Airbnb has petitioned the SEC to allow them to give hosts company equity (read the letter here). Why can’t they just go for broke and flip the gig game on its head? Well, turns out there’s some red tape involved.
Currently, law prohibits gig economy companies from giving contractors equity. But, if Airbnb succeeds, gig economy platforms could win even more leverage over contractors.
So, what are the rules?
Rule 701 of the Securities Act allows private companies to award equity only to employees and investors. Airbnb wants to expand eligibility to give hosts — who are contractors, not employees — equity.
Airbnb argues it would be a win-win, giving hosts valuable stake in the $31B company and giving the company a bookings boost.
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But, don’t mistake this maneuver for charity
Companies like Airbnb and Uber have been careful not to classify their contractors as employees to avoid paying expensive benefits like overtime, minimum wage protection, and health insurance.
Since this particular perk would conveniently help boost sales before a planned 2019 IPO, Airbnb now wants to treat contractors like employees. And, while equity may seem like a win for contractors, and would garner more company loyalty from non-employees, basic benefits would likely be far more valuable.
Big Gig vs. the world
Airbnb’s not alone in its quest: Uber met with the SEC numerous times last year to secure equity for its drivers. And, if one big company scores a contractor victory with the the SEC, it will open the floodgates for the rest of the gig economy.
But even if Big Gig wins over the SEC, it still will have to pass the new law with the federal government (and the feds would have to rewrite tax law for all the new equity-holders) — meaning, even if it does move forward, it’s gonna take a long time to get rolling.