SEC Proposes Temporary Expansion of Rule 701 and Form S-8 to Include Compensatory Offerings to Workers in the ‘Gig Economy’
On November 24, 2020, the SEC proposed temporary rules to permit, for five years and subject to certain conditions, a company to provide equity compensation to certain “platform workers” who provide services available through the company’s technology-based marketplace platform. Currently, Rule 701 and Form S-8 permit companies to provide equity compensation to their employees, consultants and advisors, but not to workers using a company’s internet platform to provide services to end users (e.g., ridesharing, food delivery or dog sitting).
“Work relationships have evolved along with technology, and workers who participate in the gig economy have become increasingly important to the continued growth of the broader U.S. economy,” said Chairman Jay Clayton in the SEC’s press release. “The rules we are proposing today are intended to allow platform workers to participate at a measured level — up to 15% of their compensation — in the growth of the companies that their efforts support.”
The proposed temporary rules apply only to workers providing “bona fide services,” as opposed to workers selling tangible goods, though the SEC expresses a willingness to consider expanding eligibility to such other activities in the future. The reason the SEC is proposing the rules on a temporary basis is to assess whether issuances of securities to platform workers under Rule 701 or Form S-8 are being made for legitimate compensatory purposes, and not for capital-raising purposes.
Both proposals are subject to a 60-day public comment period.