SEC Would Like to Make it Easier to Offer Stock to Gig Workers

I’ve already blogged about the SEC’s proposal to modernize both Rule 701 (see “SEC Proposes Updates to Rule 701”) and Form S-8 (see “SEC Proposes Updates to Form S-8”). In today’s blog entry, I cover a separate proposal from the SEC which would temporarily expand Rule 701 and Form S-8 to cover issuances of stock to certain gig workers.

What the Heck?

Currently, both Rule 701 and Form S-8 can only be relied on for issuances of stock to employees, nonemployee directors, and consultants. Gig workers, which the SEC refers to as “platform workers,” arguably don’t fit into any of these categories of service providers. Thus, neither Rule 701 nor Form S-8 can be relied on to issue stock to gig workers. There are significant downsides to any other exemptions and registration forms companies might rely on. In consequence, companies currently are largely unable to issue stock in payment for services performed by gig workers.

The SEC has proposed to amend both Rule 701 and Form S-8 to permit companies to issue stock and equity awards to certain gig workers for five years, provided specified conditions are met.

Which Gig Workers?

Companies would only be allowed to rely on Rule 701 and Form S-8 to issue equity to gig workers who provide services (e.g., ride-sharing, food delivery, household repairs, dog-sitting, tech support). The use of Rule 701 or Form S-8 for equity issuances to gig workers who sell goods or rent property (e.g., vacation rentals) would still be prohibited.

What Conditions?

To rely on Rule 701 or Form S-8 for issuances of stock to gig workers, the following conditions must be met:

• The workers must provide services pursuant to a written contract or agreement and by means of an internet-based platform or other widespread, technology-based marketplace platform or system provided by the company.
• The company must operate and control the platform, including controlling access to the platform, establishing the principal terms of service for using the platform and the terms and conditions by which the platform worker receives payment for the services provided through the platform, and accepting and removing platform workers.
• The issuance of securities must be pursuant to a compensatory arrangement, as evidenced by a written compensation plan, contract, or agreement.  In addition, the issuance cannot be compensation for services that are in connection with the offer or sale of securities in a capital-raising transaction, or for services that directly or indirectly promote or maintain a market for the company’s securities.
• During any 12-month period, no more than 15% of a gig worker’s compensation can consist of securities and gig workers cannot receive more than $75,000 worth of securities during a 36-month period. For both purposes, the securities are valued at the time of grant. 
• The amount and terms of any securities issued to a gig worker may not be subject to individual bargaining and workers may not be given the opportunity to elect between payment in securities or cash.
• Where the issuance is exempted under Rule 701, the company must take reasonable steps to prevent the transfer (e.g., on secondary markets) of the securities issued to gig workers, except that securities may be transferred back to the company and may be transferred as required by law. This condition is not applicable to Form S-8.

Anything Else?

The SEC would like companies that issue stock to gig workers to furnish the following information to the Commission at six-month intervals:

• The criteria used to determine eligibility for awards, how those criteria compare to those for other compensatory awards, and whether those criteria are communicated to platform workers in advance as an incentive.
• The type and terms of securities issued and how the securities compare to other compensatory awards offered by the company during the six-month period.
• The percentage of overall outstanding securities that the amount issued cumulatively under this temporary rule represents.
• The aggregate number of platform workers and number of non-platform workers the company had during the six-month period and the number of each that received securities pursuant to Rule 701 or Form S-8.
• The aggregate number of shares issued to platform workers during the six-month period and the percentage this represents of the company’s total shares issued under Rule 701 or Form S-8.
• The aggregate dollar value of shares issued to platform workers during the six-month period and the percentage this represents of the company’s total value of shares issued under Rule 701 or Form S-8.
• If pursuant to Rule 701, the reasonable steps taken to prohibit the transfer of the securities sold pursuant to this temporary rule.

Comments

Comments on the proposal can be submitted to the SEC on or before February 9, 2021.