SEC Proposes Exemption for Securities Compensation for Gig Economy Workers

Somewhat unexpectedly, the Securities and Exchange Commission (SEC) has announced a proposed framework for gig economy workers to receive compensation by the issuance of securities.

According to the SEC, the framework provides an exemption from registration for the issuance of compensatory securities by non-reporting issuers, and Form S-8, the Securities Act registration statement for compensatory offerings by reporting issuers. The proposed rules will permit, on a temporary basis and subject to certain conditions, an issuer to provide equity compensation to certain “platform workers” who provide services available through the issuer’s technology-based marketplace platform.

SEC Chairman Jay Clayton said the proposed amendments seek to modernize requirements for including company securities in worker-company compensation arrangements so that workers have the opportunity to share in the growth of the business:

“I thank the staff for their continued efforts to review and improve our rules to better align them with today’s employment practices and the economy more generally.”

Commissioners issued public statements on the proposal with the Republicans, Commissioners Hester Peirce and Elad Roisman, supporting the framework. Commissioners Allison Herren Lee and Caroline Crenshaw opposed the framework.

Commissioners Peirce and Roisman explained their support:

“The gig economy is here to stay. We are proposing to tweak one discrete area of our securities laws to allow the many Americans who engage in gig work because it provides a much-needed source of current income [and] also builds longer-term investments.  As our nation’s economy heals from the pandemic, many under- or un-employed individuals will be attracted to the flexibility and income opportunities that gig work can offer.  We view today’s proposal as a way to improve benefits for these important workers and to introduce them to the powerful role that our capital markets can play in building a nest egg for retirement and for passing along to the next generation.”

Commissioners Lee and Crenshaw dissented:

“the majority proposes a pilot program that would create an exemption for the issuance of equity compensation to a newly defined category of workers: so-called internet “platform workers.” Unfortunately we cannot support this proposal because there is no sound policy justification for singling out a subtype of alternative workers for this exemption – those who provide services through internet- or technology-based platforms … The Proposing Release discusses the “gig” economy generally and explains that the proposal is meant to accommodate this evolving feature of our employment landscape. But the data cited in support of this proposition is broadly inclusive of all manner of alternative work arrangements, discussing independent contractors, freelancers, temporary help agency workers, on-call workers, contract workers, and other types of informal paid activities. These various types of alternative workers have been a feature of our economy for a long time. The category proposed for this exemption, however, singles out platform workers, a narrowly defined sub-category of alternative workers.”

The proposal will be posted for comment for 60 days following its publication on the Federal Register. The Fact Sheet is republished below.

The actual document may be downloaded here.

Modernization of Rules and Forms for Compensatory Securities Offerings and Sales
November 24, 2020

The Securities and Exchange Commission today proposed amendments to Rule 701 under the Securities Act of 1933, which provides an exemption from registration for securities issued by non-reporting issuers pursuant to compensatory arrangements, and Form S-8, the Securities Act registration statement for compensatory offerings by reporting issuers.


In July 2018, in coordination with adopting final amendments to Rule 701 consistent with congressional direction, the Commission issued a concept release that solicited public comment on possible ways to modernize the Rule 701 exemption and the relationship between the exemption and Form S-8, given the significant evolution that has taken place both in the types of compensatory offerings issuers make and the composition of the workforce since the Commission last substantively amended these regulations.  Informed by comment letters received in response to the concept release, the Commission’s proposed amendments are designed to modernize the framework for compensatory securities offerings, consistent with investor protection.


With respect to Rule 701, the proposed amendments would:

    • Revise the additional disclosure requirements for Rule 701 exempt transactions exceeding $10 million, including how the disclosure threshold applies, the type of financial disclosure required, and the frequency with which it must be updated;
    • Revise the time at which such disclosure is required to be delivered for derivative securities that do not involve a decision by the recipient to exercise or convert in specified circumstances where such derivative securities are granted to new hires;
    • Raise two of the three alternative regulatory ceilings that cap the overall amount of securities that a non-reporting issuer may sell pursuant to the exemption during any consecutive 12-month period; and
    • Make the exemption available for offers and sales of securities under a written compensatory benefit plan established by the issuer’s subsidiaries, whether or not majority-owned.

With respect to Form S-8, the proposed amendments would:

    • Implement improvements and clarifications to simplify registration on the form, including:
      • Clarifying the ability to add multiple plans to a single Form S-8;
      • Clarifying the ability to allocate securities among multiple incentive plans on a single Form S-8; and
      • Permitting the addition of securities or classes of securities by automatically effective post-effective amendment.
    • Implement improvements to simplify share counting and fee payments on the form, including:
      • Requiring the registration of an aggregate offering amount of securities for defined contribution plans;
      • Implementing a new fee payment method for registration of offers and sales pursuant to defined contribution plans; and
      • Conforming Form S-8 instructions with current IRS plan review practices.
    • Revise Item 1(f) of Form S-8 to eliminate the requirement to describe the tax effects of plan participation on the issuer.

With respect to both Rule 701 and Form S-8, the proposals would:

    • Extend consultant and advisor eligibility to entities meeting specified ownership criteria designed to link the securities to the performance of services; and
    • Expand eligibility for former employees to specified post-termination grants and former employees of acquired entities.
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