SEC Proposes Compensating Certain Gig Workers with Equity

Steven Lofchie Commentary by Steven Lofchie

The SEC proposed a rule that would allow, on a five-year trial basis, internet platform companies to partly compensate gig workers with equity.

The proposed rule would amend SA Rule 701 ("Exemption for offers and sales of securities pursuant to certain compensatory benefit plans and contracts relating to compensation") to permit issuers to compensate gig workers who provide services by means of an internet platform with securities. The proposed rule conditions such compensation on the following:

  • the issuer must administer and demonstrably have control of the internet platform;
  • the securities must be issued in pursuance of a compensation agreement;
  • the relevant services for which compensation is paid cannot be related to raising capital for the issuer or trading in the issuer's securities;
  • the value of the securities cannot exceed (i) 15% of the value of the worker's services during a 12-month period or (i) $75,000 during a 36-month period;
  • the issuer may not provide a platform worker with securities-based compensation subject to (i) individual bargaining or (ii) the ability of the worker to choose between compensation in cash or securities; and
  • the issuer must make a reasonable effort to prevent the transfer of such securities unless the securities are being transferred back to the issuer or "by operation of law."

The proposed amendments would also enable Exchange Act reporting companies to offer compensation to gig workers in the form of securities that are registered using Form S-8, in which case the proposed transferability prohibition (above) would not apply.

In a related action, the SEC proposed to expand the permitted size of offerings using the Rule 701 exemption and to simplify certain of the related procedures.

Comments on the proposal must be submitted within 60 days of its publication in the Federal Register.

Commissioner Statements

SEC Commissioners Hester M. Peirce and Elad L. Roisman stated that the proposal demonstrates the SEC's dedication towards providing gig workers with the opportunity to "participate in the growth of the companies that sign their checks." Commissioners Peirce and Roisman expressed interest in receiving feedback as to whether the exemption should be expanded.

Commissioners Allison Herren Lee and Caroline A. Crenshaw cited a lack of justification for the SEC's decision to provide the exemption to only internet platforms. They noted that the data does not indicate that the exemption should be provided only for internet or technology-based companies.

Commentary

Comment letters that Democrat and Republican legislators submitted with respect to the initial concept release reflect the divergent economic philosophies of the political parties. Senator Sherrod Brown argues that the proposed rule changes would allow companies to pay their workers in stock when they are most in need of "a steady paycheck." By contrast, Patrick McHenry, the Republican Ranking Member of the House Financial Services Committee, argues for the benefits of allowing equity compensation for gig workers so that "all workers [can] have ownership in our recovery."

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