growth of companies like Airbnb, Uber, Lyft, Fiverr, and others, the gig economy has certainly burgeoned in recent years. Just about anyone can independently contract for these companies, which has created new opportunities for job-hunters and exponential growth for the firms.
Yet although these contractors create much of these business’ value, they are not legally permitted to obtain equity in these private companies – only the in-house employees have this luxury. However, earlier this year, the Securities and Exchange Commission (SEC) requested comments on the longstanding rule, signaling a potential reversal of it.
The SEC recognizes that technological innovation has changed the global economy and workforce drastically since the law was established in 1933. The commission notes, “Significant evolution has taken place both in the types of compensatory offerings issuers make and the composition of the workforce since the Commission last substantively amended these regulations.”
Further, the gig economy has grown rapidly because of these companies – but simultaneously, these firms have grown due to the rise of the gig economy workforce. This relationship has certainly benefited both sides of the partnership.
With the ability to obtain equity in a company, these contractors could gain a bigger stake in the company – which could motivate gig economy workers to work harder and consequently help their employer prosper. Uber’s Head of Federal Affairs Danielle Burr wrote this to the SEC in early October:
“As a company that has empowered millions of individuals around the world to take control of their lives through our technology platform, we believe that it is the proper role of public policy and key institutions as well as the private sector to explore avenues to give individuals greater economic security regardless of how they work.”
However, even if the SEC does alter Rule 701 of the 1933 Securities Act, contractors could face potential roadblocks. For example, equity-based compensation is generally taxed at the state and federal level, so although gig economy workers would have the opportunity to make more money long-term, they would also have the burden of paying additional taxes.
All this being said, the SEC has not promised any changes yet – overall, a reversal would create a logistical tangle for the commission, as it intertwines with other corporate regulations. But as the SEC receives more statements from companies and contractors, they could change the legislation and provide this new opportunity to drivers, home-owners, and freelancers.