[Federal Register Volume 85, Number 239 (Friday, December 11, 2020)]
[Proposed Rules]
[Pages 79936-79963]
[FR Doc No: 2020-26374]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR 230, 239, and 240

[Release Nos. 33-10892; 34-90948; File No. S7-19-20]
RIN 3235-AM79

Temporary Rules to Include Certain ``Platform Workers'' in
Compensatory Offerings Under Rule 701 and Form S-8

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing for public comment amendments to the exemption from
registration under the rules of the Securities Act of 1933
(``Securities Act'') for securities issued by non-reporting companies
pursuant to compensatory arrangements and to Form S-8, the registration
statement for offerings by reporting companies pursuant to employee
benefit plans. The amendments would establish a temporary provision
under Securities Act rules that, on a trial basis, would permit a non-
reporting issuer to offer and sell securities for a compensatory
purpose to an expanded group of workers without having to register the
offers and sales under the Securities Act, as long as certain
conditions are met. Specifically, the proposed amendments would permit
the issuer to offer and sell securities to those workers who provide
services available through the issuer's internet-based marketplace
platform or through another widespread, technology-based marketplace
platform or system (``platform workers''). The amendments would
similarly, on a trial basis, permit a reporting issuer to include such
workers in compensatory offerings registered on Form S-8. These
proposed rule amendments would expire, absent further action by the
Commission, five years from the date of their effectiveness. We are
also proposing to amend the rules under the Securities Exchange Act of
1934 (``Exchange Act''). The amendment would extend the exclusion from
the definition of ``held of record'' and corresponding safe harbor,
which currently applies to securities held by persons who received them
pursuant to an employee compensation plan, to securities held by
persons who received them pursuant to a compensation plan for platform
workers under the proposed Securities Act rule amendment. The proposed
exclusion and safe harbor for securities issued to platform workers
under Exchange Act rules would not be temporary.

DATES: Comments should be received on or before February 9, 2021.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm).

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

All submissions should refer to File Number S7-19-20. To help us
process and review your comments more efficiently, please use only one
method. We will post all comments on our internet website (https://www.sec.gov/rules/proposed.shtml). Comments are also available for
website viewing and printing in our Public Reference Room, 100 F Street
NE, Washington, DC 20549 on official business days between the hours of
10 a.m. and 3 p.m. All comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
    We or the staff may add studies, memoranda, or other substantive
items to the comment file during this rulemaking. A notification of the
inclusion in the comment file of any such materials will be made
available on our website. To ensure direct electronic receipt of such
notifications, sign up through the ``Stay Connected'' option at
www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Office of Rulemaking,
at<PHONE_NUMBER>, in the Division of Corporation Finance, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549.

SUPPLEMENTARY INFORMATION: We are proposing to amend 17 CFR 230.428
(``Rule 428''), 17 CFR 230.701 (``Rule 701''), and 17 CFR 239.16b
(``Form S-8'') under the Securities Act,\1\ and 17 CFR 240.12g5-1
(``Rule 12g5-1'') under the Exchange Act.\2\
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Introduction
    A. Rule 701, Form S-8, and the Concept Release
    B. Summary of the Proposed Amendments
II. Description of the Proposed Amendments
    A. Proposed Inclusion and Definition of ``Platform Worker''
Under Rule 701 and Form S-8
    B. Additional Requirements for Issuances to Platform Workers
Under Rule 701 and Form S-8
    C. Integration of Proposed Rule 701(h) With the Existing Rule
701 Exemption
    D. Integration With Exchange Act Rule 12g5-1
    E. Considerations Specific to Form S-8
    F. Requirement To Furnish Certain Information
    G. Expiration of the Temporary Rules Authorizing Issuances to
Platform Workers Under Rule 701 and Form S-8
III. General Request for Comments
IV. Economic Analysis
    A. Economic Baseline
    1. Overview of the Gig Economy
    2. Characteristics of Gig Economy Workers
    3. The Online Platform Economy
    B. Broad Economic Considerations
    C. Expected Economic Benefits and Costs
    1. Expected Economic Benefits
    2. Expected Economic Costs
    D. Effects on Efficiency, Competition, and Capital Formation
    E. Reasonable Alternatives
V. Paperwork Reduction Act
    A. Summary of the Collection of Information
    B. Summary of the Proposed Amendments' Effects on the
Collections of Information
    C. Incremental and Aggregate Burden and Cost Estimates for the
Proposed Amendments
    D. Request for Comment
VI. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Reporting, Recordkeeping, and Other Compliance Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives

VII. Small Business Regulatory Enforcement Fairness Act
VIII. Statutory Authority

I. Introduction

A. Rule 701, Form S-8, and the Concept Release

    Title 17, section 230.701 (``Rule 701'') provides an exemption from
the registration requirements of Securities Act Section 5 \3\ for
offers and sales of securities by non-reporting companies \4\ to their
employees, officers, directors, trustees, consultants, or advisors \5\
under written compensatory benefit plans \6\ or written agreements
relating to compensation.\7\ The rule reflects the Commission's long-
standing position that offers and sales of securities for compensatory
purposes raise different issues, and therefore should be treated
differently, from offers and sales that raise capital for the issuer of
the securities.\8\
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    \3\ 15 U.S.C. 77e.
    \4\ Only issuers that are not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act (15 U.S.C.
78m and 78o(d)) and are not investment companies registered or
required to be registered under the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.) are eligible to use Rule 701. See 17 CFR
230.701(b).
    \5\ When the Commission first proposed Rule 701, it initially
limited the exemption to the issuer's employees, directors, trustees
or officers (or those of its parents or subsidiaries). See
Regulation D Revisions; Exemption for Certain Employee Benefit
Plans, Release No. 33-6683 [52 FR 3015 (Jan. 30, 1987)] (``Rule 701
Proposing Release''). The Commission specifically excluded
consultants and ``independent agents'' due to a concern that
including them could lead to an exemption broader than the intended
compensatory purpose. See, e.g., Employee Benefit Plans and
Compensation Contracts, Release No. 33-6726 (July 24, 1987) [52 FR
29033 (Aug. 5, 1987)] (``Rule 701 Reproposing Release'').
Eventually, however, when adopting Rule 701, the Commission included
issuances to consultants and advisors within the rule's scope. The
Commission noted comments pointing out that securities issuances to
such persons could be for compensatory and non-capital-raising
purposes and determined that there was no meaningful basis for
distinguishing issuances to them and to employees. See Compensatory
Benefit Plans and Contracts, Release No. 33-6768 [53 FR 12918-02
(Apr. 20, 1988)] (``Rule 701 Adopting Release''). In 1999, the
Commission amended Rule 701, consistent with amendments to Form S-8,
to prevent the misuse of that form for capital-raising transactions.
See Rule 701--Exempt Offerings Pursuant to Compensatory
Arrangements, Release No. 33-7645 (Feb. 25, 1999) [64 FR 11095 (Mar.
8, 1999)] (``1999 Rule 701 Adopting Release''). Specifically, the
Commission modified the definition of consultants and advisors to
require that they be natural persons, provide bona fide services,
and the services not be in connection with the offer or sale of
securities in a capital-raising transaction and not directly or
indirectly promote or maintain a market for the issuer's securities.
See id.
    \6\ 17 CFR 230.701(c)(2) defines a ``compensatory benefit plan''
as ``any purchase, savings, option, bonus, stock appreciation,
profit sharing, thrift, incentive, deferred compensation, pension or
similar plan.''
    \7\ See 17 CFR 230.701(c). The exemption also extends to offers
and sales of securities under written compensatory plans or
contracts established by the issuer's parent or the issuer's or
parent's majority-owned subsidiaries. See id. The Commission has
also indicated that a person in a de facto employment relationship
with the issuer, such as a nonemployee providing services that
traditionally are performed by an employee, with compensation paid
for those services being the primary source of the person's earned
income, would qualify as an eligible person under the exemption. See
1999 Rule 701 Adopting Release, supra note 5.
    \8\ See Rule 701 Reproposing Release, supra note 5, at 29033
(stating that ``[t]he Commission historically has recognized that
when transactions of this nature are primarily compensatory and
incentive oriented, some accommodation should be made under the
Securities Act'').
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    For example, when first proposing Rule 701, the Commission
recognized that employee equity incentive arrangements are ``a
potentially important tool to attract, compensate and motivate
employees.'' \9\ It further expressed the concern that private, smaller
companies were forgoing this potentially valuable means of compensation
because of the costs of complying with Securities Act registration
requirements.\10\ The Commission also has expressly addressed the role
that equity compensation may play in the employment relationship by
indicating that using equity as a component of compensation may align
the incentives of employees with the success of the enterprise,
facilitate recruitment and retention, and preserve cash for the
issuer's operations.\11\
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    \9\ See Rule 701 Proposing Release, supra note 5, at 3020.
    \10\ See id.; see also 1999 Rule 701 Adopting Release, supra
note 5, at 11095 (stating that when adopting Rule 701, ``we
determined that it would be an unreasonable burden to require these
private companies, many of which are small businesses, to incur the
expenses and disclosure obligations of public companies when their
only public securities sales were to employees,'' and further noting
that ``these sales are for compensatory and incentive purposes,
rather than for capital-raising'').
    \11\ See Executive Compensation and Related Person Disclosure,
Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158 (Sept. 6, 2006)]
(``2006 Executive Compensation Adopting Release'') (stating that
unlike salary and bonus compensation, stock option compensation does
not require the payment of cash by the registrant, and therefore can
be particularly attractive to registrants for which cash is a scarce
resource; noting that stock option compensation may also provide an
incentive for employees to work to increase the registrant's stock
price; and additionally indicating that some registrants may be able
to use stock option compensation to help retain employees, because
an employee with unvested in-the-money options forfeits his
potential value if he leaves the registrant's employ.).
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    Form S-8 is the simplified form for the registration of securities
transactions involving an issuance to a registrant's employees in a
compensatory or incentive context and for a non-capital-raising
purpose.\12\ For purposes of Form S-8, the term ``employee'' includes
consultants and advisors as long as they are natural persons and
provide bona fide services to the registrant not in connection with a
capital-raising transaction or promoting or maintaining a market for
the registrant's securities.\13\ Form S-8 provides for an abbreviated
disclosure format, allows for updating through forward incorporation by
reference of Exchange Act reports, and is effective immediately upon
filing.\14\ It also requires the issuer to provide disclosure to
employees and others receiving securities in the offering. In addition,
the full spectrum of investor protections associated with registration
under the Securities Act applies to the transaction.
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    \12\ See Registration of Securities on Form S-8, Release No. 33-
7646 (Feb. 25, 1999) [64 FR 11103 (Mar. 8, 1999)] (``1999 Form S-8
Adopting Release'').
    \13\ See Form S-8, General Instruction A.1.(a)(1). See also 1999
Form S-8 Adopting Release (stating that issuers may continue to use
securities registered on Form S-8 to compensate persons who have a
de facto employment relationship with them. Such a relationship may
exist where a person not employed by a registrant provides the
registrant with bona fide services that traditionally are performed
by an employee, and the compensation paid by the registrant for
those services is the primary source of the person's earned
income.).
    \14\ See Registration and Reporting Requirements for Employee
Benefit Plans, Release No. 33-6867 (June 6, 1990) [55 FR 23909 (June
13, 1990)] (``1990 Form S-8 Adopting Release'').
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    In July 2018, the Commission published a concept release to solicit
comment on whether and how best to modernize the exemption under Rule
701 and to update Form S-8.\15\ In the release, the Commission
requested comment on how to address, consistent with investor
protection, the significant evolution that has taken place in the types
of compensatory offerings issuers make and the composition of the
workforce since the Commission last substantively amended this rule and
form.\16\ Regarding workforce changes, the Commission focused on the
new types of work relationships between companies and individuals that
have

emerged in the so-called ``gig economy.'' \17\
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    \15\ See Concept Release on Compensatory Securities Offerings
and Sales, Release No. 33-10521 (July 18, 2018) [83 FR 34958 (July
24, 2018)] (``Concept Release''). Unless otherwise indicated,
comments cited in this release are to the public comments on the
Concept Release, which are available at https://www.sec.gov/comments/s7-18-18/s71818.htm.
    \16\ See id. While the Commission amended Rule 701 in 2018 to
implement the Congressional mandate to raise the Rule 701(e)
disclosure threshold from $5 million to $10 million, see Release No.
33-10520 (Jul. 18, 2018)
     [83 FR 34940 (Jul. 24, 2018)], the last substantive amendment
of Rule 701 prior to then was in 1999. See 1999 Rule 701 Adopting
Release supra note 5. The Commission last substantively amended Form
S-8 in 2005. See Release No. 33-8587 (Jul. 15, 2005) [70 FR 42234
(Jul. 21, 2005)].
    \17\ See id., at Section I.B. Other names for the ``gig
economy'' include the ``on-demand economy'' and the ``sharing
economy.'' See, e.g., Alex Kirven, ``Comment: Whose Gig Is It
Anyway? Technological Change, Workplace Control and Supervision, and
Workers' Rights in the Gig Economy, 89 U. Colo. L. Rev. 249, 253
(Winter 2018), available at http://lawreview.colorado.edu/wp-content/uploads/2018/05/Kirven-Whose-Gig-Is-It-Anyway-Technological-Change-Workplace-Control-and-Supervision-and-Workers-Rights-in-the-Gig-Economy.pdf.
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    These new types of work relationships have arisen in large part due
to the internet and reductions in the costs of communication and
information processing. They typically involve an individual's use of
an internet ``platform'' provided by a company (the ``platform
provider'') to find a particular type of work, or ``gig'' (i.e., task
or job). The work could involve the individual providing services to
end users, such as ride-sharing, food delivery, household repairs, dog-
sitting, or tech support, or using the platform to sell goods or lease
property to third parties.\18\ Other new work relationships may involve
individuals using the platform to perform tasks or services for the
platform provider itself.\19\
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    \18\ See id.
    \19\ See, e.g., Working the Crowd: Employment and Labor Law in
the Crowdsourcing Industry, 32 Berkeley J. Emp. & Lab. L. 143 (2011)
(providing examples of crowdsourcing, such as a platform provider's
use of multiple workers to tag photographs according to their
content, or to build the back-end of a platform provider's
interactive website).
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    A significant characteristic of these new work relationships is
that the individual worker may have greater flexibility in determining
when and how much he or she works than in a traditional employment
relationship where those determinations are typically made by the
issuer. In addition, these new work relationships can be, and often
are, on a short-term, part-time, or freelance basis. Another
significant characteristic is that an individual who provides services
or goods through these platforms may have similar relationships with
multiple companies through which the individual may engage in the same
or different business activities. Given the characteristics of these
new work relationships, the individual workers might not be employees,
consultants, advisors, or de-facto employees \20\ eligible to receive
securities in compensatory arrangements under Rule 701.
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    \20\ See supra note 7.
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    Numerous commenters on the Concept Release who addressed issues
relating to ``gig economy'' workers supported including them within the
scope of Rule 701 and Form S-8.\21\ Several noted that they did not
believe or were uncertain that ``gig economy'' workers would fall
within Rule 701's current categories of employees, consultants, or
advisors, and recommended adding a new category of worker to include
them.\22\
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    \21\ See the letters from Airbnb, Inc. (Sept. 21, 2018)
(``Airbnb''), the American Bar Association, Business Law Section
(Nov. 28, 2018) (``ABA''), Center for Capital Markets
Competitiveness, U.S. Chamber of Commerce (Sept. 24, 2018)
(``Chamber''), Davis Polk & Wardwell, LLP (``Davis Polk''), Indigo
Ag, Inc. (Jul. 8, 2019) (``Indigo''), Postmates (Oct. 17, 2018),
Brian Sament (Oct. 14, 2018) (``Sament''), Sullivan & Cromwell LLP
(Sept. 24, 2018) (``Sullivan''), and Uber Technologies, Inc. (Oct.
11, 2018) (``Uber'').
    \22\ See, e.g., letters from ABA, Chamber, Indigo, and
Postmates.
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    The new work relationships of the gig economy have become
increasingly significant to the broader U.S. economy.\23\ They also
raise some of the same considerations that led the Commission to adopt
Rule 701. For example, ``gig economy'' issuers may have the same
compensatory and incentive motivations to offer equity compensation to
individuals participating in the companies' platform-based businesses.
Permitting gig economy issuers to utilize the Rule 701 exemption on a
temporary basis would allow the Commission to assess the
appropriateness of the exemption for these new work relationships and
thus should help inform the Commission's ongoing efforts to modernize
its rules in light of changing economic and market conditions.
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    \23\ See, e.g., The Rise and Nature of Alternative Work
Arrangements in the United States, 1995-2015, Lawrence F. Katz and
Alan B.Krueger, National Bureau of Economic Research, available at
http://www.nber.org/papers/w22667 (finding a substantial rise in the
incidence of alternative work arrangements for U.S. workers from
2005 to 2015, and defining alternative work arrangements as
including temporary help agency workers, on-call workers, contract
workers, and independent contractors or freelancers); see also
Contingent Workforce, U.S. Government Accountability Office, GAO-15-
168R (2015), available at https://www.gao.gov/assets/670/669766.pdf
(finding that, while the size of the U.S. contingent workforce
varies by definition and data source, using an expansive definition
of alternative work arrangements, 40.4% of the U.S. employed labor
force in 2010 was in an alternative work arrangement).
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    For the above reasons, we propose to include a new category of
worker, the ``platform worker,'' within the scope of Rule 701 and Form
S-8.\24\ As we stated in the Concept Release, any such expansion of
Rule 701 and Form S-8 must be consistent with the Commission's mandate
to protect investors.\25\ It should not facilitate offers and sales of
unregistered securities under the guise of being compensatory when in
fact they are undertaken for capital-raising purposes. Therefore, we
are proposing to expand Rule 701 and the use of Form S-8 to facilitate
compensatory transactions with platform workers while also proposing
conditions designed to limit the possibility that the rule changes
could result in offers and sales for capital-raising purposes.\26\
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    \24\ See proposed Rule 701(h) and proposed 17 CFR 239.16b(c). As
explained below, the proposed expanded scope of Rule 701 and Form S-
8 would be temporary while we examine whether to adopt the rules or
similar rules on a more permanent basis.
    \25\ See Concept Release, supra note 15, at Section II.A.
    \26\ See, e.g., proposed Rule 701(h)(3) and proposed 17 CFR
239.16b(c)(1).
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    We are also proposing these changes on a temporary basis \27\ to
allow us to assess whether unregistered issuances of securities to
platform workers under expanded Rule 701, or issuances registered on
expanded Form S-8, are being made for appropriate compensatory purposes
and not for capital-raising purposes. Similarly, we intend to assess
whether such issuances have the expected beneficial effects for issuers
in the ``gig economy,'' their platform workers, and ultimately their
investors and whether such issuances have resulted in any unintended
consequences. This assessment, in turn, should help us determine
whether to modify or expand the scope of Rule 701 and Form S-8 on a
permanent basis.
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    \27\ See infra Section II.G.
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    We welcome feedback and encourage interested parties to submit
comments on any or all aspects of the proposed rule amendments. When
commenting, it would be most helpful if you include the reasoning
behind your position or recommendation.

B. Summary of the Proposed Amendments

    We propose to amend Rule 701 by adding a temporary rule provision
that, for five years, would enable issuers to use Rule 701 to
compensate certain ``platform workers,'' subject to specified
conditions. Under the amendments, an issuer would be able to use the
Rule 701 exemption to offer and sell its securities on a compensatory
basis to platform workers who, pursuant to a written contract or
agreement, provide bona fide services by means of an internet-based
platform or other widespread, technology-based marketplace platform or
system provided by the issuer if:
     The issuer operates and controls the platform, as
demonstrated by its ability to provide access to the platform, to
establish the principal terms of service for using the platform and
terms and

conditions by which the platform worker receives payment for the
services provided through the platform, and to accept and remove
platform workers participating in the platform;
     The issuance of securities to participating platform
workers is pursuant to a compensatory arrangement, as evidenced by a
written compensation plan, contract, or agreement, and is not for
services that are in connection with the offer or sale of securities in
a capital-raising transaction, or services that directly or indirectly
promote or maintain a market for the issuer's securities;
     No more than 15 percent of the value of compensation
received by a participating worker from the issuer for services
provided by means of the platform during a 12-month period, and no more
than $75,000 of such compensation received from the issuer during a 36-
month period, shall consist of securities, with such value determined
at the time the securities are granted;
     The amount and terms of any securities issued to a
platform worker may not be subject to individual bargaining or the
worker's ability to elect between payment in securities or cash; and
     The issuer must take reasonable steps to prohibit the
transfer of the securities issued to a platform worker pursuant to this
exemption, other than a transfer to the issuer or by operation of
law.\28\
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    \28\ An issuer using proposed Rule 701(h) would also be able to
continue to use Rule 701 for transactions to persons eligible under
17 CFR 230.701(c).
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    The proposed amendments also would permit an Exchange Act reporting
issuer to register the offer and sale of its securities to its platform
workers using Form S-8. The same conditions proposed for Rule 701
issuances would apply to issuances to platform workers that are
registered on Form S-8, except for the proposed transferability
restriction. Like the proposed amendments to Rule 701, the proposed
Form S-8 amendments would be temporary and would expire, absent further
Commission action, on the same date as the Rule 701 amendments.
    In order to help in our evaluation of the proposed expanded scope
of Rule 701 and Form S-8, we are also proposing that any issuer that
issues securities to platform workers would be required to furnish
information to the Commission at six-month intervals (each, an
``interval''), regarding:
    1. The criteria used to determine eligibility for awards, whether
those criteria are the same as for other compensatory transactions, and
whether those criteria, including any revisions to the criteria, are
communicated to platform workers in advance as an incentive;
    2. The type and terms of securities issued and whether they are the
same as for other compensatory transactions by the issuer during that
interval;
    3. If pursuant to Rule 701, the reasonable steps taken to prohibit
the transfer of the securities sold pursuant to this temporary rule;
    4. The percentage of overall outstanding securities that the amount
issued cumulatively under this temporary rule represents;
    5. During the interval, the number of platform workers, the number
of non-platform workers, the number of platform workers who received
securities pursuant to the temporary rule, and the number of non-
platform workers who received securities pursuant to the issuer's Rule
701 or Form S-8 issuances;
    6. Both in absolute amounts and as a percentage of the issuer's
total Rule 701 or Form S-8 issuances during the interval:
    a. The aggregate number of securities issued to platform workers;
and
    b. The aggregate dollar amount of securities issued to platform
workers.

II. Description of the Proposed Amendments

A. Proposed Inclusion and Definition of ``Platform Worker'' Under Rule
701 and Form S-8

    We propose to amend Rule 701 and Form S-8 to permit an issuer on a
temporary basis to offer and sell securities to certain platform
workers. Under the proposed definition of ``platform worker,'' \29\
eligible workers would be those persons unaffiliated with the issuer
who meet two conditions. First, the worker must provide bona fide
services through or by means of the issuer's internet-based or other
widespread, technology-based marketplace platform or system
(``platform''). Workers providing services to third-party end-users
would qualify, as long as the issuer benefits from such services (e.g.,
by receiving a fee for the worker's use of the platform or a percentage
of the compensation received from the end-user for the worker's
services).\30\ Consistent with the treatment of persons eligible for
the current exemption under 17 CFR 230.701(c) (``Rule 701(c)''),
platform workers providing services to the issuer, or the issuer's
parents, subsidiaries,\31\ or subsidiaries of the issuer's parent,
would also qualify.\32\ Second, the services must be provided pursuant
to a written contract or agreement between the issuer and the platform
worker \33\ and must be provided through a platform-based marketplace
(or other widespread, technology-based marketplace platform or system)
that the issuer operates and controls.\34\
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    \29\ See proposed Rule 701(h)(1); see also proposed 17 CFR
239.16b(c) and proposed amended General Instruction A.1.(b)(1) to
Form S-8, which reference the proposed definition of ``platform
worker'' under proposed Rule 701(h)(1).
    \30\ See proposed new Rule 701(h)(2)(i) (the first prong of the
proposed definition of platform worker); see also proposed 17 CFR
239.16b(c)(1) and proposed amended General Instruction A.1.(b)(1) to
Form S-8. As explained below in Section II.B., the services may not
be in connection with the offer or sale of securities in a capital-
raising transaction.
    \31\ In a companion rulemaking, we are proposing to expand the
scope of coverage of the Rule 701 exemption, which currently
includes compensatory issuances to employees of an issuer's or its
parent's majority-owned subsidiaries, to include compensatory
issuances to employees of all of an issuer's or its parent's
subsidiaries. See Release No. 33-10891 (Nov. 24, 2020), at Section
II.C.3 (proposing to amend Rule 701(c)). Our proposed inclusion of
platform workers of an issuer's subsidiaries, without regard to
whether they are majority-owned, would be consistent with the
proposed amendment of Rule 701(c). Like this proposed amendment, the
meaning of ``subsidiary'' under Rule 701(h) would be governed by the
general definition of subsidiary for purposes of the Securities Act.
Under that definition, a ``subsidiary'' of a specified person is an
affiliate controlled by such person directly or indirectly through
one or more intermediaries. See 17 CFR 230.405.
    \32\ See proposed Rule 701(h)(2)(i).
    \33\ For the purpose of Rule 701(h), the term ``written contract
or agreement'' would include an electronic, internet-based contract
or agreement. We believe that a similar interpretation applies to
the term ``written compensation contract'' in Rule 701(c). Because
the proposed Rule 701(h) definition of ``platform worker'' would
also be used in Form S-8, the same meaning of ``written contract or
agreement'' would apply in that context. See proposed General
Instruction A.1.(b)(1) of Form S-8; see also proposed 17 CFR
239.16b(c)(1).
    \34\ See proposed Rule 701(h)(2)(ii).
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    Commenters who supported expanding the scope of Rule 701 and Form
S-8 to include offers and sales of securities to platform workers
stated that updating Rule 701 and Form S-8 to include such workers is
necessary to keep pace with evolutions in the economy and the labor
market.\35\ One commenter indicated that such an update would be
consistent with the goals of the Jumpstart Our Business Startups Act
(``JOBS'' Act) to spur entrepreneurship and support the business
startups and private companies that are vital to the U.S. economy, and
that increased alignment of incentives between gig economy companies
and

participating platform workers would benefit both.\36\
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    \35\ See, e.g., letter from Chamber; see also letter from
Airbnb.
    \36\ See letter from Airbnb.
---------------------------------------------------------------------------

    Some commenters emphasized the potential benefits to platform
workers of expanding Rule 701. Commenters stated that expanding
eligibility for Rule 701 issuances would help democratize share
ownership and wealth by allowing the many ordinary Americans
participating in the gig economy to make significant strides toward
greater wealth and financial security.\37\
---------------------------------------------------------------------------

    \37\ See letter from Sament; see also letter from Airbnb.
---------------------------------------------------------------------------

    Other commenters noted the potential benefits to the platform
providers of expanding Rule 701. One commenter indicated that enabling
privately held companies to grant equity compensation to platform
workers performing services would enable those platforms to attract and
retain talent.\38\ Another commenter stated that the ability to grant
equity compensation to platform workers would significantly enhance the
growth and expansion of new economy companies and help level the
playing field between private companies and public companies
participating in the new economy.\39\
---------------------------------------------------------------------------

    \38\ See letter from Postmates.
    \39\ See letter from Indigo.
---------------------------------------------------------------------------

    Some commenters, however, opposed the expansion of the scope of
Rule 701 and Form S-8 to include offers and sales of securities to
platform workers because of their belief that the Commission lacks the
expertise to assess accurately changes in the labor market, and due to
their concern that such regulatory changes to Rule 701 and Form S-8
would encourage companies to misclassify employees and undermine
American workers.\40\
---------------------------------------------------------------------------

    \40\ See letter from Sen. Sherrod Brown (Mar. 7, 2019); see also
letter from National Employment Law Project (Mar. 4, 2019)
(``NELP'') (``Expanding the rule has the potential to further muddy
the waters on `gig' workers' employment status and even legitimize
their independent contractor status at a time when this issue is
being examined by legislatures, courts, and agencies with expertise
on employment status.''); and letter from Chairwoman Maxine Waters
(Apr. 1, 2020) (opposing ``weakening Rule 701 of the Securities Act
of 1933 to allow companies to compensate certain non-traditional
employees with equity compensation in lieu of a traditional paycheck
and without important investor protections''). But see, e.g., infra
Section II.B for a discussion of certain investor protection
conditions; and letter from Rep. Patrick McHenry (Mar. 30, 2020)
(requesting that any recipient of funds under the Coronavirus, Aid,
Relief, and Economic Security (CARES) Act be encouraged to provide
equity compensation to its entire workforce, including non-
traditional workers).
---------------------------------------------------------------------------

    We agree with commenters that expanding the scope of Rule 701 and
Form S-8 to include offers and sales of securities to platform workers
participating in an issuer's platform-based marketplace could benefit
the issuer and its investors, including those platform workers that are
new equity holders. We are mindful, however, that the gig economy is
evolving. We are therefore making the rule amendments temporary so that
we can reassess their impact as these markets develop.\41\
---------------------------------------------------------------------------

    \41\ The proposed amendments provide, however, that, following
the expiration of temporary Rule 701(h), an issuer may continue to
rely on the Rule 701(h) exemption for the sale of securities
underlying options, warrants, or rights previously issued in an
exempt transaction pursuant to Rule 701(h). See proposed Rule
701(h)(1)(ii) and infra Section II.G. We believe this provision is
necessary in order to remove a potential disincentive to the use of
the proposed exemption to issue options to platform workers. The
Commission has taken a similar approach regarding securities sold by
an issuer after it has become public that were initially offered
pursuant to Rule 701. See 17 CFR 230.701(b)(2).
---------------------------------------------------------------------------

    Although we understand that the development of the gig economy
raises a number of issues under labor, tax, and other regulatory
regimes, our proposed amendments to Rule 701 and Form S-8 to include
these workers solely reflect considerations relevant to the U.S.
Federal securities laws. The proposed amendments are not meant, and
should not be construed, to address issues raised under any other
regulatory regimes. We express no opinion on whether or not these ``gig
economy'' or platform workers would be considered ``employees'' for
purposes of other laws or regulations.
    The proposed amendments would require an eligible platform worker
to be a natural person or an entity meeting specified conditions. We
recognize that the ``gig economy'' is a fluid, developing market in
which participating workers may be organized in various ways. In this
regard, we note that some commenters recommended that platform workers
should not be subject to a natural person requirement to participate in
Rule 701 offerings.\42\ We recognize that some platform workers may
form limited liability companies or similar legal entities for a
variety of reasons, such as tax planning and personal liability
protection. In order to accommodate such workers and provide additional
flexibility for an evolving market, the proposed rules provide that a
platform worker may be an entity as long as substantially all of its
activities involve the performance of bona fide services that meet the
requirements of proposed Rule 701(h), and the ownership interest of the
entity is wholly and directly held by the natural person performing the
services pursuant to the proposed rule. This proposed approach would be
similar to the Commission's recognition of personal services businesses
as corporate alter egos of natural persons with respect to the ability
to participate in Form S-8 offerings under existing employee,
consultant, and advisor categories, where such businesses are wholly-
owned by (or jointly owned with the spouse of) the natural person who
provides services to the issuer.\43\
---------------------------------------------------------------------------

    \42\ See letters from Chamber and Davis Polk. In the companion
rulemaking, we are proposing to eliminate the ``natural person''
requirement in connection with Rule 701 eligibility for consultants
and advisors by extending such eligibility to service-providing
entities meeting specified conditions (e.g., limits on the number of
persons owning an entity and requiring a certain percentage of those
persons to provide services). See Release No. 33-10891 at Section
II.C.1. We are also proposing a similar change regarding consultant
and advisor eligibility under Form S-8. See Release No. 33-10891 at
Section II.C.2.
    \43\ See 1999 Form S-8 Adopting Release at Section II.A.1 (``We
agree with commenters that it should not matter if the consulting
contract is with an entity or a natural person, as long as the
securities registered are issued to the natural persons working for
the consulting entity who provide bona fide services to the issuer.
Where the securities are issued to these persons, contracting with a
consulting entity would not abuse Form S-8. We have revised the
amendments to eliminate the proposed requirement that issuers
contract only with natural persons, while retaining the requirement
that the securities must be issued to natural persons.''); see also
letter from Davis Polk.
---------------------------------------------------------------------------

    We also recognize that the ``gig economy'' is a multi-faceted
economic phenomenon and that, in some cases, participants may sell
goods or conduct other activities--beyond providing services--by means
of platforms. Some commenters recommended expanding the Rule 701
exemption to include any activity where there is an issuer providing a
technology-based marketplace platform as long as the activity does not
include capital-raising of the type currently prohibited by Rule
701.\44\ Nevertheless, we are limiting this initial expansion of Rule
701 and Form S-8 eligibility to participants who provide bona fide
services not in connection with capital-raising or with promoting or
maintaining a market for the issuer's securities. The proposed
expansion would not cover the use of a platform for the sale or
transfer of permanent ownership of discrete, tangible goods.\45\ We
view the expansion of Rule 701 and Form S-8 to include platform workers
who provide services, subject to the above limitations, as an
incremental

evolutionary step that is consistent with the compensatory function of
Rule 701 and Form S-8 while limiting the potential for abuse. Depending
on the results of the initial expanded use of Rule 701 and Form S-8, if
adopted, the Commission could consider expanding eligibility to other
activities, such as selling goods or other non-service-providing
activities in the future.
---------------------------------------------------------------------------

    \44\ See, e.g., letter from ABA; see also letter from Sullivan
(stating that to encompass the new types of alternative work
arrangements, Rule 701 (and Form S-8) should encompass those
individuals providing services to or on behalf of an issuer or
making or distributing the products sold or provided to the issuer's
consumers).
    \45\ See proposed Rule 701(h)(2)(i). For example, a platform
that provided for the permanent transfer of real estate in fee
simple, as opposed to the temporary rental of real estate, would not
constitute bona fide services within the meaning of the rule.
---------------------------------------------------------------------------

    The proposed definition of platform worker would also include the
condition that the issuer operates the platform for the provision of
services pursuant to a written contract or agreement \46\ between the
issuer and the platform worker under which the issuer controls the use
of the internet platform. We believe that this ``issuer control''
condition would help maintain an appropriate compensatory nexus between
the issuer and participating platform workers.\47\
---------------------------------------------------------------------------

    \46\ The Commission has similarly included a ``written contract
or agreement'' requirement as a condition of using the Rule 701
exemption to help ensure that an issuance of securities is being
undertaken for a compensatory purpose. See the Rule 701 Adopting
Release, supra note 5, at 12919 (justifying the inclusion of
issuances to consultants or advisors under Rule 701 in part because
of the condition requiring a written plan or contract).
    \47\ Although one commenter stated that ``it is not necessary
for a revised Rule 701 to micromanage the level of control'' over a
worker, see letter from Chamber, we agree with another commenter
that indicated that some level of control by an issuer over the use
of its platform would help ensure that the issuance of securities to
workers participating in its marketplace platform under an expanded
Rule 701 is compensatory only. See letter from Airbnb.
---------------------------------------------------------------------------

    The appropriate nexus would be demonstrated by meeting three
express requirements. First, the issuer must be able to provide access
to the platform and establish the principal terms of service for using
the platform. Second, the issuer must be able to establish terms and
conditions by which the platform worker receives payment for the
services provided through the platform. This could include an ability
to establish the amount of the fees charged for using the platform.
Such fees may include any fee charged to the participating worker for
the use of the platform as well as any fee or percentage of payment
charged to an end-user for the services provided by the worker. If
there are no end-users, and multiple workers provide services directly
to the issuer via the platform, the issuer must be able to determine
the amount and method of payment for such services. Third, the issuer
must have the authority to accept and remove the platform workers
providing services through the platform.
    We believe that these three requirements are necessary and
appropriate to demonstrate the requisite nexus for purposes of an
expanded Rule 701 and Form S-8. A written contract or agreement
providing the issuer with control over the platform's terms of use,
including payment terms, would evidence that the issuance of securities
to the worker is for compensatory and incentive purposes relating to
the services being provided. In addition, requiring that the issuer
control who may provide services through its platform would help
prevent participating workers from using the platform primarily for
non-compensatory purposes. The proposed conditions would not, however,
limit what services an issuer could facilitate through its platform or
how participating workers could provide the services.
    Rule 701 currently exempts offers and sales of securities to former
employees, directors, general partners, trustees, officers,
consultants, and advisors only if such persons were employed by or
providing services to the issuer at the time the securities were
offered.\48\ The proposed amendment to Rule 701 would similarly exempt
offers and sales to former platform workers if such workers met the
conditions of Sec.  230.701(h) at the time the securities were
offered.\49\
---------------------------------------------------------------------------

    \48\ See Rule 701(c).
    \49\ See proposed Rule 701(h)(1)(i).
---------------------------------------------------------------------------

    In a companion rulemaking, at the suggestion of commenters, we are
proposing to expand the eligibility of former employees under Rule 701
to include post-resignation or termination offers and sales to:
     Persons who were employed by or providing services to an
issuer during a performance period ending within 12 months preceding
resignation or termination of their employment or service for which the
securities were issued; and
     Former employees of an acquired entity, as long as the
securities are being issued in substitution or exchange for securities
that were issued to the former employees of the acquired entity on a
compensatory basis while such persons were employed by or providing
services to the acquired entity.\50\
---------------------------------------------------------------------------

    \50\ See Release No. 33-10891 at Section II.C.2.
---------------------------------------------------------------------------

    In the interest of providing consistent treatment, we are similarly
proposing to include under Rule 701 offers and sales to former platform
workers who met the conditions of Sec.  230.701(h) during a period of
service ending within 12 months preceding the termination of service
for which the securities were issued.\51\ We believe that exempting
post-termination grants of securities to former platform workers that
are made in respect of prior service during the specified 12-month
period would benefit both issuers and platform workers by facilitating
compensatory transactions. Moreover, because we believe that expanding
the use of Form S-8 to former platform workers would be consistent with
the compensatory purposes of Form S-8, we are similarly proposing to
amend Form S-8 to include securities issued to former platform workers,
including post-termination grants made in respect of prior service
during the 12 months preceding the cessation of service.\52\
---------------------------------------------------------------------------

    \51\ See proposed Rule 701(h)(1)(i).
    \52\ See proposed General Instruction A.1.(b)(4)(i) of Form S-8.
---------------------------------------------------------------------------

    For similar reasons, we also are proposing to include in the
exemption under Rule 701(h), and to allow the registration on Form S-8
of, securities issued to former platform workers of an acquired entity
in substitution or exchange for securities that were issued to the
former platform workers of the acquired entity on a compensatory basis
while such workers were providing bona fide services to the acquired
entity.\53\ Those persons would be able to participate in the acquiring
issuer's plan with respect to equity awards granted in connection with
the acquisition to replace awards issued by the acquired entity while
such workers provided services to the acquired entity.\54\
---------------------------------------------------------------------------

    \53\ See proposed Rule 701(h)(1)(i); see also proposed General
Instruction A.1.(b)(4)(ii) of Form S-8. Such treatment would be
consistent with the expanded scope of Form S-8 proposed in the
companion rulemaking. See Release No. 33-10891 at Section III.D.1.
    \54\ The companion release includes other proposed amendments
pertaining to business combinations that could be applicable to
issuances to platform workers if adopted. For example, we are
proposing to amend Rule 701(e) to address the disclosure delivery
obligations regarding acquired entity derivative securities that the
acquiring issuer assumes in a business combination transaction.
Another proposed amendment would clarify that, in determining
whether the amount of securities the acquiring issuer sold during
any consecutive 12-month period exceeds $10 million under Rule
701(e) [17 CFR 230.701(e)], the acquiring issuer would consider only
the securities that it sold in reliance on Rule 701 during that
period, and would not be required to include any securities sold by
the acquired entity pursuant to the rule during the same 12-month
period. See Release No. 33-10891 at Section II.A.6.
---------------------------------------------------------------------------

    In addition to former employees, Form S-8 currently includes under
its scope executors, administrators, or beneficiaries of the estates of
deceased employees, guardians or members of a committee for incompetent
former employees, or similar persons duly authorized by law to
administer the estate or assets of former employees.\55\

We are proposing a similar provision under Rule 701 and Form S-8 for
the estates of deceased platform workers and the representatives of
incompetent former platform workers.\56\ Although the proposed changes
to Rule 701 to include platform workers would be temporary rules, we
believe that this proposed provision could prove useful to the
administration of the estate of a deceased platform worker or the
representation of an incompetent former platform worker, particularly
because, under the proposed rules, sales of securities underlying
options issued pursuant to the temporary rules may occur following the
rules' expiration.
---------------------------------------------------------------------------

    \55\ See General Instruction A.1.(a)(3) of Form S-8. In the
companion release, we are proposing to amend Rule 701 to include a
similar provision for the executors, administrators, or
beneficiaries of the estates of deceased employees who may receive
securities underlying options previously issued to former employees
pursuant to Rule 701. See Release No. 33-10891 at Section II.C.2.
    \56\ See proposed General Instruction A.1.(b)(4)(iii) to Form S-
8 and proposed Rule 701(h)(1)(i).
---------------------------------------------------------------------------

Request for Comment
    1. Should we expand the scope of Rule 701 and Form S-8 to include
offers and sales of securities to platform workers unaffiliated with
the issuer who provide bona fide services to an issuer by means of the
issuer's internet-based platform, or through other widespread
technology-based marketplace platforms, as proposed? Should the
expansion of Rule 701 and Form S-8 also include services provided by
such workers to the issuer's parents, majority-owned subsidiaries, or
majority-owned subsidiaries of the issuer's parent, as proposed?
    2. Is there a basis for treating platform workers differently than
any other non-employees not covered under the current exemption? Does
the use of an internet-based platform establish a sufficient basis for
treating those workers differently than non-employees in a different
context?
    3. Should we also expand the scope of Rule 701 and Form S-8 to
include offers and sales of securities to platform workers unaffiliated
with the issuer who provide bona fide services to third-party end-users
by means of the issuer's internet-based marketplace platform, or
through other widespread technology-based marketplace platforms or
systems, and from which the issuer benefits, as proposed?
    4. Should we define or provide examples of a ``widespread,
technology-based marketplace platform or system'' (other than an
internet-based marketplace platform) that would fall within the scope
of the proposed amendments? If so, how should we define that term, or
what examples should we include?
    5. Is the term ``services'' sufficiently clear? Should we define it
differently? If so, what should the definition be? Should we provide
additional specific guidance concerning what activities constitute
``services'' for purposes of the proposed expansion of Rule 701 and
Form S-8?
    6. Should we limit issuances under Rule 701(h) or an expanded Form
S-8 to platform workers who are unaffiliated with the issuer, as
proposed? If so, should we provide a definition of or additional
guidance concerning the meaning of ``unaffiliated with the issuer''?
For example, should we define ``unaffiliated'' as a person who is not
an ``affiliate'' as defined by 17 CFR 230.405? Should we instead
specify the types of persons that would satisfy the ``unaffiliated''
provision? For example, should ``unaffiliated'' mean persons who are
not an issuer's employees, officers, directors, advisors, or
consultants, or certain family members of such persons? If so, which
family members would be treated as affiliates of the issuer and
therefore be ineligible to receive securities under the proposed
amendments to Rule 701 and Form S-8?
    7. Should we limit the use of the expanded Rule 701 and Form S-8
only to workers who provide bona fide services through an issuer's
marketplace platform, as proposed? Or should we consider other
alternatives? For example:
    a. Should we permit an issuer to offer or sell securities to
workers who engage in other platform-based activities, such as selling
goods? If so, should we limit the types of goods? For example, should
we only permit an issuer to offer or sell securities to workers who
engage in selling of unique or value-added goods and not workers who
merely use a platform to resell goods?
    b. If we were to permit an issuer to offer or sell securities to
workers who engage in other platform-based activities, such as selling
goods, what characteristics or factors would help ensure that the nexus
between the issuer and worker is compensatory and the issuance of
securities is not in connection with capital-raising or for speculative
purposes? For example, should we require that the worker meets minimum
annual or aggregate sales thresholds or that the worker has been
engaged in performing platform-based activities for the issuer for a
minimum period of time before she is eligible to receive shares under
expanded Rule 701 and Form S-8. Should we only permit securities that
do not have capital-raising features, such as restricted stock units,
to be issued to platform workers for platform-based activities that
involve the sale of goods?
    c. Should we include offers and sales of securities to workers
having other types of new work relationships? If so, which types of new
work relationships should we include, and what characteristics or
factors would help ensure that the nexus between the issuer and worker
is compensatory and the issuance of securities is not in connection
with capital-raising? Are there new work relationships that are not
provided through an internet-based or other widespread, technology-
based marketplace platform or system that we should include in the
exemption?
    8. Should we require that a platform worker be a natural person or
an entity meeting specified criteria to be able to receive securities
pursuant to an expanded Rule 701 or Form S-8, as proposed? Should we
instead require a platform worker to be a natural person? Do a
significant number of platform workers currently operate through a
business entity? If so, would a natural person requirement impact the
extent to which they would continue to perform as platform workers or
continue to do so through a business entity? Should we limit the types
of business entities through which a platform worker would be able to
operate? Should we permit an entity to be a platform worker, as
proposed, if substantially all of its activities involve the
performance of bona fide services that meet the requirements of
proposed Rule 701(h), and the ownership interest of the entity is
wholly and directly held by the natural person performing the services
pursuant to the proposed rule? Are there different or additional
eligibility conditions that we should adopt to allow platform workers
to perform services as entities pursuant to the temporary rules? For
example, should we permit more than one natural person to own the
entity through which the services are being performed by the platform
worker? If so, should we limit the number of natural persons that may
own the entity or require that a co-owner be the spouse or other family
member? Should we condition allowing more than one natural person to
own the entity by requiring each owner to perform the services of a
platform worker?
    9. Should we require that an issuer operating a platform control
the platform as a condition to using the Rule 701 exemption and Form S-
8 registration for issuances of securities to workers providing
services through the platform, as proposed? Should we

permit the use of the exemption for issuances to such workers if an
issuer's affiliate controls the platform?
    10. Should we require that services be provided pursuant to a
written contract or agreement, as proposed? If so, should we include an
express provision that the term ``written contract or agreement''
includes an electronic, internet-based contract or agreement? Should we
provide the same provision for the term ``written compensation
contract'' in Rule 701(c)?
    11. Are the proposed conditions demonstrating control of the
platform appropriate? Should we require that an issuer satisfy all of
the specified conditions? Should we only require that an issuer have
the ability to determine terms of use, including payment terms? Should
we instead only require that an issuer have the ability to accept and
remove the workers providing services through its platform?
    12. Are there other conditions, in addition to or in lieu of the
proposed conditions, that we should adopt?
    13. Instead of, or in addition to, an issuer control requirement,
are there other issuer eligibility conditions that we should adopt to
help ensure that the issuance of securities to platform workers is for
a compensatory purpose? For example, when the issuer's platform is used
to provide services to end-users, should we require that an issuer earn
a substantial amount of its annual revenues from fees or other payments
resulting from platform workers using the issuer's platform? Would such
a condition make it less likely that the issuance of securities to
those workers would be for a capital-raising purpose?
    14. Should we expand the scope of Rule 701 and Form S-8 to include
offers and sales of securities to former platform workers, including
former platform workers of an entity acquired by an issuer, as
proposed? Should such expansion include securities issued to former
platform workers, including post-termination grants made in respect of
prior service during the 12 months following the cessation of service,
as proposed? Should we include under Form S-8 issuances to executors,
administrators, or beneficiaries of the estates of deceased platform
workers, or other persons similar to those included for deceased or
incompetent former employees, as proposed? Should we amend Rule 701 to
include a similar provision for the estates of deceased employees or
deceased platform workers and representatives of incompetent former
employees or incompetent former platform workers, as proposed?
    15. Would state blue-sky laws affect the operation of the proposed
temporary platform worker exemption? If so, how? Are there changes we
should consider to address state law issues? For example, should we
provide for the preemption of state securities law registration
requirements for offers made pursuant to Rule 701(h)? Are there other
state law implications that would be relevant to consider in connection
with the proposed amendments? For example, would the proposed temporary
platform worker exemption have any implications regarding the
enforceability of state laws pertaining to non-competition
arrangements? Would the proposed exemption result in an increase in the
use of non-compete provisions regarding issuers' arrangements with
platform workers? Would the proposed exemption affect the ability of
issuers under state law to provide additional benefits to platform
workers, such as minimum wage guarantees, healthcare stipends, and
occupational auto insurance?

B. Additional Requirements for Issuances to Platform Workers Under Rule
701 and Form S-8

    We are proposing four additional requirements with which an issuer
must comply in order to use the exemption for issuances to platform
workers under Rule 701.\57\ In addition, we are proposing that the
first three of these conditions would also apply to issuances to
platform workers registered on Form S-8.\58\
---------------------------------------------------------------------------

    \57\ See proposed Rule 701(h)(3).
    \58\ See proposed 17 CFR 239.16b(c)(1) and proposed General
Instruction A.1(b)(2)(i) through (iii) to Form S-8.
---------------------------------------------------------------------------

    Because of certain structural differences between platform-based
work relationships and traditional employer-employee relationships, we
are mindful that compensatory offerings in this context may be more
susceptible to misuse. For example, a traditional employer-employee
work relationship will involve some degree of interpersonal
interactions between the issuer and the employee by which the former
supervises and monitors the work and conduct of the latter. In
contrast, there may be no or very few interpersonal interactions in the
issuer-platform worker relationship. In addition, platform workers
frequently work for multiple companies and may have exclusive control
over their work schedules, including how often and for how long they
will work. These short-term and/or intermittent work relationships
across multiple issuers may increase the likelihood that workers would
establish a work relationship with a platform as a means of realizing
an investment opportunity with the issuer or that issuers would use the
proposed provisions to engage in capital-raising activities. The
additional requirements we are proposing are designed to work together
to help ensure that issuances made to platform workers pursuant to
revised Rule 701 are for compensatory purposes while reducing any
opportunity for a platform worker to use her relationship with the
issuer to engage in speculative activity.\59\
---------------------------------------------------------------------------

    \59\ One commenter specifically recommended imposing additional
restrictions regarding the issuance of securities to platform
workers beyond those typically applicable to equity issuances under
Rule 701 because of the third-party, contractual relationship
between the issuer and platform worker. See letter from Airbnb.
---------------------------------------------------------------------------

    The first condition is that the issuance must be pursuant to a
compensatory arrangement that is evidenced by a written compensation
plan, contract, or agreement between the issuer and the platform
worker.\60\ The compensatory arrangement may not be for services in
connection with the offer or sale of securities in a capital-raising
transaction or services that directly or indirectly promote or maintain
a market for the issuer's securities. Thus, an issuer may not rely on
the exemption to issue securities to a platform worker for compensation
for performing services analogous to those of an underwriter or
promoter or otherwise made in connection with a capital-raising
transaction. An issuer also may not rely on the exemption to issue
securities to a platform worker as part of a plan or scheme to evade
the compensatory purpose of Rule 701 or otherwise evade the
registration requirements of the Securities Act.\61\ This condition is
based on the requirements under Rule 701 and Form S-8 currently
applicable to consultants and advisors,\62\ which were designed to
prevent abuse of the rules as conduits for unregistered securities
distributions to the general public and for securities issuances to
stock promoters.\63\
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    \60\ See proposed Rule 701(h)(3)(i).
    \61\ See Preliminary Note 5 to Rule 701, which would remain
applicable to issuances under proposed Rule 701(h).We are also
proposing to add a similar note in proposed General Instruction
A.1(b)(2) to Form S-8.
    \62\ See Rule 701(c)(1)(ii) and (iii) [17 CFR 230.701(c)(1)(ii)
and (iii)], and General Instruction A.1(a)(1)(ii) and (iii) to Form
S-8.
    \63\ See 1999 Rule 701 Adopting Release, supra note 5, at
Section II.D., and 1999 Form S-8 Adopting Release ('' at Sections
I.A. and II.A. A number of commenters that addressed expanding our
rules to encompass ``gig economy'' workers generally supported such
a condition. See, e.g., letters from ABA, Airbnb, Chamber, and Uber.

---------------------------------------------------------------------------

    Second, as proposed, no more than 15 percent of the value of
compensation received by a platform worker from the issuer for services
provided during a consecutive 12-month period, and no more than $75,000
of such compensation received from the issuer during a consecutive 36-
month period, may consist of securities issued pursuant to Rule 701 or
a registration statement on Form S-8.\64\ The issuer would be required
to determine the value of such securities as of the time the securities
are granted.\65\ For the purpose of assessing compliance with these
limits, an issuer would be able to use any reasonable, recognized
valuation methodology \66\ as long as the methodology is consistently
applied during the same 12-month or 36-month period.\67\
---------------------------------------------------------------------------

    \64\ For example, if a platform worker received $1,000 in total
compensation during a 12-month period from Issuer X for services
provided to or for the benefit of Issuer X, no more than $150 of
that compensation could consist of securities. These proposed annual
limits on the amount of securities a platform worker could receive
as compensation from an issuer are in addition to the limits on the
aggregate sales price or amount of securities that an issuer can
sell in reliance on Rule 701 during any consecutive 12-month period.
See 17 CFR 230.701(d). As discussed below, the Rule 701(d) limits
would continue to apply, and an issuer would be required to
aggregate issuances to platform workers with all other issuances
under Rule 701 during a 12-month period for the purpose of complying
with Rule 701(d). See infra Section II.C.
    \65\ See proposed Rule 701(h)(3)(ii).
    \66\ We expect that issuers would use the same valuation methods
that they currently use to make valuations for compensatory
issuances under Rule 701(c).
    \67\ In this regard, an issuer's use of multiple, different
valuation methodologies during the same period could raise concerns
that the issuer was doing so as part of a plan or scheme to evade
the compensatory purpose of Rule 701.
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    This proposed cap on the amount of compensation that a platform
worker may receive as securities from the issuer is designed to limit
an issuer's incentive and ability to use the new exemptive rule as a
conduit for a public distribution of its securities, contrary to the
compensatory purpose of Rule 701 and Form S-8.\68\ In addition, we
believe the proposed cap would reduce any incentive for platform
workers to use the exemption primarily for realizing speculative
investment opportunities and would limit the risk that issuances would
be for capital-raising or other non-compensatory purposes.\69\
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    \68\ Some commenters supported imposing a limitation on the
amount of equity compensation a ``gig economy'' worker could receive
to prevent abuses under an expanded Rule 701 and Form S-8. See
letters from ABA and Airbnb.
    \69\ The Commission has historically expressed concern about the
potential for abuse in the area of issuances of securities for
compensation. See, e.g., 1999 Rule 701 Adopting Release, 64 FR at
11098; see also Rule 701 Reproposing Release, 52 FR at 29034.
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    Third, we are proposing that the amount and terms of any securities
issued to a platform worker may not be subject to individual
bargaining. Similarly, as proposed, platform workers would not be
permitted to elect between payment in securities or cash.\70\ We
believe this proposed requirement would also reduce any incentive for
platform workers to use the exemption as a means of realizing
speculative investment opportunities rather than receiving the
securities as a compensatory grant.\71\
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    \70\ See proposed Rule 701(h)(3)(iii).
    \71\ One commenter recommended the adoption of this type of
condition in order to prevent abuses from occurring under any
expanded rules. See letter from Airbnb. This proposed condition is
also consistent with the ``no sale'' position taken by the staff
that, where securities are awarded to employees at no direct cost
through broad-based bonus plans, there has been no sale, and
therefore no public distribution of the securities, since employees
do not individually bargain to contribute cash or other tangible or
definable consideration to such plans. See Changes to Exchange Act
Registration Requirements to Implement Title V and Title VI of the
JOBS Act, Release No. 33-10075 (May 3, 2016) [81 FR 28689 (May 10,
2016)].
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    The preceding three conditions would apply equally to securities
issuances to platform workers under both Rule 701 and Form S-8.\72\ For
purposes of Rule 701, however, we are proposing a fourth condition that
would require the issuer to take reasonable steps to prohibit the
transferability of securities issued to platform workers pursuant to
the exemption except for transfers to the issuer or by operation of
law.\73\ Such reasonable steps could include the placement of special
legends on the securities to be issued to platform workers or
appropriate instructions to transfer agents that would provide adequate
notice of the transfer prohibition to platform workers. The purpose of
this provision is to help ensure that the shares are obtained for
compensatory and not speculative purposes. Specifically, it would
prevent the development of a market in such securities until after the
issuer becomes subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, which would in turn greatly reduce, if not
eliminate, any incentive for a worker to seek out securities issued
pursuant to Rule 701 for speculative purposes.
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    \72\ See proposed 17 CFR 239.16b(c)(1) and proposed General
Instruction A.1.(a)(3) to Form S-8.
    \73\ See proposed Rule 701(h)(3)(iv).
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    Currently, all securities issued pursuant to Rule 701 are
``restricted securities,'' and any resales must comply with Securities
Act registration requirements or qualify for an exemption
therefrom.\74\ As proposed, the additional transferability prohibition
on Rule 701 securities issued to platform workers would preclude any
transfers, except transfers back to the issuer or by operation of
law.\75\ Transfers by operation of law would include, for example,
transfers pursuant to the laws of descent and distribution and domestic
relations orders in divorces. One commenter recommended the adoption of
enhanced transfer restrictions for securities issued to gig economy
workers beyond those applicable to equity currently issuable pursuant
to Rule 701 because of the third-party contractual relationship between
gig economy participants and gig economy companies.\76\ As noted
earlier, we agree that applying enhanced transfer restrictions is
appropriate in light of the more remote contractual relationship
between an issuer and its platform workers, compared to the
relationship with its employees.\77\ As with other securities issued
pursuant to Rule 701, however, ninety days after the issuer becomes
subject to Exchange Act reporting requirements, securities issued to
platform workers would become available for resale under 17 CFR
230.701(g)(3).\78\
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    \74\ See 17 CFR 230.701(g)(1) and (2).
    \75\ See proposed Rule 701(h)(3)(iv).
    \76\ Letter from Airbnb.
    \77\ See supra note 59 and accompanying text.
    \78\ See proposed Rule 701(h)(3)(iv). Following that 90-day
period, persons who are not affiliates may resell Rule 701
securities in reliance on 17 CFR 230.144 without compliance with the
current public information requirements under 17 CFR 230.144(c) and
holding period requirements under 17 CFR 230.144(d), and affiliates
may resell such securities without compliance with the holding
period requirements.
---------------------------------------------------------------------------

    We are not proposing similar transfer restrictions for securities
issued to platform workers pursuant to a Form S-8 registration
statement. Securities Act and Exchange Act protections for such
securities would already exist, making the use of the issued securities
for speculative purposes by a platform worker less likely.\79\
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    \79\ For example, to be eligible to use Form S-8, the issuer
must be a reporting issuer and must have filed all reports and other
materials required to be filed during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports and materials).
---------------------------------------------------------------------------

Request for Comment
    16. Would the proposed conditions for issuances to platform workers
under Rule 701 or Form S-8 help ensure that the issuances are for a
compensatory purpose? Should we adopt only some of the conditions? If
so, which ones? For example, should we require only that the issuance
be pursuant to a compensatory arrangement for services

not in connection with the offer or sale of securities in a capital-
raising transaction?
    17. Should we impose a cap on the amount of compensation that a
platform worker may receive as securities from the issuer on an annual
basis under Rule 701 and Form S-8 to limit the potential that the
issuance to platform workers would be used for capital-raising or
speculative purposes, as proposed? If so, should we require that no
more than 15 percent of the value of compensation received by a
platform worker from the issuer for services provided during a 12-month
period be in securities, as proposed? Should the annual cap be less
than or greater than 15 percent of the compensation received by the
platform worker during a 12-month period? Should the annual cap apply
only to issuances under Rule 701 rather than both Rule 701 and Form S-
8? Should the annual cap apply only to issuances under Form S-8?
    18. Should we impose a cap on the amount of compensation that a
platform worker may receive as securities from the issuer during a 36-
month period (under Rule 701 and registered on Form S-8) to limit the
potential that the issuance to platform workers would be used for
capital-raising or speculative purposes, as proposed? Should we require
that no more than $75,000 of such compensation received from the issuer
during a 36-month period may consist of securities, as proposed? Should
this cap be less than or greater than $75,000, and/or apply to a
shorter or longer period than 36 months? For example, should we limit
the amount of securities a platform worker may receive as compensation
from an issuer to no more than $50,000 for a consecutive 24-month
period? Instead of, or in addition to, the 36-month cap, should there
be an aggregate limit on the dollar amount of securities that a
platform worker may ever receive from an issuer? If so, what should
that cap be? Should the $75,000 cap apply only to issuances under Rule
701? Should the $75,000 limitation apply only for as long as the issuer
is not subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act? Should the $75,000 cap apply only to issuances
registered on Form S-8?
    19. Should we impose only the proposed 12-month cap or only the
proposed 36-month cap, but not both? Should we not impose any cap on
the amount of compensation that a platform worker may receive as
securities in light of other proposed conditions? Should either cap
apply to limit the total amount of compensation issued as securities to
platform workers by an issuer as well as an issuer's affiliates, or
should either cap apply individually to each issuer or issuer's
affiliate?
    20. For purposes of the 12- and 36-month caps on the amount of
compensation that a platform worker may receive as securities from the
issuer, should the value of compensation be measured at the time the
securities are granted, as proposed? For the same purposes, should an
issuer be able to use any reasonable, recognized valuation methodology
for purposes of determining the fair market value of the securities
issued to platform workers under Rule 701? Should an issuer be able to
change the valuation methodology used for purposes of the proposed caps
as long as the change is motivated by bona fide reasons unrelated to
the proposed exemption for platform workers?
    21. Should we specify in Rule 701 and Form S-8 that the issuer must
use the same valuation method that it currently uses to make valuations
for compensatory issuances under Rule 701(c), if applicable, and apply
the methodology consistently during the same period?
    22. Should we require that the amount and terms of any securities
issued to a platform worker may not be subject to individual bargaining
or the worker's ability to elect between payment in securities or cash,
as proposed? If a platform worker is unable to negotiate the amount and
terms of securities to be issued as compensation, should that worker be
able to elect to receive payment only in cash?
    23. For issuances pursuant to the Rule 701 exemption, should we
require the issuer to take reasonable steps to prohibit the transfer of
securities issued to platform workers, other than to the issuer or by
operation of law, as proposed? Should we limit the prohibition on
transferability to a specific period, e.g., for two or three years?
Should we mandate the specific steps that an issuer must take to
prohibit the transfer of such securities? If so, what should those
steps be? For example, should we require that issuers put special
legends on the securities issued to platform workers, or should we
require that issuers provide appropriate instructions to transfer
agents concerning the transfer prohibition on shares issued to platform
workers? Are there other reasonable steps that we should require an
issuer to take in connection with the proposed prohibition on
transferability to help ensure that the shares issued to platform
workers are for compensatory and not speculative purposes?
    24. Instead of requiring an issuer to take reasonable steps to
prohibit the transfer of securities issued to platform workers, should
we instead allow platform workers to resell their securities using an
applicable exemption or safe harbor? For example, should platform
workers be allowed to resell their securities pursuant to Rule 144?
Alternatively, in Rule 701(h), should we require a different holding
period than is in Rule 144, such as a two-year holding period, or is
any holding period insufficient to mitigate concerns about misuse of
the temporary exemption? Are there other transfer restrictions that
would be more appropriate in this context?
    25. Should we apply the proposed conditions only to securities that
have capital-raising features (e.g., stock options) and not to
securities that do not have such features (e.g., restricted stock
units)? If so, which of the proposed conditions should not apply to
such securities?
    26. Should we limit the type of securities that can be issued to
platform workers under Rule 701 or on Form S-8? For example, should we
limit issuances to equity securities and securities convertible into or
exchangeable for equity securities?
    27. Are there other conditions in addition to, or instead of, the
proposed conditions that we should adopt to help ensure that issuances
to platform workers under Rule 701 or registered on Form S-8 are
undertaken for compensatory and not capital-raising or speculative
purposes? For example, should we require that a platform worker provide
services through an issuer's platform (or other widespread, technology-
based marketplace platform or system) for a certain period of time
before the worker is eligible to receive securities from the issuer? If
so, should the minimum period be six months, one year, or some other
period? Should we require that the platform worker provide services for
a continuous period of time? Should we require that the securities
issued to a platform worker not vest until after a particular period of
time? If so, should the vesting period be six months, one year, or some
other period after the grant of securities?
    28. Do the additional conditions for issuances to platform workers
provide adequate investor protections for platform workers who receive
shares pursuant to Rule 701 or registered on Form S-8? If not, what
additional conditions or measures would be appropriate to provide an
acceptable level of investor protection?

C. Integration of Proposed Rule 701(h) With the Existing Rule 701
Exemption

    Title 17, section 230.701(d) (``Rule 701(d)'') imposes limits on
the aggregate sales price or amount of securities that an issuer can
sell in reliance on the rule during any consecutive 12-month
period.\80\ In addition, 17 CFR 230.701(e) (``Rule 701(e)'') provides
that if the aggregate sales price or amount of securities sold during
any consecutive 12-month period exceeds $10 million, the issuer must
deliver certain disclosure to investors a reasonable period of time
before the date of sale.\81\
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    \80\ See 17 CFR 230.701(d)(2), which imposes alternative caps on
the aggregate sales price or amount of securities sold under the
rule during a consecutive 12-month period. In the companion Rule
701/Form S-8 release, we are proposing to raise: The cap under 17
CFR 230.701(d)(2)(i) permitting issuance from $1 million to $2
million, to reflect inflation; and the cap under 17 CFR
230.701(d)(2)(ii) from 15% to 25% of the issuer's total assets, to
reflect that start-up companies may be more dependent upon human
capital than fixed assets. See Release No. 33-10891 at Section II.B.
    \81\ In the companion release, we are proposing to require that
Rule 701(e) enhanced disclosure be provided only for those sales
that exceed the rule's $10 million threshold. See Release No. 33-
10891 at Section II.A.1. If adopted, this provision would be
applicable to all Rule 701-exempt issuances, including those granted
to platform workers.
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    Proposed Rule 701(h) would not create a separate and independent
ceiling on the amount of securities that could be offered or sold under
Rule 701. Rather, platform workers would be an additional class of
persons temporarily eligible under Rule 701(c) to participate in the
issuer's Rule 701 offers and sales, and would be subject to the same
Rule 701(d) limitations on the total amount of securities that an
issuer may sell. In this regard, the securities sold to platform
workers would be aggregated with all other securities sold by the
issuer to persons meeting existing Rule 701(c) eligibility conditions
for purposes of applying the Rule 701(d) ceiling.
    We believe that it is appropriate to apply the same ceiling to all
Rule 701 exempt offerings rather than to provide a separate ceiling for
offers to persons eligible to receive securities under the temporary
provision. If we were to provide separate ceilings, issuers with
technology-based marketplace platforms would be able to sell securities
in excess of the amount they are permitted to sell to traditional
workers, while issuers that rely only on traditional employment would
be limited to the ceiling imposed under Rule 701(d). We believe it is
better to propose an approach that treats all issuers equally, rather
than one that favors issuers conducting their businesses through
platforms as defined by the proposed rule.
    Similarly, an issuer that offered and sold securities to platform
workers pursuant to proposed Rule 701(h) would be subject to the same
Rule 701(e) disclosure requirements. Those securities would be
aggregated with all other securities offered and sold by the issuer to
persons meeting existing Rule 701(c) eligibility conditions for
purposes of applying the $10 million disclosure threshold in Rule
701(e).\82\
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    \82\ In the companion release, we are proposing amendments to
the disclosure requirements under Rule 701(e) that, if adopted,
would be applicable to issuances to platform workers under proposed
Rule 701(h). For example, we are proposing to conform the age of
financial statement requirement in Rule 701(e) to the corresponding
requirement in Part F/S of Form 1-A. See Release No. 33-10891 at
Section II.A.2. In addition, we are proposing to allow issuers to
provide alternative valuation information, similar to that required
under Internal Revenue Code Section 409A, in lieu of financial
statements, for purposes of Rule 701(e) disclosure. See id. at
Section II.A.4.
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Request for Comment
    29. Should we require that the securities sold to platform workers
be aggregated with all other securities sold by the issuer to persons
meeting existing Rule 701(c) eligibility conditions for purposes of
applying the Rule 701(d) ceiling, as proposed? Should we instead impose
a separate and independent ceiling on the amount of securities that an
issuer could sell to platform workers during any consecutive 12-month
period? If so, what should the ceiling be?
    30. Should we require that the securities issued to platform
workers be aggregated with all other securities sold by the issuer to
persons meeting existing Rule 701(c) eligibility conditions for
purposes of applying the Rule 701(e) disclosure threshold, as proposed?
Should we instead impose a separate disclosure threshold for issuances
to platform workers? If so, what should that threshold be?

D. Integration With Exchange Act Rule 12g5-1

    For purposes of determining whether an issuer is required to
register a class of equity securities with the Commission pursuant to
Section 12(g)(1) of the Exchange Act,\83\ 17 CFR 240.12g5-1 (``Rule
12g5-1'') permits the exclusion of certain securities.\84\
Specifically, 17 CFR 240.12g5-1(a)(8)(i)(A) permits the exclusion of
securities held by persons who received the securities pursuant to an
employee compensation plan in transactions exempt from, or not subject
to, the registration requirements of Securities Act Section 5. Title
17, section 240.12g5-1(a)(8)(i)(B) permits the exclusion of securities
held by persons who received the securities in a transaction exempt
from, or not subject to, the registration requirements of Securities
Act Section 5 from the issuer, a predecessor of the issuer or an
acquired company in substitution or exchange for securities received
pursuant to a compensatory plan in transactions exempt from, or not
subject to, the registration requirements of Securities Act Section 5,
as long as the persons were eligible to receive securities pursuant to
Rule 701(c) at the time the excludable securities were originally
issued to them. In addition, Rule 12g5-1 provides a non-exclusive safe
harbor by which an issuer may deem a person to have received the
securities pursuant to an employee compensation plan if such plan and
the person who received the securities pursuant to the plan met the
plan and participant conditions of Rule 701(c).\85\
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    \83\ 15 U.S.C. 78l(g)(1). Section 12(g)(1) requires, among other
things, that an issuer with assets exceeding $10,000,000 and a class
of equity securities held of record by either 2,000 persons, or 500
persons who are not accredited investors, register such class of
securities with the Commission.
    \84\ See 17 CFR 240.12g5-1(a)(8). The Commission adopted this
provision of Rule 12g5-1 pursuant to Section 503 of the JOBS Act,
which instructed the Commission to amend the definition of ``held of
record'' to exclude securities held by persons who received them
pursuant to an ``employee compensation plan'' in transactions
exempted from the registration requirements of Section 5 of the
Securities Act. Section 503 also instructed the Commission to adopt
a safe harbor that issuers can use when determining whether holders
of their securities received them pursuant to an employee
compensation plan in transactions exempted from the registration
requirements of Section 5 of the Securities Act. The Commission
adopted the term ``employee compensation plan'' and left it
undefined so that ``issuers will have appropriate flexibility to
make a principles based determination about securities received as
employee compensation when determining their holders of record under
Section 12(g)(5).'' See Release No. 33-10075.
    \85\ See 17 CFR 240.12g5-1(a)(8)(ii)(A).
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    We are proposing similar treatment for issuances to platform
workers under proposed Rule 701(h).\86\ We believe that these proposed
amendments to Rule 12g5-1 are appropriate because they would remove a
potential disincentive to an issuer's offer and sale of securities as
compensation to platform workers and would avoid favoring companies
that do not have platform workers over companies that have them.
Specifically, the proposed revisions would eliminate the requirement
for an issuer to count platform workers who receive shares pursuant to
a compensation plan \87\

under Rule 701(h) as record holders for the purpose of determining its
Section 12(g) registration obligations.\88\ In addition, similar to the
existing exclusion in 17 CFR 240.12g5-1(a)(8)(i)(B), the proposed
amendment would exclude securities received in a transaction exempt
from, or not subject to, the registration requirements of Securities
Act Section 5 in substitution or exchange for securities received
pursuant to Rule 701, as long as the persons were eligible to receive
the securities when they were originally issued to them.\89\ Finally,
the proposed amendments would extend the safe harbor in 17 CFR
240.12g5-1(a)(8)(ii), for securities received in a Rule 701(c)
offering, to compensatory issuances to platform workers pursuant to
Rule 701(h).\90\
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    \86\ Two commenters supported excluding platform workers from
the definition of record holder under Rule 12g5-1. See letters from
Airbnb and Davis Polk.
    \87\ Similar to the current Rule 12g5-1 exclusion for securities
issued pursuant to an employee compensation plan, we propose to use
and leave undefined the term ``compensation plan'' to provide
issuers with the appropriate flexibility to make a principles based
determination about securities issued as compensation to their
platform workers when determining their holders of record under
Section 12(g)(5). Not defining a ``compensation plan'' for platform
workers would also avoid unnecessary complexity and potential
conflict with existing terms, such as ``compensatory benefit plan.''
See Release No. 33-10075, 81 FR at 28694.
    \88\ See proposed Exchange Act Rule 12g5-1(a)(8)(i)(A).
    \89\ See proposed Exchange Act Rule 12g5-1(a)(8)(i)(B).
    \90\ See proposed Exchange Act Rule 12g5-1(a)(8)(ii)(A)(2). The
Rule 12g5-1 safe harbor would continue to provide that an issuer
may, solely for the purposes of Exchange Act Section 12(g), deem the
securities to have been issued in a transaction exempt from, or not
subject to, the registration requirements of Securities Act Section
5 if the issuer had a reasonable belief at the time of the issuance
that the securities were issued in such a transaction. See 17 CFR
240.12g5-1(a)(8)(ii)(B).
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    The proposed amendments to Rule 12g5-1 would also include a note to
remind issuers of the temporary nature of Rule 701(h).\91\ Upon
expiration of Rule 701(h), without further Commission action, an issuer
would no longer be able to issue additional Rule 701-exempt securities
to its platform workers. Importantly, however, we are not proposing the
Rule 12g5-1 exclusion and safe harbor for securities issued to platform
workers on a temporary basis. Therefore, an issuer could continue to
rely on the exclusion and safe harbor subsequent to Rule 701(h)'s
expiration date.
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    \91\ See proposed Note 1 to paragraph (a)(8)(ii) of Rule 12g5-1.
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Request for Comment
    31. Should we permit an issuer to exclude platform workers to which
it has issued securities under Rule 701(h) from the definition of
``holders of record'' for the purpose of determining its registration
obligations under Section 12(g), as proposed?
    32. Should we extend the Rule 12g5-1 safe harbor to cover issuances
to platform workers under Rule 701(h) pursuant to a compensation plan,
as proposed?
    33. Should we leave ``compensation plan'' for platform workers
undefined, as proposed? If not, how should we define a ``compensation
plan'' for platform workers?

E. Considerations Specific to Form S-8

    Form S-8 provides a number of accommodations to registrants that
seek to register the offer and sale of securities to their employees,
consultants, and advisors.\92\ For example, to satisfy the Securities
Act prospectus delivery requirements set forth in Rule 428, the form
requires only abbreviated disclosure and permits the delivery of
regularly prepared materials advising employees and other eligible
persons about employee benefit plans, together with a statement of
availability of documents containing registrant information.\93\ Form
S-8 also permits the incorporation by reference of a registrant's
Exchange Act reports without regard to the length of the issuer's
reporting history or the aggregate market value of its securities held
by the non-affiliated public (its ``public float'').\94\ The Commission
has justified this differing treatment for Form S-8 offerings because
of their compensatory, incentivizing, and non-capital-raising
purpose.\95\
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    \92\ See 1999 Form S-8 Adopting Release, supra note 12, at
11103; see also 1990 Form S-8 Adopting Release, supra n. 14.
    \93\ See Form S-8, Part I, Item 2.
    \94\ See Form S-8, Part II, Item 3.
    \95\ See, e.g., 1999 Form S-8 Adopting Release, supra note 12,
at 11103. The Commission has also justified the abbreviated
disclosure format of Form S-8 because of ``employees' familiarity
with the issuer's business through the employment relationship.''
Id.
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    We propose to amend Form S-8 so that the accommodations available
to registrants currently offering securities on that form to employees
and other covered persons would generally be available to registrants
offering securities to platform workers. We also propose to amend Rule
428 so that its prospectus content, delivery, updating, and related
procedural requirements are applicable to offerings to platform workers
pursuant to a written compensation plan, contract, or agreement. Thus,
a registrant registering an offering of securities to platform workers
on Form S-8 would be able to deliver a Section 10(a) prospectus
consisting of plan or compensation contract information, a statement of
availability of registrant information, and other documents required of
current Form S-8 registrants, and follow the same Form S-8 procedural
requirements.\96\ We believe that the proposed conditions designed to
help ensure that an offering to such workers is for a compensatory
purpose justify extending the same treatment to issuers seeking to
register an offering of securities to platform workers on Form S-8.
---------------------------------------------------------------------------

    \96\ See proposed Rule 428(d).
---------------------------------------------------------------------------

    Many of the substantive plan disclosure requirements for Form S-8
pertain to tax qualified defined contribution plans. We believe,
however, that issuers that elect to register an offering of securities
on Form S-8 for issuance to platform workers would do so to incentivize
those workers in the short-term by offering options and restricted
stock units, rather than pursuant to a defined contribution plan for
the purpose of retirement savings. Accordingly, we are not proposing
amendments to those items of Form S-8 that pertain to defined
contribution plans to include platform workers.
Request for Comment
    34. Platform workers may not be as familiar with the registrant's
operations as employees and other persons currently eligible to receive
securities under Form S-8 may be. As such, should registrants offering
securities to platform workers be subject to different information
content, prospectus delivery, or other procedural requirements than
those applicable to current Form S-8 registrants? If so, what
additional requirements under Form S-8 or Rule 428 or what different or
additional disclosure requirements should apply to offerings to
platform workers?
    35. Are there circumstances in which registrants would issue
securities to platform workers pursuant to defined contribution plans?
If so, should we amend those items of Form S-8 that pertain to defined
contribution plans to include platform workers?

F. Requirement To Furnish Certain Information

    As explained in detail below, the proposed expansion of Rule 701
and Form S-8 to include securities issuances to platform workers would
be temporary.\97\ Related to this, we are also proposing a requirement
that an issuer furnish certain information to the Commission. If the
proposed amendments are adopted, we plan to use this information to
assist us in evaluating the expanded use of Rule 701

and Form S-8, in order to help determine whether to permit such use on
a permanent basis and under the same or different conditions. The
information should provide insight into how, and to what extent, the
exemptions are being used, as well as the extent and type of benefits
provided to issuers, platform workers, and other investors. This would
enable us to assess the utility of the issuances of securities to
platform workers under Rule 701 or Form S-8 and to assess whether the
proposed conditions have achieved their purpose of helping to prevent
non-compensatory issuances. Although the proposed rule would require
issuers to furnish certain information, furnishing the identified
information would not be a condition to rely on Rule 701 or Form S-8.
Thus, a failure to furnish the information would not result in the loss
of the proposed exemption in Rule 701 or Form S-8 eligibility for
issuances to platform employees. The information would, however, be
important for determining whether the exemptions should expire, be
extended, or be made permanent.
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    \97\ See infra Section II.G.
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    The required information would be furnished, rather than filed, and
therefore would not be subject to potential liability under Section 18
of the Exchange Act.\98\ The information would be intended only for the
Commission's use and would be non-public. It would not be furnished
through the Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. Rather, it would be furnished in a non-public
manner designated by the Division of Corporation Finance for this
purpose, for example, electronically by email or by some other means of
electronic communication.
---------------------------------------------------------------------------

    \98\ 15 U.S.C. 78r.
---------------------------------------------------------------------------

    As proposed, the issuer would be required to provide the following
information concerning its issuances to platform workers to the
Commission at six-month intervals commencing six months after the first
such issuance:
    1. The criteria used to determine eligibility for securities awards
to platform workers, whether they are the same as for other
compensatory transactions, and whether those criteria, including any
revisions to such criteria, are communicated to workers in advance as
an incentive;
    2. The type and terms of securities issued to platform workers
during the prior six months, and whether they are the same as for other
securities issued in compensatory transactions by the issuer during
that interval;
    3. If issuing securities pursuant to Rule 701(h), the steps taken
to ensure that the securities sold are non-transferable;
    4. The percentage of overall outstanding securities that the amount
issued to platform workers cumulatively under Rule 701(h) or pursuant
to a registration statement on Form S-8 (pursuant to Sec.  239.16b(c)),
as applicable, represents;
    5. During the interval, the number of platform workers, the number
of non-platform workers, the number of platform workers receiving
securities pursuant to the temporary rule, and the number of non-
platform workers who received securities pursuant to the issuer's Rule
701 or Form S-8 sales; and
    6. The number and dollar amount of securities issued to platform
workers under Rule 701 or pursuant to a registration statement on Form
S-8, both in absolute amounts and as a percentage of the issuer's total
sales under Rule 701 or total sales pursuant to a registration
statement on Form S-8, as applicable during the interval.\99\
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    \99\ See proposed Rule 701(h)(4) and proposed 17 CFR
239.16b(c)(3). The amounts calculated as a percentage should compare
the amount of securities issued to platform workers under Rule 701
or Form S-8 with the total amount of securities issued to all
workers (both platform and non-platform) and other covered persons
under Rule 701 or on Form S-8.
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    We recognize that some non-reporting issuers may view certain
information concerning compensation practices for platform workers as
privileged or confidential. For that reason, the proposed rules would
provide that to the extent that the issuer treats such information as
privileged or confidential, it may submit a confidential treatment
request pursuant to 17 CFR 200.83 \100\ for the furnished
information.\101\
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    \100\ Under Rule 83, an issuer can request that the non-public
information not be disclosed pursuant to a request under the Freedom
of Information Act (``FOIA''). Written requests for confidential
treatment under Rule 83 relating to the furnished materials may be
submitted either in paper format or electronically. If there are no
FOIA requests, the information will remain non-public for 10 years.
After 10 years, the confidential treatment request will expire
unless an issuer requests and is granted an extension. In the event
of a FOIA request, the Commission may require the issuer to provide
substantiation of its confidential treatment request.
    \101\ See proposed Rule 701(h)(5) and proposed 17 CFR
239.16b(c)(4).
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Request for Comment
    36. Should the temporary rules require an issuer to furnish certain
information to the Commission if it seeks to register issuances to
platform workers on Form S-8, as proposed? If so, should an issuer be
required to furnish the information at six-month intervals, as
proposed? Should the issuer be required to furnish the information
annually or on another periodic basis? If so, which periodic basis
would be appropriate?
    37. Should the same reporting interval apply to issuances of
securities both under Rule 701 and pursuant to a registration statement
on Form S-8?
    38. Is the proposed information appropriate for the purpose for
which it is being sought? Should issuers be required to furnish less
information or other information in addition to, or instead of, the
proposed information?
    39. What method should the Commission require issuers to use to
furnish the information required? For example, should the information
be furnished electronically via email for this purpose? Should the
Commission provide a form for this purpose?
    Are there other steps that the Commission should take to facilitate
the reporting requirement?
    40. Should we require that an issuer notify the Commission that it
intends to make offers or sales to platform workers pursuant to the
exemption in proposed Rule 701(h)? If so, when and how should issuers
be required to provide such notice?

G. Expiration of the Temporary Rules Authorizing Issuances to Platform
Workers Under Rule 701 and Form S-8

    With limited exceptions, we propose to make this exemptive rule
temporary in order to have an opportunity to evaluate the
appropriateness of extending the Rule 701 exemption to issuances to
workers in this relatively new type of work arrangement, including
whether such issuances are being made for compensatory, incentive, and
non-capital-raising purposes.\102\ Moreover, given the rapid pace of
technological change, particularly in the area of the internet and
platform software, and the evolving nature of the platform worker labor
market, making the expanded Rule 701 exemption temporary would also
provide us with the opportunity, subject to public notice and comment,
to implement amendments to this area of the

exemptive framework in light of such technological and labor market
changes.
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    \102\ As previously discussed, the exemption would continue to
be available to issuers for the post-expiration issuance of
securities underlying options previously issued in an exempt
transaction pursuant to Rule 701(h). See supra note 41 and
accompanying text. In addition, as previously noted, an issuer could
continue to rely on the Rule 12g5-1 exclusion and safe harbor for
securities issued to its platform workers prior to the expiration of
Rule 701(h) and continue to exclude those workers as record holders
subsequent to Rule 701(h)'s expiration date. See supra Section II.D.
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    As proposed, Rule 701(h) would apply only to offers and sales of
securities occurring within five years following the date of the rule's
effectiveness. On that date, Rule 701(h) would expire and no longer be
effective.\103\ Prior to the expiration date, the Commission may decide
to let the exemption expire, extend the temporary exemption, or adopt
the exemption on a permanent basis. If the Commission extends the
exemption or adopts it on a permanent basis, it may also consider
whether any revisions to the rule are appropriate. We believe that five
years is an appropriate period for the temporary exemption. On the one
hand, it would provide issuers with sufficient time to develop and
conduct successful securities offerings to platform workers, the demand
for which initially may not be readily apparent. On the other hand, the
limited period would allow the Commission to evaluate the temporary
exemption and make necessary adjustments in response to technological,
labor market, or other changes.
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    \103\ In the event that the Commission determines to let the
exemption expire, we anticipate addressing any transition or related
issues at that time.
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    The rule authorizing the temporary use of Form S-8 for issuances to
platform workers (17 CFR 239.16b(c)) would also expire five years from
the date of that rule's effectiveness, which we expect would be the
same date as the expiration date for Rule 701(h). Rule 428(d), the
temporary rule authorizing the application of the same streamlined
disclosure, prospectus delivery, and related procedural requirements to
issuances to platform workers as those currently applicable to other
Form S-8 issuances, would expire on the same date as 17 CFR 239.16b(c).
Request for Comment
    41. Should we adopt each of proposed Rule 701(h), the proposed
amendment to Form S-8 (17 CFR 239.16b(c)), and proposed Rule 428(d) as
temporary rules, as proposed? If we do, should the rules expire five
years from the date of their effectiveness, as proposed? Should the
rules expire on a different date (e.g., one, two, three, or four years
from the date of effectiveness)?
    42. Should we permit an issuer, following expiration of Rule
701(h), to issue securities underlying options, warrants, or rights
that were previously issued to platform workers in an exempt
transaction pursuant to Rule 701(h), as proposed?
    43. Should we make the expiration date for the temporary Form S-8
provisions different from the expiration date for issuances under Rule
701(h)? If so, should the effective period of the Form S-8 provisions
be longer or shorter than the effective period of Rule 701(h)?
    44. Should the proposed extension of Rule 701 and Form S-8 to
platform workers expire absent further Commission action, as proposed?
Are there any transition or related issues (e.g., related to transfer
restrictions) that we should address in connection with the proposed
expiration of the temporary rules?
    45. Rather than making the rules temporary,\104\ should we adopt
any of the proposed rules on a permanent basis? If so, which ones?
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    \104\ But see supra note 102.
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III. General Request for Comments

    We request and encourage any interested person to submit comments
on any aspect of the proposed amendments, other matters that might have
an impact on the proposed amendments, and any suggestions for
additional changes. With respect to any comments, we note that they are
of greatest assistance to our rulemaking initiative if accompanied by
supporting data and analysis of the issues addressed in those comments
and by alternatives to our proposals where appropriate.

IV. Economic Analysis

    The Commission is proposing amendments to Rule 701 to establish a
temporary provision that, on a trial basis, would expand the scope of
the rule to include a new category of worker, the platform worker, to
whom an issuer would offer and sell securities, under certain
conditions, without registration under the Securities Act. Similarly,
the Commission is proposing amendments to permit an Exchange Act
reporting issuer to register offers and sales to platform workers on
Form S-8.\105\ The Commission is proposing these amendments on a
temporary basis for a five-year period. Permitting gig economy issuers
to utilize the Rule 701 exemption on a temporary basis would allow the
Commission to assess the appropriateness of the exemption for these new
work relationships and thus should help inform the Commission's ongoing
efforts to modernize its rules in light of changing economic and market
conditions. In connection with the proposed amendments, issuers that
offer and sell securities to platform workers would be required to
furnish certain information to the Commission at six-month intervals to
assist in evaluating the proposed expanded scope of Rule 701 and Form
S-8. The Commission also is proposing to amend Rule 12g5-1 under the
Exchange Act to extend the exclusion from the definition of ``held of
record'' and corresponding safe harbor, for securities issued to
platform workers.
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    \105\ Unlike the proposed amendment to Rule 701, the proposed
amendment to Form S-8 does not include a transfer prohibition. We
discuss the anticipated economic effects of this difference below.
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    We are mindful of the costs imposed by and the benefits obtained
from our rules and amendments.\106\ The discussion below summarizes
information about the gig economy in general, various attributes of
platform workers and specific information about the online platform
economy. We then discuss the potential economic effects of the proposed
amendments. These include the likely benefits and costs, effects on
efficiency, competition, and capital formation, and reasonable
alternatives. We attempt to quantify these economic effects whenever
possible; however, due to data limitations, we are not able to quantify
many of the economic effects.
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    \106\ Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and
Section 3(f) of the Exchange Act [15 U.S.C. 78c(f)] requires the
Commission, when engaging in rulemaking where it is required to
consider or determine whether an action is necessary or appropriate
in the public interest, to consider, in addition to the protection
of investors, whether the action will promote efficiency,
competition and capital formation. Further, Section 23(a)(2) of the
Exchange Act [15 U.S.C. 78w(a)(2)] requires the Commission, when
making rules under the Exchange Act, to consider the impact that the
rules would have on competition, and prohibits the Commission from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the Exchange Act.
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A. Economic Baseline

    The baseline for the economic analysis consists of the current
regulatory requirements applicable to issuers issuing securities to
their employees as part of their compensation arrangements. Non-
reporting issuers are able to rely on Rule 701 to offer compensatory
securities to their employees. Registrants are able to register the
offer and sale of compensatory securities to their employees on Form S-
8. As discussed above, these provisions currently are not available for
platform workers because of their non-traditional employment status.
Thus, the affected parties for the proposed amendments would consist of
online platform-based businesses wishing to offer securities as
compensation, their platform workers,

and any companies with which these businesses compete in the labor
market.
1. Overview of the Gig Economy
    Numerous recent studies document an evolution and expansion of the
gig economy over time. These studies examine various aspects of the
nature of non-traditional (or alternative) work arrangements and
corresponding trends in this area. The findings across these studies
may vary for multiple reasons. For example, there is no general
consensus on the definition/scope of the gig economy, or its various
constituents.\107\ Consequently, the results of these studies may vary
because they use different definitions of the gig economy. Moreover,
various sources of data are utilized to study the field. The three main
sources of data used in these studies are government surveys such as
the Current Population Survey,\108\ administrative data such as IRS
filings, and private sector data. Due to the differing nature of the
data analyzed, different types of errors or biases in the data may
affect the findings of these studies.\109\ We discuss some of the main
findings of this literature below and then focus on data and statistics
from studies using definitions of gig economy that are more likely to
be relevant to the scope of the proposed amendments to Rule 701 and
Form S-8.
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    \107\ Katherine Abraham, John Haltiwanger, Kristin Sandusky, and
James Spletzer, The Rise of the Gig Economy: Fact or Fiction, 109
AEA PAPERS & PROCEEDINGS 357 (2019) (the ``2019 Abraham Study'').
    \108\ The Current Population Survey (CPS) is conducted on a
monthly basis by the United States Census Bureau on behalf of the
Bureau of Labor and Statistics. The CPS may include supplementary
questions/topics on a non-periodic basis. In 2005 and again in 2017
the supplementary questions focused on contingent workers. See,
e.g., U.S. Bureau of Labor Statistics, Electronically mediated work:
New questions in the Contingent Worker Supplement, MONTHLY LAB. REV.
(Sept. 2018) (the ``2017 Contingent Worker Supplement''), https://www.bls.gov/opub/mlr/2018/article/electronically-mediated-work-new-questions-in-the-contingent-worker-supplement.htm.
    \109\ See, e.g., Katherine Abraham, John Haltiwagner, Kristin
Sandusky, and James Spletzer, Measuring the gig economy: Current
Knowledge and Open Issues (Nat'l Bureau of Econ. Research Working
Paper 24950, 2018) (the ``2018 Abraham Study''). The 2018 Abraham
Study finds that there has been a growing discrepancy between the
level of self-employment as measured in core household surveys
versus the level of self-employment as measured in administrative
data. The study concludes that examining integrated data sets that
combine survey, administrative, and private data are likely to
improve the measurement of self-employment activity.
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    A 2019 study,\110\ using a broad definition of alternative work
arrangements,\111\ finds a significant increase in alternative work
arrangements over the 2005-2015 period. It estimates that about 15.8
percent of survey participants engaged in some form of alternative work
arrangement in 2015 as compared to 10.7 percent in 2005.\112\ It also
finds that workers providing services through an online intermediary
accounted for 0.5 percent of all workers in 2015.\113\
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    \110\ Lawrence Katz & Alan Krueger, The Rise and Nature Of
Alternative Work Arrangements in the United States, 1995-2015, 72
ILR REV. 382 (2019) (the ``Katz Study'').
    \111\ The definition of alternative work arrangements used in
the Katz Study includes temporary help agency workers, on-call
workers, contract workers, and independent contractors or
freelancers.
    \112\ The 2005 results in the Katz Study were based on data from
the 2005 Contingent Worker Supplement and the 2015 results in the
Katz Study were based on a survey conducted by RAND-Princeton as
part of the RAND American Life Panel (the ``Rand-Princeton
Survey'').
    \113\ The Katz Study does not discuss 2005 online platform
participation rates.
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    The 2019 Abraham Study reports self-employment rates increasing
from 13 percent in 2004 to 15 percent in 2016, based on published
Census Bureau statistics on non-employer businesses.\114\ The largest
increase in non-employers between 2010 and 2016 took place in the
Ground Passenger Transportation sector,\115\ which grew by almost 300
percent (651,000 drivers) during the period.\116\ The study also finds
positive growth in non-employers for the following sectors: NAICS 488
(Support Activities for Transportation), NAICS 611 (Educational
Services), NAICS 448 (Clothing and Clothing Accessories Stores), and
NAICS 446 (Health and Personal Care Stores), although to a much less
extent as compared to the growth observed in the Ground Passenger
Transportation sector.
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    \114\ A non-employer business is defined by the Census Bureau as
one that has no paid employees, has annual business receipts of
$1,000 or more ($1 or more in the construction industries), and is
subject to federal income taxes. Most non-employers are self-
employed individuals operating very small, unincorporated
businesses, which may or may not be the owner's principal source of
income. https://www.census.gov/quickfacts/fact/note/US/NES010217.
    \115\ This sector corresponds to North American Industry
Classification System (NAICS) code 485.
    \116\ See also Jonathan Hall & Alan Krueger, An Analysis of the
Labor Market for Uber's Driver-Partners in the United States, 71 ILR
Review 705 (2018) (the ``Hall Study''). The Hall Study finds that
the number of Uber drivers increased from a base of zero in 2012 to
460,000 active drivers by the end of 2015.
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    The 2017 Contingent Worker Supplement estimated that there were
about 1.6 million electronically mediated workers in the United
States,\117\ accounting for one percent of total employment.
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    \117\ The 2017 Contingent Worker Supplement defines