The 1099 economy (or "gig economy") is a labor market that utilizes contracted human labor to fulfill the service promises from marketplace/shared economy platforms. Taking its name from the tax form filled out by freelancers or short-term independent contractors, the 1099 economy demonstrates the fundamental changes to the very idea of work and employment that are now taking place. By 2020, 40% of American workers will be contracted.
Online marketplaces hire a significant number of contractors or freelancers to provide goods or fulfill services (see our top 5 predictions for marketplaces). It is important, then, that your legal terms with workers outlines your liabilities in clear, enforceable terms.
The arbitration clause mandates that independent contractors must resolve disputes with businesses through the arbitration process, thereby preventing class action risk. Many online marketplace owners make arbitration mandatory because it leads to a quicker settlement, costs less, and protects a company’s reputation.
An arbitration clause can be part of an organization’s agreement with its independent contractors and/or customers. If executed properly, this clause can help prevent against one of the more common (and costly) risks endemic to any organization with a high volume of signers. After all, a greater volume of transactions (be it for employment or for goods/services) inherently carries of risk of people who can be displeased and rise up as a class to bring your organization to court.
Does this mean that your agreements online are at even higher risk than the ones done by manual processes? Yes and no.
What not to do: Uber and TransUnion
Presenting agreements to customers or contractors via a clickthrough can mean doing business more quickly, but clauses like your arbitration clause can only be upheld if your clickthrough is enforceable.
Here are two examples of what not to do:
- Uber tried to force arbitration upon its users who filed class action suit because, they said, the ride-hailing giant charged them extra fees for no reason. Uber tried to compel arbitration as per their terms of service, but because of their clickthrough design, their terms were not enforceable, and their riders could take them to court.
- In 2015, TransUnion tried to quash a class action lawsuit by enforcing an arbitration provision. In this case, the arbitration provision in question was part of a set of legal terms presented to the website user inside a scrollable window. They did not follow best practices, and they paid the price for it.
Is my clickthrough agreement enforceable?
The enforceability of a clickthrough depends a lot on its design. Even if terms were crafted perfectly, it will not hold weight unless it meets some of the following criteria:
- Conspicuously displayed
- Allows users to explicitly agree (by checking a box or clicking a button)
- Designed with version control and record-keeping in mind
Enforceable agreements are the key to protecting your online marketplace in the 1099 economy. It is important to know what agreement each party signed when, and what clauses they accepted. This makes you more prepared to scale while minimizing risk, ensuring success in the on-demand economy.