One question looms on the horizon for the esports industry: are players independent contractors, or are they employees? Currently, almost all answer with the former, especially as contractors require much less liability from an employer than an employee. However, several experts have cautioned that the way players are currently treated could classify them as employees. Here’s what you need to know.

The difference

The difference between an employee and an independent contractor can be massive. Traditionally, employees show up and work set hours, until they find a better job or get fired. Contractors, on the other hand, are hired for a set project or length of time, and can usually work significantly more independently, including setting their own hours and even sub-contracting out parts of the job to other contractors.

The important difference, especially from a business perspective, is what responsibilities an employer has towards those types of employees. Employees are typically granted health benefits, sick leave, vacation, and other common benefits, like the employer paying a share of the employee’s taxes. Contractors, in exchange for their independence, usually get none of those things.

As workplaces experiment with hiring models, sometimes the boundary between these distinctions can be crossed. These kinds of boundaries can be especially difficult when it comes to sports, as players often have unique work conditions that don’t appear in any other industry.

The law

One thing, however, is very clear. Mistreating an employee or contractor by misclassifying them is illegal. Per Jessica Mah, entrepreneur and CEO of inDinero, “Getting it wrong can be expensive… Generally, there are two consequences: pissed-off workers and a class-action lawsuit.”

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Generally, there are two consequences: pissed-off workers and a class-action lawsuit.[/perfectpullquote]

In the case of a lawsuit, governing bodies typically rely on a series of factors to determine whether a contractor was classified incorrectly. Countries and states can differ heavily, but most common is an analysis of the actual job responsibilities and treatment. The IRS, for example, uses the following three Common Law Rules:

Behavioral : Does the company control or have the right to control what the worker does and how the worker does his or her job? Financial : Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) Type of Relationship : Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?”

Germany, per Lexology, focuses on other areas, such as “the parties’ agreement and whether, in reality, the contractor can freely determine how, when, and where to perform its services.”

Violating these rules can be incredibly costly as well. In 2000, Microsoft had to pay out $97 million to temporary workers that it had denied benefits, after courts found in the temp workers’ favor. In another, similar case, cheerleaders for the Oakland Raiders won a lawsuit against the team. The cheerleaders had been making less than $5 an hour, despite often working overtime and having to pay for their own travel fees.

On the horizon for esports

Legal experts are already beginning to analyze this issue in relation to the esports industry. Roger Quiles, a business, entertainment, and esports lawyer in New York, wrote an initial analysis last year based on common player treatment within the industry. His conclusion?

[perfectpullquote align=”full” cite=”” link=”” color=”” class=”” size=””]”It appears likely that a professional team would be found to create an employer/employee relationship with its players… there are strong arguments to be made under New York law that eSports players are actually employees of their teams and entitled to benefits as such.”[/perfectpullquote]

Additionally, Stephen Fisher and Yan Perng of Foster Pepper, a leading law firm based in Washington state, released a white paper regarding esports player contracts. Their analysis of esports players’ employee status is especially notable:

[perfectpullquote align=”full” cite=”” link=”” color=”” class=”” size=””] “Obviously, teams would prefer to treat players as independent contractors in order to forgo these responsibilities… California law starts by presuming that the worker is an employee and then looks at the facts and circumstances using a multi-factor balancing test to determine if the worker is actually an independent contractor. Most critically, the parties should consider the level of control the team exercises over the player’s work and the manner in which that work is performed; the greater the control, the more likely a court is to find that the player is an employee. Are professional LoL players, employees or independent contractors? Are players entitled to minimum wage and overtime compensation? What about during the offseason? When a player is removed from a team, should that player receive unemployment compensation? Where do tax responsibilities and liabilities lie?” [/perfectpullquote]

Answering all of these questions, ultimately, will set the tone for the future of esports players’ rights. Whether or not this occurs at the end of a class-action lawsuit, or at the proactivity of esports teams, is yet to be seen. But this issue is bound to come up as esports continues to grow, and all signs point to sooner rather than later.

Thanks go to Roger Quiles who helped answer questions that contributed to the writing of this article.