[Federal Register Volume 85, Number 239 (Friday, December 11, 2020)]
[Proposed Rules]
[Pages 79936-79963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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 (202) 551-3430, 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

[[Page 79937]]

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

[[Page 79938]]

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

[[Page 79939]]

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

[[Page 79940]]

participating platform workers would benefit both.\36\
---------------------------------------------------------------------------

    \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

[[Page 79941]]

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\

[[Page 79942]]

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

[[Page 79943]]

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\
---------------------------------------------------------------------------

    \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.

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[[Page 79944]]

    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).
---------------------------------------------------------------------------

    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).
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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

[[Page 79945]]

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?

[[Page 79946]]

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\

[[Page 79947]]

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

[[Page 79948]]

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.
---------------------------------------------------------------------------

    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.
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    \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

[[Page 79949]]

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.
---------------------------------------------------------------------------

    \103\ In the event that the Commission determines to let the 
exemption expire, we anticipate addressing any transition or related 
issues at that time.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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,

[[Page 79950]]

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \117\ The 2017 Contingent Worker Supplement defines 
electronically mediated work as an employment arrangement where 
workers: (1) Use a platform provider's website or mobile app to 
connect to clients or customers and obtain short jobs, projects, or 
tasks; (2) are paid by or through the platform provider that owns 
the website or mobile app, (3) choose when and whether to work, (4) 
may do these short jobs, projects, or tasks in person or online.
---------------------------------------------------------------------------

    The Federal Reserve 2018 Survey of Household Economics and Decision 
Making (the ``2018 SHED Survey'') \118\ finds that 30 percent of adults 
engaged in gig economy related work, including both the provision of 
services and the sale of goods, and using both online and offline 
methods, in 2018. The survey also finds that three percent of adults 
surveyed participated in gig economy work enabled by the internet or a 
mobile app to connect to customers.
---------------------------------------------------------------------------

    \118\ The Federal Reserve has conducted the Survey of Household 
Economics and Decision Making on an annual basis starting in 2013.
---------------------------------------------------------------------------

    Another study uses private data to examine various characteristics 
and trends of a subsection of the gig economy, namely the online 
platform economy and its participants.\119\ It analyzed a sample 
comprised of 39 million unique checking accounts over the October 2012-
March 2018 period \120\ and found a significant increase in the number 
of families receiving income from providing goods and services using 
online platforms.\121\ For example, in 2013, less than 0.5 percent of 
the sample checking accounts received income from work performed 
through an online platform, whereas that number increased to 1.6 
percent in 2018.\122\ The study further breaks down income sources from 
online platform utilization into four categories: (1) Transportation, 
(2) non-transport work (includes services such as dog walking and home 
repair), (3) selling of goods, and (4) leasing.\123\ As of March 2018, 
online

[[Page 79951]]

platform workers in categories (1) and (2) constituted approximately 65 
percent of the workers in all four categories. Over the 2013-2018 
period, the transportation services category has shown the most 
significant growth, increasing from less than 10 percent of online 
platform workers in 2013 to approximately 60 percent of online platform 
workers in 2018.
---------------------------------------------------------------------------

    \119\ Diana Farrell, Fiona Greig & Amar Hamoudi, The Online 
Platform Economy in 2018: Drivers, Workers, Sellers, and Lessors, 
JPMorgan Chase Institute, (2018) (the ``Farrell Study'').
    \120\ The study applies multiple filters to select the accounts 
in the final sample. These filters are described in the Appendix of 
the study.
    \121\ In order for an online platform to be included in the 
Farrell Study, it had to meet the following criteria: (1) The 
platform connects independent suppliers to customers, (2) the 
platform mediates the flow of payment from customer to supplier, (3) 
the platform empowers participants to enter and leave the market 
whenever they want. The study identified 128 online platforms based 
on the three criteria above. We believe the definition of gig 
economy applied in this study most closely resembles the definition 
of online platform workers used in the proposed amendments to Rule 
701 and Form S-8.
    \122\ The Farrell Study also notes that as of March 2018, about 
4.5% of accounts examined received income from an online platform at 
some point over the prior year.
    \123\ Companies identified in categories (1) and (2) in the 
Farrell Study are likely to have a significant overlap with the 
companies that are likely to be included in the proposed expansion 
of Rule 701 and Form S-8, given the overlap between the provided 
definition of these categories and the scope of the proposed 
amendments. Specifically, categories (1) and (2) represent companies 
that are online platforms specializing in connecting customers with 
independent suppliers for the provision of services. Some of the 
companies in the Farrell Study's leasing category may also fall 
within our proposed definition of services.
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2. Characteristics of Gig Economy Workers
    In this section, we summarize findings from studies and surveys on 
the gig economy with respect to the characteristics of participants in 
such work arrangements. In general, multiple sources lead to the 
conclusion that, although the frequency of participation varies, the 
average gig economy worker engages in such work periodically throughout 
the year. In addition, the average gig economy worker seems to 
participate in such work in order to supplement her basic source of 
income and is relatively younger in age than traditional employees.
    The 2018 SHED Survey finds that the majority of gig economy workers 
tend to engage in such work to generate income in addition to their 
primary source of income. For example, the survey finds that about 37 
percent of gig economy workers indicated that they engage in such work 
to supplement their income, whereas 18 percent indicated that their 
primary source of income comes from gig-related work. In addition, only 
30 percent of gig economy workers responded that they earn income from 
such activities in all or most months of the year. With respect to 
participation rates involving the use of a website or mobile app to 
connect to customers, the survey documents five percent of individuals 
between the ages of 18 and 29 using such methods to find customers, 
whereas one percent of individuals aged 60 or older used such method to 
find work. The 2018 SHED Survey also documents that individuals younger 
in age tend to be more active in gig-related work. Overall 
participation rates ranged from 37 percent for individuals between the 
ages of 18 and 29 to 21 percent for individuals 60 year old or older.
    The Farrell Study finds that among individuals or families 
participating in the gig economy through online platforms, more than 60 
percent derived earnings from online platform related work between one 
and three months out of the year. About 10 percent of workers received 
payments due to online platform related work between 10 and 12 months 
of the year. For transportation platforms specifically, 12.5 percent of 
individuals generated income between 10 and 12 months of the year. 
These statistics indicate that the majority of online platform workers 
generated income from the use of these online platforms periodically 
throughout the year.
    The Hall Study analyzes the labor market for Uber drivers in the 
United States based on a survey of Uber drivers in 2014 and 2015. Among 
other findings, the study documents that more than half of Uber drivers 
who started on the platform in the first half of 2013 remained active a 
year after starting, and one-third were still active two years after 
starting. In general, the study finds that the majority of Uber drivers 
use the platform because they value the flexibility to choose when to 
work and the ability to generate additional income when needed.
3. The Online Platform Economy
    As discussed above, we observe that there is a trend of increased 
activity under all definitions of the ``gig economy,'' although the 
extent of that increase varies across the data analyzed in various 
studies. Concerning online platform work specifically, the trends are 
relatively clear in that there has been a significant expansion of both 
online platforms and individuals using these online platforms to 
generate income in the last few years. Moreover, the majority of users 
of such platforms use them to supplement their income when needed and 
value the flexibility of the working hours that the platform work 
offers.
    The Rand-Princeton Survey estimates that about 0.5 percent of the 
workforce in 2015 used an online platform to connect to customers. The 
2017 Contingent Worker Supplement estimates that 1.6 million workers, 
or approximately one percent of the workforce, used an online platform 
to connect to customers and provide services. The Farrell Study 
estimates that about one percent of the 37 million checking accounts 
examined received income from the use of an online platform to connect 
with customers to provide services, with a growth rate from 2016 to 
2018 of 100 percent. Finally, the 2018 SHED Survey documents that three 
percent of adults surveyed participated in gig work enabled by the 
internet or a mobile app to connect to customers, a percentage that 
includes both the provision of services and the sale of goods. Among 
all sectors examined, the passenger transportation services sector is 
the only sector where all available evidence suggests a dramatic 
increase in the use of online platforms as an intermediary for such 
work.\124\
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    \124\ See 2019 Abraham Study, supra note 107.
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B. Broad Economic Considerations

    Below, we discuss broad economic considerations derived from the 
academic literature focusing on non-executive employee incentive-based 
pay and identify certain limitations of the applicability of such 
literature to platform providers and platform workers due to their 
differing characteristics relative to traditional employees.
    In general, economic theory suggests that variable pay, including 
equity-based pay,\125\ can serve as a mechanism to align the incentives 
of agents with those of principals and can lead to enhanced agent 
performance.\126\ Academic literature that examines compensation 
arrangements of Chief Executive Officers (CEOs), in general, finds a 
positive correlation between various forms of variable pay and future 
outcomes, such as issuer performance, when such forms of variable pay 
are used appropriately.\127\ There is also academic literature that 
examines non-executive employee compensation arrangements. Although 
this stream of literature highlights the potential incentive alignment 
effect that equity-based pay may have on employees, it also highlights 
other important considerations that may drive issuers to use such 
compensatory benefit plans. Specifically, it finds that issuers may use 
non-executive employee compensation arrangements to attract and retain 
talent. Thus, we expect that the proposed amendments likely would 
enhance the ability of affected issuers to compete in the labor market. 
This benefit likely would be more important if these issuers compete 
with traditional issuers for the same pool of workers,

[[Page 79952]]

particularly for workers with specialized skills.
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    \125\ Although the scope of the proposed rules is broader than 
``equity-based'' compensation, we believe that most, if not all, 
issuances under Rule 701(h) will be equity-based securities.
    \126\ Academic literature usually considers the agency 
relationship between investors or issuer owners (principals) and 
issuer management (agents). Within the issuer, agency relationships 
can also exist between management (principal) and non-management 
employees (agents). See, e.g., Michael Jensen & William Meckling, 
Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership 
Structure, 3 J. FIN. ECON. 305 (1976).
    \127\ Under certain circumstances, inappropriate structures of 
compensation contracts may lead to undesirable outcomes, such as 
inappropriate risk taking.
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    Academic literature also finds that issuers with non-executive 
employee option plans use funds that would otherwise be used to 
compensate employees in other areas of the issuer. We expect affected 
issuers would be able to improve their allocation of capital as a 
consequence of the proposed rules. The latter may be particularly 
important for issuers that are financially constrained.
    Although academic theory and findings concerning the economic 
effects of the use of equity-based pay may apply to both traditional 
employees and platform workers up to a certain extent, there could be 
differences due to the differences between online platform workers and 
traditional employees. Specifically, platform workers may have 
different motives for undertaking such work and different employment 
horizons.\128\ As such, online platform workers might respond 
differently to equity-based pay as compared to traditional employees, 
making the economic effects of equity-based pay for these workers 
difficult to predict. Moreover, the economic effects of the proposed 
amendments will be affected by the restrictions on the use of equity-
based pay under the proposed amendments and will depend on how affected 
issuers structure compensation arrangements based on each issuer's 
facts and circumstances.
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    \128\ For example, the majority of gig economy workers appear to 
engage in such work to supplement their basic income, and may engage 
in such work on a more sporadic basis, relative to traditional 
employees. See supra Section IV.A.2.
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    Equity-based pay also will introduce liquidity and valuation risks 
to the compensation of platform workers. Such risks are likely to be 
more significant for compensation offered by non-reporting issuers. For 
example, the transferability prohibition in the proposed amendments to 
Rule 701 will introduce illiquidity in the compensation of non-
reporting issuers' platform workers. Further, the relatively more 
opaque information environment of non-reporting issuers is likely to 
lead to increased valuation risk in the equity-based compensation 
offered. These increased risks are likely to reduce the expected 
benefits of the proposed amendments for non-reporting issuers and their 
platform workers.
    Below we discuss the expected benefits and costs from the proposed 
rules in more detail.

C. Expected Economic Benefits and Costs

    In this section, we discuss the expected economic benefits from the 
proposed amendments, including potential factors that are likely to 
introduce some uncertainty as to the expected benefits from the 
proposed amendments. We then discuss how the furnished information 
concerning how platform providers use the provisions in the proposed 
amendments may serve to inform the Commission about whether to 
undertake further action. Finally, we discuss potential costs related 
to the proposed amendments.
1. Expected Economic Benefits
    Providing issuers greater flexibility in the use of equity-based 
compensation may allow issuers to design compensation contracts or 
arrangements that are more efficient in aligning employee incentives 
with those of investors. Improved incentives could lead to increased 
effort and improved decision-making by platform workers.\129\ Evidence 
in the academic literature shows a positive correlation between the use 
of non-executive stock option compensation and measures of operating 
performance and issuer innovation, but that such effect varies 
depending on facts and circumstances.\130\ Evidence also shows that the 
effect of non-executive stock options tends to be stronger when such 
plans are broadly implemented within the issuer.\131\
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    \129\ It should be noted that the efficiency of variable pay may 
be higher when the metric/signal used to determine the variable 
component of pay accurately reflects the agent's effort and 
performance. Due in part to the business model of online platforms, 
and in part due to technological advances, online platform workers' 
effort and performance may be measured with higher accuracy than in 
traditional business models. For example, Uber drivers have an 
individual rating that is based on direct inputs from multiple 
customers receiving the service. This characteristic of the online 
platform business model may facilitate more efficient contracting 
between the issuer and workers.
    \130\ See Xin Chang, Kangkang Fu, Angie Low & Wenrui Zhang, Non-
executive employee stock options and corporate innovation, 115 J. 
FIN. ECON. 168 (2015). The study uses a sample of S&P 1500 companies 
over the 1998-2003 period to examine the effect of stock options 
granted to non-executive employees on corporate innovation, as 
measured by patent applications and patent citations. The study 
documents a positive relation between the use of stock options to 
compensate non-executive employees and proxies for corporate 
innovation. The study also finds that the effect of employee stock 
options on innovation is due mostly to the risk-taking incentive 
that stock options provide to employees rather than the incentive to 
exert effort. See also Yael Hochberg & Laura Lindsey, Incentives, 
Targeting, and Firm Performance: An Analysis of Non-executive Stock 
Options, 23 REV. FIN. STUD. 4148 (2010) (the ``Hochberg Study''). 
The study uses a sample of S&P 1500 companies over the 1997-2004 
period to examine the effect of employee stock options on issuer 
performance. The study documents a positive relation between implied 
incentives from employee stock options and future operating 
performance, on average. The study also documents that the positive 
relation between employee stock options and firm performance is 
concentrated in smaller firms and firms with significant growth 
options. Moreover, the study shows that such effect is stronger for 
broad-based option plans as they induce a mutual monitoring effect 
within employees.
    \131\ See Hochberg Study, supra note 130.
---------------------------------------------------------------------------

    The proposed amendments may provide affected companies with 
additional resources, which may particularly benefit issuers that face 
capital constraints. Permitting issuers to use securities to compensate 
online platform workers may free up resources. This would permit 
issuers to reallocate resources towards other productive uses. Academic 
literature that examines the use of non-executive employee stock 
options finds that such compensatory plans are more frequently used by 
issuers facing capital requirements and financing constraints.\132\ We 
expect that capital constraints are more likely to be a concern for at 
least a subset of non-reporting issuers. We thus expect the proposed 
amendments to provide these issuers with increased flexibility in terms 
of available resources.
---------------------------------------------------------------------------

    \132\ See John Core & Wayne Guay, Stock Option Plans for Non-
Executive Employees, 61 J. FIN. ECON. 253 (2001). The study examines 
detailed information about non-executive employee stock option 
holdings, grants, and exercises for 756 companies during the 1994-
1997 period. Among other findings, the study's results support the 
hypothesis that options are granted to non-executives more 
intensively when firms have greater financing needs and face 
financing constraints. See also Ilona Babenko, Michael Lemmon & Yuri 
Tserlukevich, Employee Stock Options and Investment, 66 J. FIN. 981 
(2011). The study examines a sample of 1,773 companies over the 
period 2000 to 2005 with regards to their broad-based employee stock 
option programs. The study finds evidence consistent with the idea 
that stock options can mitigate financing constraints by 
substituting for cash wages at the time of the grant, and by 
providing significant cash inflows at the time of exercise, 
conditional on a high stock price. The study further estimates that 
$0.34 of each dollar of cash inflow received by the firm from the 
exercise of stock options is allocated to increasing capital and R&D 
expenditures.
---------------------------------------------------------------------------

    The proposed amendments would permit affected issuers to offer 
compensatory securities to, in addition to natural persons, entities 
meeting specified conditions. As stated above, the gig economy is an 
evolving market in which participating workers may be organized in 
various ways. We expect this proposed amendment to expand the set of 
affected issuers that would be eligible to use securities to compensate 
platform workers. Also, the proposed amendment may benefit platform 
workers as it would allow them to optimize their preferred 
organizational structure while being eligible to receive

[[Page 79953]]

compensatory securities for services provided through the online 
platform.
    Finally, to the extent that issuers that use platform workers--
i.e., ``platform providers''--compete for labor with issuers that offer 
traditional employment, the use of equity-based compensation could 
permit platform providers to be more competitive in the labor market. 
Currently, platform providers cannot rely on Rule 701 or use Form S-8 
to issue securities as compensation to their platform workers. They are 
thus at a disadvantage in terms of offering compensation contracts that 
are likely to attract and retain platform workers. Facilitating 
platform providers' efforts to attract and retain platform workers 
could increase their competitiveness.
    To the extent that platform providers require platform workers with 
specialized skills, the academic literature provides evidence that 
issuers are more likely to use employee stock option plans when they 
need to attract employees with skills that may be critical for an 
issuer's success.\133\ Relatedly, to the extent that platform providers 
benefit from having exclusive access to platform workers, we expect the 
proposed amendments to facilitate such efforts.
---------------------------------------------------------------------------

    \133\ See id.
---------------------------------------------------------------------------

    There are, however, potential factors that likely introduce some 
uncertainty as to the expected benefits from the proposed amendments. 
First, issuing securities as compensation would introduce liquidity and 
valuation risks. These risks are likely to create uncertainty in the 
value of platform workers' compensation. This may partially offset 
benefits arising from greater incentive alignment. Specifically, 
depending on the facts and circumstances, this uncertainty could lead 
platform workers to discount the value of such pay to varying extents. 
We expect the liquidity and valuation risks to be relatively more 
pronounced for non-reporting issuers, as their information environment 
is more opaque and the compensatory securities would not be sellable. 
If platform workers demand additional pay as compensation for bearing 
these risks, equity-based pay would be a more costly form of 
compensation for the issuer (relative to cash).\134\ Thus, issuers may 
need to provide increased amounts of equity-based pay to be able to 
offer an overall compensation value that would attract and retain 
employees.\135\
---------------------------------------------------------------------------

    \134\ See Brian Hall & Kevin Murphy, Stock Options for 
Undiversified Executives, 33 J. ACCT. & ECON. 3 (2002). The study 
analyzes the value of non-tradeable options held by undiversified 
and risk-averse executives. The study distinguishes between the 
value of the option to the executive, and the cost of the option to 
the issuer. Intuitively, the paper provides evidence that risk-
aversion and non-diversification create a difference between the 
issuer cost and the executive value of stock options. See also Lisa 
Meulbroek, The Efficiency of Equity-Linked Compensation: 
Understanding the Full Cost of Awarding Executive Stock Options, 30 
FIN. MGMT. 2 (2001). The study argues that undiversified managers 
will value stock or option-based compensation at less than its 
market value and derives a method to measure such deadweight costs, 
ultimately concluding that undiversified managers at rapidly 
growing, entrepreneurial-based firms heavily discount the value of 
these options.
    \135\ In economic theory, this is referred to as the reservation 
wage of the agent/employee. The expected value of the compensation 
offered must meet the minimum required compensation that the 
employee requires to participate in a specific job or task.
---------------------------------------------------------------------------

    In addition, the motives of workers that choose to engage in 
platform work differs from those of workers that engage in traditional 
forms of employment. As discussed above, surveys of the online platform 
economy show that the majority of online platform workers (1) earn 
secondary income from such work and (2) tend to participate selectively 
in such work during times when their demand for immediate income is 
high. As such, it may be reasonable to assume that the majority of 
online platform workers place particular value on the ability to 
generate immediate income from platform-based work. Therefore, the 
transfer prohibitions in the proposed amendments \136\ may limit the 
benefit of the amendments in terms of platform worker attraction and 
retention, and platform worker incentive alignment.\137\
---------------------------------------------------------------------------

    \136\ Specifically, the proposed amendments to Rule 701 require 
the issuer to take reasonable steps to prohibit the transfer of 
securities issued to platform workers pursuant to the exemption, 
other than a transfer to the issuer or by operation of law.
    \137\ Transfer restrictions reduce the liquidity of equity-based 
compensation, leading recipients of such compensation to discount 
the value of the equity-based pay they are offered. Companies thus 
may need to provide additional pay to compensate online platform 
workers for the possible lack of liquidity in their compensation 
arrangements.
---------------------------------------------------------------------------

    Platform workers may benefit from the proposed amendments, 
depending on how affected issuers structure compensation contracts 
under the proposed amendment. For example, the proposed amendments 
would provide an opportunity for platform workers to own equity in the 
platform provider, possibly at an earlier stage of development. If the 
platform provider's value increases in the future, platform workers 
holding its securities would experience an increase in their wealth.
    Under the proposed amendments, issuers that issue securities to 
platform workers would be required to furnish certain information to 
the Commission on a periodic basis.\138\ We believe that this 
information would provide insight into how affected companies are using 
these compensatory securities. We also believe it could help inform our 
assessment of the potential benefits of broadening the scope of work 
relationships for which issuers may issue securities as 
compensation.\139\ If, however, not all of the issuers furnish the 
required information, the collected information would be incomplete and 
could be biased, which could weaken the magnitude of this benefit.
---------------------------------------------------------------------------

    \138\ 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. See supra 
Section II.F.
    \139\ Relatedly, while it is too early to assess the long-term 
effects of the COVID-19 pandemic on the gig economy, we intend to 
monitor developments in this area.
---------------------------------------------------------------------------

    The proposed amendments to Rule 12g5-1 would extend the exclusion 
from the definition of securities ``held of record,'' and the 
corresponding safe harbor, to securities held by platform workers who 
received them under the proposed amendment to Rule 701. This would 
allow non-reporting issuers that issue compensatory securities to 
platform workers to control how and when they become subject to 
reporting requirements. The proposed amendment to Rule 12g5-1 could be 
particularly beneficial for cash-constrained issuers, which would be 
able to issue compensatory securities to their platform workers without 
being subject to the compliance costs associated with the Exchange Act 
reporting requirements. The proposed amendment to Rule 12g5-1 would not 
be temporary. We expect that issuers will benefit from the non-
temporary nature of this proposed amendment because it will allow them 
to weigh the costs and benefits of using the exemption without it 
causing them to become subject to Exchange Act reporting requirements 
and the associated compliance costs, if the exemption is not extended.
    The proposed amendments would ensure that estates of deceased 
employees and representatives of incompetent former employees would 
receive securities underlying options, warrants, or rights issued to a 
former employee pursuant to Rule 701. Given that such options, 
warrants, or rights typically include a vesting period, the proposed 
amendment would benefit issuers and platform workers as it would 
provide certainty to platform workers that securities related to 
options, warrants, or rights would be received by executors, 
administrators, or beneficiaries in the future. We expect the proposed 
amendment to strengthen the anticipated benefits described above.

[[Page 79954]]

2. Expected Economic Costs
    To the extent that the proposed amendments result in an expanded 
use of Rule 701 and Form S-8 to issue compensatory securities, there 
would be a corresponding increase in the overall burden estimates 
associated with these provisions for purposes of the Paperwork 
Reduction Act. We discuss these increased burden estimates in Section 
V.C below.
    Under the proposed amendments, any issuer that grants compensatory 
securities to platform workers would be required to furnish certain 
information to the Commission at six-month intervals. Furnishing this 
required information would impose certain costs on affected issuers to 
compile and submit the specified information. As discussed in Section 
V.C below, for purposes of the Paperwork Reduction Act, we estimate 
that this aspect of the proposed amendments would result in an 
additional 1.5 burden hours per semi-annual response for non-reporting 
issuers and 1 additional burden hour per semi-annual response for 
registrants.
    Affected issuers may incur costs in establishing and administering 
a compensation program for platform workers. We expect such costs 
(including but not limited to accounting and legal costs, and costs 
related to preparing and filing a registration statement, if 
applicable) to vary based on facts and circumstances. If an affected 
issuer already has an established compensation plan for employees, then 
the incremental cost to administer a similar program for, or amend the 
plan to include, platform workers is likely to be relatively low. Such 
costs are likely to be relatively higher for issuers that do not have 
an existing employee compensation plan in place.\140\ Similarly, the 
incremental costs incurred by registrants that already register offers 
and sales of securities on Form S-8 under their employee compensation 
plans would be lower than those for registrants registering securities 
on Form S-8 for the first time. We are not able to quantify these 
potential costs due to lack of data.
---------------------------------------------------------------------------

    \140\ We expect that platform providers would incur legal costs 
to create the equity-based compensation contract. We do not expect 
plan administration costs to be material, however, as it is our 
understanding that most plans are not tax-qualified plans and 
therefore are not required to adhere to ERISA requirements, which 
can be costly.
---------------------------------------------------------------------------

    Affected workers could incur costs that could vary based on how 
issuers structure compensation packages and to the extent awards under 
compensation plans are substituted for cash or other compensation. As 
discussed above, any illiquidity and valuation risks associated with 
these securities could lower their value to the holder. If affected 
companies offer securities in lieu of cash compensation, the overall 
value of the compensation to the platform worker may decline. We expect 
such potential costs to be mitigated by the limit on the amount of 
compensatory securities that may be offered by affected issuers, as 
well as by competition for platform workers in labor markets.

D. Effects on Efficiency, Competition, and Capital Formation

    The proposed amendments are expected to increase the 
competitiveness of affected issuers in their efforts to attract and 
retain workers, to the extent that the affected issuers compete with 
one another and with traditional issuers for the same workers. As 
discussed above, however, the extent of any increase in their 
competitiveness would depend on how affected issuers use the increased 
flexibility offered by the proposed amendments in designing 
compensation arrangements for online platform workers.
    To the extent that the proposed amendments enable affected issuers 
to improve the quality and the incentive alignment of their workforce, 
it could improve these issuers' overall operational efficiency and thus 
enhance their ability to attract capital. Similarly, the additional 
flexibility to issue securities as compensation for platform workers 
may free up resources, particularly for capital-constrained issuers, 
permitting these issuers to reallocate resources to other productive 
uses.

E. Reasonable Alternatives

    The amendments are proposed primarily on a five-year temporary 
basis. We could have proposed all of the amendments on a permanent 
basis. A permanent rule would provide more certainty to issuers and 
might encourage additional use of the proposed amendments, particularly 
if the initial set-up costs for such compensation programs are high. As 
noted above, however, there are uncertainties surrounding the nature of 
these companies' business models, and the gig economy continues to 
evolve. Moreover, data shows that platform workers, on average, may 
have different motivations than traditional employees for undertaking 
work. Specifically, as discussed above, platform workers appear to be 
driven mainly by an effort to supplement basic sources of income when 
additional income is needed. As such, platform workers are likely to 
differ from traditional employees in their time horizon for such work. 
Due to these uncertainties, it is challenging to predict how issuers 
affected by the rule would use securities for compensatory purposes and 
how platform workers receiving such compensation would perceive its 
value.
    Adopting the amendments on a temporary basis would allow the 
Commission to assess their effectiveness and make any necessary 
adjustments before implementing a permanent rule. Specifically, the 
information furnished by issuers that choose to rely on the proposed 
amendments would serve to inform the Commission on any potential future 
adjustments. For example, information collected would inform the 
Commission on the extent to which gig economy companies issue 
compensatory securities and how they structure such compensation across 
the various online platforms based on their facts and circumstances. 
Such information could be used to assess whether and how the proposed 
amendments should be extended or made permanent.
    The proposed amendments' scope is limited to a part of the gig 
economy. We could have proposed amendments that apply to all gig 
economy issuers and corresponding workers. Such an alternative would 
have allowed additional gig economy companies, for example online 
platforms that facilitate the sale of goods, to compensate their 
platform workers with securities. Under such alternative, a broader set 
of gig economy companies would be able to issue securities as 
compensation to platform workers, with the expected benefits as 
described above for gig economy companies with platform workers who 
provide services. The different nature of platform workers as compared 
to traditional employees introduces some uncertainty as to the effects 
of the proposed amendments, as discussed above. Thus, proposing the 
amendments with an expanded scope would likely carry increased 
uncertainty as to the amendments' economic impact.
    Further, we could have proposed different limits, including no 
limits, on the amount of compensatory securities that may be offered to 
individual platform workers. The proposed rule would limit equity-based 
compensation to 15 percent of the total compensation provided on a 12-
month basis and no more than $75,000 over a 36-month period. The 
proposed limits could have been higher or lower, or could apply to 
longer or shorter periods, allowing affected issuers to include 
different amounts of securities in compensation

[[Page 79955]]

arrangements. We are unable to evaluate with precision whether a higher 
or lower cap or a longer or shorter period would be preferable in 
comparison to the proposed amendments' requirements, due mostly to the 
lack of data and also due to uncertainty as to how affected issuers may 
use the new form of compensation available to them. In general, 
allowing for greater amounts of equity-based compensation would provide 
companies with additional flexibility to structure compensation 
arrangements that might provide stronger incentives, a potentially 
increased ability to compete for talent, and more flexibility in terms 
of internal capital-allocation options. Going further, we could have 
proposed no individual limit on the amount of compensatory securities 
that may be offered to individual platform workers. However, as 
discussed above, due in part to the nature of equity-based compensation 
and in part due to the characteristics of platform workers, equity-
based compensation may be a more costly way to compensate and provide 
incentives. Accordingly, it is unclear to what extent issuers would 
take advantage of the ability to issue greater amounts of securities-
based compensation. Limiting issuers to lower amounts of securities-
based compensation, on the other hand, may not provide adequate 
flexibility to affected issuers to incorporate equity-based 
compensation into compensation arrangements, thus limiting the 
potential benefits of the proposed amendments.
    The proposed changes to Rule 701 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, while the proposed changes to Form 
S-8 would not include such a requirement. As discussed above, the 
transferability restriction is likely to affect the perceived value of 
compensatory securities offered pursuant to revised Rule 701 and as a 
consequence weaken the magnitude of expected benefits from the proposed 
amendments to Rule 701. We could have proposed an extended holding 
period in lieu of an outright restriction on transfer, or eliminate the 
transfer restrictions altogether. Eliminating the transfer restriction 
would provide issuers issuing shares pursuant to Rule 701 and 
registrants registering the issuance of shares on Form S-8 with the 
same expected benefits in terms of their ability to attract and retain 
platform workers. Introducing a defined holding period would provide 
some certainty as to when these securities become transferable and 
potentially increase their value for platform workers. However, doing 
so could increase the risk of an informal market developing for such 
securities, which given the opaque information environment of non-
reporting issuers, could lead to adverse consequences for platform 
workers and other investors.
    Securities offered to platform workers under the proposed amendment 
to Rule 701 would be aggregated with securities offered to employees 
under the current Rule 701 exemption in order to determine whether the 
issuer is required to deliver certain disclosure under Rule 701(e), and 
whether the overall cap on compensatory securities offerings has been 
met under Rule 701(d). Alternatively, we could have proposed a separate 
cap for compensatory securities offered to platform workers. Such 
alternative would increase the amount of securities that could be 
issued to platform workers for issuers with a mix of traditional 
employees and platform workers, leading to potentially greater benefits 
for these issuers. However, it is possible that such an alternative 
could adversely affect issuers that employ traditional workers as 
compared to issuers that employ both traditional and platform workers.
    The proposed amendments to Rule 12g5-1 would extend the exclusion 
from the definition of securities ``held of record,'' and corresponding 
safe harbor, to securities held by platform workers who receive them 
pursuant to a compensation plan under the proposed amendments to Rule 
701. Absent such proposed amendments, platform workers holding 
compensatory securities of non-reporting issuers would be considered 
holders of record. We believe that this would weaken the expected 
economic benefits from the proposed amendments to Rule 701. Under such 
an alternative, gig economy issuers may be disinclined to issue 
compensatory securities to their platform workers to avoid being 
subject to Exchange Act reporting requirements and the associated 
compliance costs. The proposed amendments to Rule 12g5-1 are not 
temporary. We could have proposed these amendments on a five-year 
temporary basis. Such alternative would result in platform workers 
holding compensatory securities becoming holders of record at the end 
of the five-year period if the exemption were not extended. We believe 
that under such alternative, gig economy issuers would be disinclined 
to issue compensatory securities to their platform workers to avoid 
being subject to Exchange Act reporting requirements and the associated 
compliance costs, at the expiration of the five-year period.
Request for Comment
    We request comment on all aspects of our economic analysis, 
including the potential costs and benefits of the proposed amendments 
and alternatives thereto, and whether the proposed amendments, if 
adopted, would promote efficiency, competition, and capital formation 
or have an impact or burden on competition. Commenters are requested to 
provide empirical data, estimation methodologies, and other factual 
support for their views, in particular, on costs and benefits 
estimates.
    In particular, we seek comment with respect to the following 
questions: Are there any costs and benefits that are not identified or 
are misidentified in the above analysis? Are there any effects on 
efficiency, competition, and capital formation that are not identified 
or are misidentified in the above analysis? Should we consider any of 
the alternative approaches outlined above instead of the proposed 
rules? Which approach and why? Are there any other alternative 
approaches that we should consider? If so, what are they and what would 
be the associated costs or benefits of these alternative approaches?

V. Paperwork Reduction Act

A. Summary of the Collection of Information

    Certain provisions of our rules and forms that would be affected by 
the proposed amendments contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\141\ The Commission is submitting the proposal to the Office 
of Management and Budget (``OMB'') for review in accordance with the 
PRA.\142\ The hours and costs associated with preparing and filing the 
forms and reports constitute reporting and cost burdens imposed by each 
collection of information. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
requirement unless it displays a currently valid OMB control number. 
Compliance with the information collections is mandatory. Responses to 
the information collections are not kept confidential and there is no 
mandatory retention period for the

[[Page 79956]]

information disclosed. The titles for the affected collections of 
information are:
---------------------------------------------------------------------------

    \141\ See 44 U.S.C. 3501 et seq.
    \142\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

     ``Form S-8'' (OMB Control No. 3235-0066); and
     ``Rule 701'' (OMB Control No. 3235-0522).
    We adopted Form S-8 and Rule 701 pursuant to the Securities Act. 
Form S-8 sets forth the disclosure requirements for a registration 
statement for securities to be offered by a registrant under an 
employee benefit plan to its employees, or employees of a subsidiary or 
parent company, to help such investors make informed investment 
decisions. Rule 701 provides an exemption from registration for offers 
and sales of securities pursuant to certain compensatory benefit plans 
and contracts relating to compensation. Issuers conducting compensatory 
benefit plan offerings in excess of $10 million in reliance on Rule 701 
during any consecutive 12-month period are required to provide plan 
participants with certain disclosures, including financial statement 
disclosures.\143\ This disclosure constitutes a collection of 
information. A description of the proposed rule amendments, including 
the need for the information and its proposed use, as well as a 
description of the likely respondents, can be found in Section II 
above, and a discussion of the economic effects of the proposed 
amendments can be found in Section IV above.
---------------------------------------------------------------------------

    \143\ See 17 CFR 230.701(e).
---------------------------------------------------------------------------

B. Summary of the Proposed Amendments' Effects on the Collections of 
Information

    The following table summarizes the estimated effects of the 
proposed amendments on the paperwork burdens associated with the 
affected collections of information.

                   PRA Table 1--Estimated Paperwork Burden Effects of the Proposed Amendments
----------------------------------------------------------------------------------------------------------------
                                                                                             Estimated  increase
    Collection of                               Expected estimated     Current  number of       in  number of
     information         Proposed amendment       PRA effect of          average annual        average annual
                                                proposed amendment         responses           respondents \1\
----------------------------------------------------------------------------------------------------------------
Form S-8.............   Would          Expected to    2,140.......   17
                        temporarily expand     increase the average
                        the scope of Form S-   annual number of
                        8 to include           Form S-8s filed
                        issuances to a         during the temporary
                        registrant's           4-year period.
                        platform workers in
                        addition to its
                        employees.
                        Issuers        Expected to    0...........   17
                        would be required to   increase PRA burden
                        furnish certain        by 2 hours per
                        information every      affected respondent
                        six months.            annually (i.e., 1
                                               hour for each semi-
                                               annual response).
Rule 701.............   Would          Expected to    800.........   6
                        temporarily expand     increase average
                        the scope of Rule      annual number of
                        701 to exempt          issuers required to
                        issuances to an        provide Rule 701(e)
                        issuer's platform      disclosure because
                        workers in addition    offers and sales to
                        to its employees.      platform workers
                                               would be integrated
                                               with offers and
                                               sales to employees
                                               for purpose of
                                               determining whether
                                               an issuer has
                                               exceeded the $10
                                               million threshold
                                               under Rule 701(e).
                        Issuers        Expected to    0...........   105
                        would be required to   increase PRA burden
                        furnish certain        by 3 hours per
                        information every      affected respondent
                        six months.            annually (i.e., 1.5
                                               hours for each semi-
                                               annual response) \2\.
----------------------------------------------------------------------------------------------------------------
\1\ These estimates are based on the Farrell study, which identified 106 companies making payments to online
  platform workers providing services during 2012-2018. See supra Section IV.A, note 119 and accompanying text.
  The staff updated this study's findings using an assumed growth rate of 15 percent for such companies in 2019,
  which yielded an estimate of 122 companies making payments to platform workers as of calendar year-end 2019.
  Upon a review of Commission filings, the staff estimated that 17 of those companies are public, and 105
  private. The staff further estimated that 5 percent of those private companies (six companies) would likely
  exceed the $10,000,000 threshold for aggregate annual securities offerings to its employees and platform
  workers and would be required to provide the disclosure pursuant to Rule 701(e). In making this estimate, the
  staff relied on the PRA estimates in Release No. 33-10520, which increased the Rule 701(e) disclosure
  threshold from $5,000,000 to $10,000,000.
\2\ We estimate a greater increase in the PRA burden for Rule 701(h)'s furnished disclosure provision because it
  would solicit more information compared to the similar proposed provision for Form S-8.

C. Incremental and Aggregate Burden and Cost Estimates for the Proposed 
Amendments

    Below we estimate the incremental and aggregate increase in 
paperwork burden as a result of the proposed amendments. These 
estimates represent the average burden for all issuers, both large and 
small. In deriving our estimates, we recognize that the burdens will 
likely vary among individual issuers based on a number of factors, 
including the nature of their business. For purposes of the PRA, the 
burden is to be allocated between internal burden hours and outside 
professional costs. The table below sets forth the percentage estimates 
we typically use for the burden allocation for each affected collection 
of information. We also estimate that the average cost of retaining 
outside professionals is $400 per hour.\144\
---------------------------------------------------------------------------

    \144\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis, we estimate that 
such costs would be an average of $400 per hour. This estimate is 
based on consultations with several registrants, law firms, and 
other persons who regularly assist registrants in preparing and 
filing reports with the Commission.

[[Page 79957]]



     PRA Table 2--Standard Estimated Burden Allocation for Specified
                       Collections of Information
------------------------------------------------------------------------
                                                             Outside
      Collection of information         Internal (%)      professionals
                                                               (%)
------------------------------------------------------------------------
Form S-8............................                50                50
Rule 701............................                25                75
------------------------------------------------------------------------

    We estimate that the proposed amendments would change both the 
frequency of responses to, and the burden per response of, the existing 
collections of information. The burden increase estimates were 
calculated by multiplying the estimated increased number of responses 
by the increased estimated average amount of time it would take to 
prepare and review the disclosure required under the affected 
collection of information. The table below illustrates the incremental 
change to the annual compliance burden of the affected collection of 
information, in hours and in costs.

           PRA Table 3--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Proposed Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Burden hour                     Increase in     Increase in     Increase in
                                                             Number of        annual        Increase in      internal      professional    professional
               Collection of  information                    estimated     increase per    burden hours    burden hours      hours for      costs  for
                                                             affected        affected      for affected    for affected      affected        affected
                                                            respondents     respondent      respondents     respondents     respondents     respondents
                                                                     (A)             (B)     (C) = (A) x     (D) = (C) x     (E) = (C) x     (F) = (E) x
                                                                                                     (B)     0.5 or 0.25     0.5 or 0.75            $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
S-8 (including furnished disclosure)....................              17          \1\ 29             493           246.5           246.5         $98,600
Rule 701(e) + Rule 701(h) furnished disclosure..........               6           \2\ 5              30             7.5            22.5           9,000
Rule 701 (only furnished disclosure)....................              99               3             297           74.25          222.75          89,100
                                                         -----------------------------------------------------------------------------------------------
    Rule 701 (total)....................................             105  ..............             327           81.75          245.25          98,100
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Based on the current OMB inventory of 27 annual burden hours per response + 1 burden hour for each semi-annual required furnished disclosure (2
  additional annual burden hours) = an increase of 29 burden hours per response.
\2\ Based on the current OMB inventory of 2 annual burden hours per response + 1.5 burden hours for each semi- annual required furnished disclosure (3
  additional annual burden hours) = an increase of 5 burden hours per response.

    The table below illustrates the program change expected to result 
from the proposed rule amendments together with the total requested 
change in reporting burden and costs.

                                                              PRA Table 4--Requested Paperwork Burden Under the Proposed Amendments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Current burden                                  Program change                            Requested change in burden
                                                 -----------------------------------------------------------------------------------------------------------------------------------------------
            Collection of information                                                                Number of                       Change in       Requested       Requested
                                                  Current annual  Current burden   Current cost      affected       Change  in     professional       annual       burden  hours    Cost burden
                                                     responses         Hours          burden         responses     issuer  hours       costs         responses          \1\
                                                             (A)             (B)             (C)             (D)             (E)             (F)             (G)     (H) = (B) +     (I) = (C) +
                                                                                                                                                                             (E)             (F)
                                                 -----------------------------------------------------------------------------------------------------------------------------------------------
S-8.............................................           2,140          28,890     $11,556,000              17           246.5         $98,600           2,157          29,137     $11,654,600
Rule 701........................................             800             400        $480,000             105           81.75         $98,100             905         \2\ 482        $578,100
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Rounded to nearest whole number.
\2\ Thus, the estimated change in internal burden would result in an annual internal burden per response of 2.13 hours, which is a slight increase in the current annual internal burden of 2
  hours. 482/.25 = 1,928; 1,928/905 = 2.13.

D. Request for Comment

    We request comment in order to:
     Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information would have practical utility;
     Evaluate the accuracy of our estimate of the burden of the 
proposed collection of information;
     Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of 
the collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology; and
     Evaluate whether the proposed amendments would have any 
effects on any other collections of information not previously 
identified in this section.\145\
---------------------------------------------------------------------------

    \145\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments about the 
accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons submitting comments on the collection of 
information requirements should direct the comments to the Office of 
Management and Budget,

[[Page 79958]]

Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
should send a copy to Vanessa A. Countryman, Secretary, Securities and 
Exchange Commission, 100 F Street NE, Washington, DC 20549-1090, with 
reference to File No. S7-19-20. Requests for materials submitted to OMB 
by the Commission with regard to these collections of information 
should be in writing, refer to File No. S7-19-20, and be submitted to 
the Securities and Exchange Commission, Office of FOIA Services, 100 F 
Street NE, Washington, DC 20549-2736. OMB is required to make a 
decision concerning the collection of information between 30 and 60 
days after publication of this release. Consequently, a comment to OMB 
is best assured of having its full effect if OMB receives it within 30 
days of publication.

VI. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Act Analysis (``IRFA'') has 
been prepared, and made available for public comment, in accordance 
with the Regulatory Flexibility Act (``RFA'').\146\ It relates to the 
proposed amendments to Securities Act Rule 701 and Form S-8 to permit 
the offer and sale of securities to internet platform workers, subject 
to specified conditions, for a temporary, five-year period. The 
Commission also is proposing to amend Exchange Act Rule 12g5-1 to 
exclude from the definition of ``held of record'' securities held by 
platform workers who received them pursuant to a compensation plan 
under proposed Rule 701(h) and to provide a safe harbor for issuers in 
connection with such exclusion. Neither the proposed exclusion nor the 
corresponding safe harbor would be temporary. As required by the RFA, 
this IRFA describes the impact of these proposed amendments on small 
entities.\147\
---------------------------------------------------------------------------

    \146\ 5 U.S.C. 601 et seq.
    \147\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

    The proposed amendments would expand the scope of Rule 701 and Form 
S-8 to address recent changes in the workforce caused by the rise of 
the ``gig economy'' by permitting the issuance of securities to an 
issuer's platform workers, in addition to its employees, for 
compensatory purposes. The proposed amendments would include conditions 
designed to limit the possibility of the changes to Rule 701 and Form 
S-8 resulting in offers and sales for capital-raising purposes. The 
proposed amendments to Rule 701 and Form S-8 would be temporary to 
enable the Commission to assess whether issuances of securities to 
platform workers are being made for legitimate compensatory purposes, 
and not for capital-raising purposes, and whether such issuances have 
the expected beneficial effects for issuers in the ``gig economy'' and 
their investors.
    The proposed amendments to Exchange Act Rule 12g5-1 would extend 
the exclusion from the definition of ``held of record'' and safe 
harbor, for purposes of Section 12(g), which currently applies to 
securities held by persons who received them pursuant to an employee 
compensation plan, to securities held by platform workers pursuant to a 
compensation plan under proposed Rule 701(h). The proposed amendments 
to Rule 12g5-1, which would not be temporary, are intended to remove a 
potential disincentive to the issuance of securities as compensation to 
platform workers and to avoid favoring issuers that do not have 
platform workers over issuers that have them. The reasons for, and 
objectives of, all of the proposed amendments are discussed in more 
detail in Sections II.A. through II.F., above.

B. Legal Basis

    We are proposing the amendments contained in this release under the 
authority set forth in Sections 7, 10, and 19(a) of the Securities Act, 
as amended, and Sections 3(b), 12, 13, 15, 23(a), and 36 of the 
Exchange Act, as amended.

C. Small Entities Subject to the Proposed Rules

    The proposed changes would affect some issuers that are small 
entities. The RFA defines ``small entity'' to mean ``small business,'' 
``small organization,'' or ``small governmental jurisdiction.'' \148\ 
For purposes of the RFA, under 17 CFR 240.0-10(a), an issuer, other 
than an investment company, is a ``small business'' or ``small 
organization'' if it had total assets of $5 million or less on the last 
day of its most recent fiscal year and, under 17 CFR 230.157, is also 
engaged or proposing to engage in an offering of securities that does 
not exceed $5 million.
---------------------------------------------------------------------------

    \148\ 5 U.S.C. 601(6).
---------------------------------------------------------------------------

    The proposed amendments would apply only to issuers whose platform 
workers provide services; they would not apply to issuers whose 
platform workers are providing goods. We estimate that there are only a 
limited number of companies with platforms providing services that 
would be affected by the proposed rules.\149\ Although it is possible 
that the proposed amendment to Form S-8 could cause a small entity to 
file a Form S-8 for the issuance of securities to its platform workers, 
based upon staff review of Commission filings during 2018-2019, and due 
to the resulting burden and expense, we do not believe that this 
outcome is likely.\150\ There is, however, a lack of information 
concerning the assets of potentially affected private companies, and as 
such, it is difficult to estimate with certainty the number of private 
issuers that qualify as small entities that would be eligible to rely 
on the proposed amendments to Rule 701 and Rule 12g5-1 or that would 
choose to become public companies and then rely on the proposed 
amendments to Form S-8. We therefore are soliciting comment on the 
number of small entities that would be affected by the proposed 
amendments.
---------------------------------------------------------------------------

    \149\ Based upon a review of Commission filings and other 
relevant data, the staff estimated that the proposed rules would 
affect 122 companies, 17 of which are public and 105 of which are 
private. See supra Section V.B.
    \150\ None of the 17 Forms S-8 filed by issuers with service-
providing platforms were small entities.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    As noted above, the purpose of the proposed amendments is to permit 
the issuance of securities for compensatory purposes under Rule 701 and 
Form S-8 to a new category of worker, the ``platform worker.'' By 
expanding the scope of Rule 701 to include issuances of unregistered 
securities to a non-reporting issuer's platform workers, the proposed 
amendments likely would result in cost savings for such an issuer, 
which would otherwise have to incur the costs of registering the 
securities, absent another exemption from registration, and thereby 
become an Exchange Act reporting issuer. In addition, by extending the 
current exclusion and safe harbor under Exchange Act Rule 12g5-1 to 
securities held by platform workers who received them pursuant to a 
compensation plan under the proposed Rule 701 amendment, a non-
reporting issuer would benefit by not being required to count those 
platform workers as record holders for the purpose of determining its 
Section 12(g) registration obligations.
    We believe that the proposed amendments to Rule 701 and Rule 12g5-1 
could be of particular benefit to small entities, which may be 
financially constrained, by enabling them to issue securities as 
compensation, instead of

[[Page 79959]]

cash, within the proposed limits. This could help small entities 
attract potential workers and enhance their competitive position.
    In contrast, we do not believe that the compliance costs of the 
proposed Rule 701 amendment would be significant. The most significant 
compliance burden under current Rule 701 is the financial disclosure 
requirement under Rule 701(e) for issuers that exceed the $10 million 
threshold during a 12-month period. Due to the $10 million threshold, 
this requirement would not apply to small entities.\151\ Moreover, 
although under the proposed rules, an issuer offering securities to its 
platform workers pursuant to the amended Rule 701 would be required to 
furnish certain information every six months, we do not expect the 
resulting compliance burden to be significant.\152\
---------------------------------------------------------------------------

    \151\ See 17 CFR 230.701(d), which limits the aggregate sales 
price or amount of securities sold under Rule 701 during any 
consecutive 12-month period to the greatest of $1,000,000, 15 
percent of the total assets of the issuer, or 15 percent of the 
outstanding amount of the class of securities being offered and sold 
in reliance on Rule 701. The purpose of the Rule 701(d) caps is to 
help curb non-compensatory sales in reliance on the rule. For 
example, applying the asset cap, a small entity would only be able 
to offer 15 percent of $5,000,000, or $750,000 during a consecutive 
12-month period. Although in a companion rulemaking, the Commission 
is proposing to increase the asset limitation to 25 percent, under 
this increased limit, if adopted, a small entity would still be able 
to offer only 25 percent of $5,000,000, or $1,250,000. While the 
Commission is also proposing to raise the dollar cap, the new cap 
would only increase to $2,000,000. See Release No. 33-10891 at 
Section II.B.
    \152\ We estimate that the compliance burden associated with 
furnishing the required information under the proposed Rule 701 
amendment would be 1.5 hours for each semi-annual disclosure per 
issuer, or a total of 3 hours per issuer on an annual basis. See 
supra Section V.B.
---------------------------------------------------------------------------

    The proposed amendment to Form S-8 would benefit public companies 
with platforms offering services by permitting them to issue registered 
securities to their platform workers in addition to their employees, 
which could enhance their competitive position vis-[agrave]-vis 
companies that only have employees. The proposed amendments likely 
would result in the filing of additional Form S-8 registration 
statements to cover offers and sales to such workers. Those registrants 
would incur the compliance burden and costs typically associated with 
preparing and filing Form S-8. In addition, because we are proposing a 
requirement to furnish information every six months for Form S-8 
issuers, similar to the proposal for Rule 701 issuers, those 
registrants would incur the compliance burden and costs associated with 
furnishing the required information, which we similarly estimate would 
not be significant.\153\ Although it is possible that the proposed 
amendment to Form S-8 could cause a small entity to file a Form S-8 for 
the issuance of securities to its platform workers, based upon staff 
review of Commission filings during 2018-2019, and due to the resulting 
burden and expense, we do not believe that this outcome is likely.\154\ 
Nevertheless, we are soliciting comment on the costs and benefits of 
the proposed amendments for small entities.
---------------------------------------------------------------------------

    \153\ We estimate that the compliance burden associated with 
furnishing the required information under the proposed Form S-8 
amendment would be 1.0 hours for each semi-annual disclosure per 
issuer, or a total of 2 hours per issuer on an annual basis. See 
supra Section V.B.
    \154\ See supra note 150.
---------------------------------------------------------------------------

    Compliance with the proposed amendments would require the use of 
professional skills, including legal skills, both to help ensure that 
an issuer has met the proposed conditions under Rule 701 designed to 
prevent the issuance of securities for a capital-raising purpose, and 
to enable a registrant to meet the requirements of Form S-8. We discuss 
the economic impact, including the estimated compliance burdens and 
costs, of the proposed amendments to all issuers, including small 
entities, in greater detail in Sections IV and V above.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    We believe that the proposed amendments would not duplicate, 
overlap, or conflict with other Federal rules.

F. Significant Alternatives

    The RFA directs us to consider alternatives that would accomplish 
our stated objectives, while minimizing any significant economic impact 
on small entities. In connection with the proposed amendments, we 
considered the following alternatives:
     Establishing different compliance or reporting 
requirements that take into account the resources available to small 
entities;
     Clarifying, consolidating, or simplifying compliance and 
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the 
requirements.
    The proposed amendments to Rule 701 and Form S-8 would permit the 
issuance of securities to platform workers subject to specified 
conditions. Although an issuer, including a small entity, would incur 
some compliance costs to ensure that it has met those conditions, 
issuers proceeding under the proposed amendment to Rule 701 would 
largely benefit due to the savings derived from not having to register 
the securities. In addition, we expect the increase in Form S-8 
compliance costs to be limited because, although the proposed amendment 
to Form S-8 would likely result in more registration statements on that 
form being filed, we believe that the proposed amendment would only 
slightly increase the actual burden of preparing and filing each Form 
S-8. We also believe that it is unlikely that the proposed amendment 
would result in a small entity filing a Form S-8. We are not proposing 
an amendment to reduce the costs of preparing and filing a Form S-8 
because we believe the requirements that result in those costs are 
necessary to protect investors. We also are not proposing to exempt 
small entities from the costs associated with the proposed requirement 
to furnish information on a semi-annual basis because we believe that 
requirement is necessary to assess fully the impact of the temporary 
rules. Accordingly, we do not believe it is necessary to establish 
different compliance or reporting requirements for small entities or to 
exempt small entities from all or part of the proposed amendments.
    Finally, with respect to using performance rather than design 
standards, the proposed amendments generally contain elements similar 
to performance standards. For example, the proposed definition of 
platform worker would include the condition that the issuer operates 
the platform for the provision of services pursuant to a written 
contract or agreement between the issuer and the platform worker under 
which the issuer controls the use of the platform. Issuer control would 
be demonstrated by the issuer being able to establish the amount of the 
fees charged for using the platform and the terms and conditions by 
which the platform worker receives payment for the services provided 
through the platform. In addition, the issuer must have the authority 
to accept and remove the internet platform workers providing services 
through the platform. However, the proposed amendments would not 
require that a specific fee be charged or that a specific payment 
mechanism be utilized. The proposed amendments would also not limit 
what services an issuer could facilitate through its platform or how 
participating workers could provide the services.

[[Page 79960]]

Request for Comment
    We encourage the submission of comments with respect to any aspect 
of this IRFA. In particular, we request comments regarding:
     How the proposed rule and form amendments can achieve 
their objective while lowering the burden on small entities;
     The number of small entity companies that may be affected 
by the proposed rule and form amendments;
     The existence or nature of the potential effects of the 
proposed amendments on small entity companies discussed in the 
analysis;
     How to quantify the effects of the proposed amendments; 
and
     Whether there are any federal rules that duplicate, 
overlap, or conflict with the proposed amendments.
    Commenters are asked to describe the nature of any effect and 
provide empirical data supporting the extent of that effect. Comments 
will be considered in the preparation of the Final Regulatory 
Flexibility Analysis, if the proposed rules are adopted, and will be 
placed in the same public file as comments on the proposed rules 
themselves.

VII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\155\ the Commission must advise OMB as to 
whether the proposed amendments constitute a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results in 
or is likely to result in:
---------------------------------------------------------------------------

    \155\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

     An annual effect on the U.S. economy of $100 million or 
more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.
    We request comment on whether our proposal would be a ``major 
rule'' for purposes of SBREFA. In particular, we request comment and 
empirical data on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment, or 
innovation.

VIII. Statutory Authority

    The amendments contained in this release are being proposed under 
the authority set forth in Sections 7, 10, and 19(a) of the Securities 
Act, as amended, and Sections 3(b), 12, 13, 15, 23(a), and 36 of the 
Exchange Act.

List of Subjects in 17 CFR Parts 230, 239, and 240

    Reporting and recordkeeping requirements, Securities.

Text of the Proposed Amendments

    For the reasons set out in the preamble, the Commission is 
proposing to amend title 17, chapter II of the Code of Federal 
Regulations as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for part 230 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *
    Sections 230.400 to 230.499 issued under secs. 6, 8, 10, 19, 48 
Stat. 78, 79, 81, and 85, as amended (15 U.S.C. 77f, 77h, 77j, 77s).
* * * * *
0
2. Amend Sec.  230.428 by adding paragraph (d) to read as follows:


Sec.  230.428   Documents constituting a section 10(a) prospectus for 
Form S-8 registration statement; requirements relating to offerings of 
securities registered on Form S-8.

* * * * *
    (d)(1) Where securities are to be offered to platform workers 
pursuant to a registration statement on Form S-8 (Sec.  239.16b(c)), 
the documents and other information identified in paragraph (a) of this 
section shall, taken together, constitute a Section 10(a) prospectus 
for offerings to platform workers pursuant to a written compensation 
plan, contract, or agreement. The document retention requirements in 
paragraph (a)(2) of this section and the delivery, updating, and 
related procedural requirements in paragraph (b) of this section shall 
also apply to such offerings to platform workers.
    (2) This paragraph (d) will expire on the same date that 17 CFR 
239.16b(c) will expire pursuant to 17 CFR 239.16b(c)(4).
0
3. Amend Sec.  230.701 by adding Note 1 to paragraph (c) and adding 
paragraph (h) to read as follows:


Sec.  230.701   Exemption for offers and sales of securities pursuant 
to certain compensatory benefit plans and contracts relating to 
compensation.

* * * * *
    (c) * * *

    Note 1 to paragraph (c):  Refer to Sec.  230.701(h) for the 
exemption under Sec.  230.701 applicable to offers and sales of 
securities to platform workers. Platform worker is defined in Sec.  
230.701(h)(2).

* * * * *
    (h)(1) Transactions with platform workers. (i) In addition to the 
transactions exempted by paragraph (c) of this section, this section 
exempts offers and sales of securities (including plan interests and 
guarantees pursuant to paragraph (d)(2)(ii) of this section) under a 
written compensatory benefit plan (or written compensation contract) 
established by the issuer, its parents, its subsidiaries, or 
subsidiaries of the issuer's parent, for the participation of platform 
workers as defined in paragraph (h)(2) of this section. As used in this 
section, the term ``platform worker'' includes former platform workers, 
executors, administrators, or beneficiaries of the estates of deceased 
platform workers, guardians or members of a committee for incompetent 
former platform workers, or similar persons duly authorized by law to 
administer the estate or assets of former platform workers. This 
section exempts offers and sales to former platform workers only if 
such workers met the conditions of paragraph (h) of this section at the 
time the securities were offered or during a period of service ending 
within 12 months preceding the termination of service for which the 
securities were issued. This section also exempts offers and sales to 
former platform workers of an acquired entity of securities issued in 
substitution or exchange for securities issued to such workers by the 
acquired entity on a compensatory basis while such persons were 
providing services to the acquired entity.
    (ii) The exemption for offers and sales of securities to platform 
workers under this section is temporary and will expire pursuant to 
paragraph (h)(6) of this section, except that, following the expiration 
date specified in paragraph (h)(6) of this section, an issuer may 
continue to rely on the exemption in this paragraph (h) for the sale of 
securities underlying options, warrants, or rights previously issued in 
an exempt transaction pursuant to this paragraph (h).
    (2) Definition of platform worker. A platform worker is a natural 
person or an entity specified in paragraph (h)(2)(iii) of this section, 
who is unaffiliated with the issuer and meets the following conditions:
    (i) The worker provides bona fide services to the issuer (or the 
issuer's parents, the issuer's subsidiaries or subsidiaries of the 
issuer's parent) or to third-party end-users, and such services

[[Page 79961]]

benefit the issuer. Selling or transferring permanent ownership of 
discrete, tangible goods would not constitute services for purposes of 
this section;
    (ii) The services are provided pursuant to a written contract or 
agreement between the issuer and the worker and are provided through an 
internet-based platform or other widespread, technology-based 
marketplace platform or system that the issuer operates and controls, 
as demonstrated by the following:
    (A) The issuer provides access to the platform and establishes the 
principal terms of service for using the platform;
    (B) The issuer establishes the terms and conditions by which the 
platform worker receives payment for the services provided through the 
platform; and
    (C) The issuer can accept and remove the platform worker.
    (iii) A platform worker may be an entity if:
    (A) Substantially all of its activities involve the performance of 
bona fide services that meet the requirements of paragraphs (h)(2) and 
(h)(3) of this section; and
    (B) The ownership interest of the entity is wholly and directly 
held by the
    natural person performing the services pursuant to paragraph (h) of 
this section through the entity.
    (3) Additional requirements for issuances to platform workers. 
Offers and sales of securities to platform workers are eligible for an 
exemption under this section if the following, additional requirements 
are met:
    (i) The issuance 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;
    (ii) 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 the value of 
compensation received by the platform worker from the issuer during a 
consecutive 36-month period, shall consist of securities, with such 
value determined at the time the securities are granted;
    (iii) 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
    (iv) 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, 
except that 90 days after the issuer becomes subject to the reporting 
requirements of Section 13 or 15(d) of the Exchange Act (15 U.S.C. 78m 
or 78o(d)), securities issued under this section may be resold pursuant 
to paragraph (g)(3) of this section.
    (4) Requirement to furnish certain information. An issuer using the 
exemption under this section for the issuance of securities to platform 
workers is required to furnish the following information to the 
Commission at six-month intervals commencing six months after the first 
such issuance:
    (i) 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 
revisions to the criteria, are communicated to workers in advance as an 
incentive;
    (ii) The type and terms of securities issued to platform workers 
during each six-month interval, and whether they are the same as for 
other compensatory transactions by the issuer during that interval;
    (iii) The reasonable steps taken to prohibit the transfer of the 
securities sold pursuant to this paragraph (h);
    (iv) The percentage of overall outstanding securities that the 
amount issued cumulatively under this paragraph (h) represents;
    (v) During each six-month interval, the number of platform workers, 
the number of non-platform workers, the number of platform workers 
receiving securities pursuant to this paragraph (h), and the number of 
non-platform workers who received securities pursuant to Sec.  230.701; 
and
    (vi) The number and dollar amount of securities issued to platform 
workers in each six-month interval, both in absolute amounts and as a 
percentage of the issuer's total exempt sales under Sec.  230.701.
    Instruction to Sec.  230.701(h)(4). An issuer should furnish the 
required information specified in this paragraph in the manner 
designated by the Division of Corporation Finance for this purpose.
    (5) Request for confidential treatment. An issuer may request 
confidential treatment under Sec.  200.83 for information furnished 
pursuant to paragraph (h)(3) of this section. Written requests for 
confidential treatment under Sec.  200.83 relating to the furnished 
materials may be submitted either in paper format or electronically.
    (6) Expiration of temporary exemptive rule. Except as provided in 
paragraph (h)(1)(ii) of this section, the exemption for the issuance of 
securities to platform workers pursuant to this paragraph (h) applies 
only to offers or sales of securities occurring prior to five years 
following the date of the section's effectiveness.
    (7) This paragraph (h) will expire five years from the date of 
effectiveness of Sec.  230.701(h).

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
4. The general authority citation for part 239 continues to read as 
follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-
3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 
78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 
80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 
126 Stat. 312, unless otherwise noted.
* * * * *
0
5. Amend Sec.  239.16b by adding ``or other compensatory plans'' at the 
end of the title and adding paragraphs (a)(3) and (c) to read as 
follows:


Sec.  239.16b  Form S-8, for registration under the Securities Act of 
1933 of securities to be offered to employees pursuant to employee 
benefit plans or other compensatory plans.

    (a) * * *
    (3) Securities of the registrant to be offered to marketplace 
platform workers pursuant to Sec.  239.16b(c).
* * * * *
    (c) Issuances to platform workers. (1) A registrant may register on 
Form S-8 securities to be offered or sold to platform workers, as 
defined by Sec.  230.701(h), for the temporary period set forth in 
Sec.  239.16b(c)(4), only if:
    (i) The issuance 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 that directly or 
indirectly promote or maintain a market for the issuer's securities;
    (ii) 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 shall consist of securities, with such 
value determined at the time the securities are granted, with the 
remainder of compensation received by the platform worker from the 
issuer paid in cash, and no more than $75,000 of such compensation 
received from the issuer during a

[[Page 79962]]

consecutive 36-month period shall consist of securities, with such 
value determined at the time the securities are granted; and
    (iii) 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.
    (2) A registrant using Form S-8 for the issuance of securities to 
platform workers is required to furnish the following information in 
the manner designated by the Division of Corporation Finance for this 
purpose at six-month intervals commencing six months after the first 
such issuance:
    (i) The criteria used to determine eligibility for securities 
awards to platform workers, whether they are the same as the criteria 
for other compensatory transactions, and whether those criteria, 
including revisions to the criteria, are communicated to workers in 
advance as an incentive;
    (ii) The type and terms of securities issued to platform workers 
during each six-month interval and whether they are the same as for 
other compensatory transactions by the registrant during that interval;
    (iii) The percentage of overall outstanding securities that the 
amount issued cumulatively to platform workers under this section 
represents;
    (iv) During each six-month interval, the number of platform 
workers, the number of non-platform workers, the number of platform 
workers receiving securities registered on Form S-8, and the number of 
non-platform workers who received securities registered on Form S-8;
    (v) The number of platform workers, in an absolute amount and as a 
percentage of the total number of platform workers, employees, and 
other persons eligible to receive securities on Form S-8; and
    (vi) The number and dollar amount of securities issued to platform 
workers, both in absolute amounts and as a percentage of the issuer's 
total sales on Form S-8 during each six-month interval.
    (3) A registrant may request confidential treatment under Sec.  
200.83 for information furnished pursuant to this section. Written 
requests for confidential treatment under Sec.  200.83 relating to the 
furnished materials may be submitted either in paper format or 
electronically.
    (4) This paragraph (c) applies only to offers or issuances of 
securities occurring prior to five years from the date of the section's 
effectiveness.
    (5) This paragraph (c) will expire five years from the date of 
effectiveness of Sec.  239.16b(c).
0
6. Amend Form S-8 (referenced in Sec.  239.16b) by:
0
a. Redesignating paragraph (b) of General Instruction A.1. as paragraph 
(c);
0
b. Adding paragraph (b) of General Instruction A.1.;
0
c. Revising paragraph 1 of General Instruction G. (``Updating'');
0
d. Revising the Note immediately following the heading ``Part I--
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS;''
0
e. Revising Item 2 of Part I; and
0
f. Revising the ``Signatures'' section for ``the Plan'' by replacing 
the parenthetical ``or other persons who administer the employee 
benefit plan'' with ``or other persons who administer the plan'' in the 
first sentence.
    The additions and revisions read as follows:

    Note: The text of Form S-8 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

United States Securities and Exchange Commission Washington, DC 20549

Form S-8 Registration Statement Under the Securities Act of 1933

* * * * *

General Instructions

A. Rule as to Use of Form S-8

    1. * * *
    (a) * * *
    (b)(1) Securities of the registrant to be offered to platform 
workers pursuant to a written compensation plan, contract, or 
agreement. The term ``platform worker'' is defined by Rule 701(h)(2) 
(Sec.  230.701(h)(2)). As used in this form, the term ``plan'' includes 
a written compensation plan, contract, or agreement for the issuance of 
securities to platform workers.
    (2) Form S-8 is available for the issuance of securities to 
platform workers only if, pursuant to Sec.  239.16b(c):
    (i) The issuance 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;
    (ii) 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 shall consist of securities, with such 
value determined at the time the securities are granted, with the 
remainder of compensation received by the platform worker from the 
issuer paid in cash, and no more than $75,000 of such compensation 
received from the issuer during a consecutive 36-month period shall 
consist of securities, with such value determined at the time the 
securities are granted;
    (iii) 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
    (iv) The offers or sales of securities occur prior to five years 
from the date of the effectiveness of Sec.  239.16b(c)]. On that date, 
Sec.  239.16b(c) will expire and will no longer be effective.
    Note: The purpose of Sec.  239.16b(c) is to permit the issuance of 
securities to platform workers for a compensatory purpose. This section 
is not available for plans or schemes to circumvent this purpose, such 
as to raise capital. This section also is not available to any 
transaction that is in technical compliance with Sec.  239.16b(c) but 
is part of a plan or scheme to evade the compensatory purpose of this 
section.
    (3) A registrant using Form S-8 for the issuance of securities to 
platform workers is required to furnish the information specified in 
Sec.  239.16b(c)(3) in the manner designated by the Division of 
Corporation Finance for this purpose at six-month intervals commencing 
six months after the first issuance of securities to platform workers 
on this form.
    Note: A registrant may request confidential treatment under Sec.  
200.83 for information furnished pursuant to Sec.  239.16b(c)(3). 
Written requests for confidential treatment under Sec.  200.83 relating 
to the furnished materials may be submitted either in paper format or 
electronically.
    (4) The term ``platform worker'' includes:
    (i) Former platform workers, only if such workers provided services 
pursuant to Sec.  239.16b(c) of this chapter at the time the securities 
were offered or during a period of service ending within 12 months 
preceding the termination of service for which the securities were 
issued;
    (ii) Former platform workers of an entity acquired by the issuer 
who may receive securities registered on this form in substitution or 
exchange for securities issued to them by the acquired entity on a 
compensatory basis

[[Page 79963]]

while such persons were providing services to the acquired entity; and
    (iii) Executors, administrators, or beneficiaries of the estates of 
deceased platform workers, guardians or members of a committee for 
incompetent former platform workers, or similar persons duly authorized 
by law to administer the estate or assets of former platform workers.
    (5) The inclusion of individuals described in paragraph (4) of 
General Instruction A.1.(b) in the term ``platform worker'' is only to 
permit registration on Form S-8 of the exercise of stock options issued 
to platform workers pursuant to a plan, and the subsequent sale of the 
securities, if these exercises and sales are permitted under the terms 
of the plan.
* * * * *

G. Updating

    Updating of information constituting the Section 10(a) prospectus 
pursuant to Rule 428(a) (Sec.  230.428(a)) during the offering of the 
securities shall be accomplished as follows:
    1. Plan information specified by Item 1 of Form S-8 required to be 
sent or given to employees or platform workers shall be updated as 
specified in Rule 428(b)(l) (Sec.  230.428(b)(l)) or Rule 428(d)(1) 
(Sec.  230.428(d)(1)). Such information need not be filed with the 
Commission.
* * * * *

Part I Information Required in the Section 10(a) Prospectus

    Note: The document(s) containing the information specified in this 
Part I will be sent or given to employees or platform workers as 
specified by Rules 428(b)(1) and 428(d) (Sec. Sec.  230.428(b)(1) and 
428(d)). Such documents need not be filed with the Commission either as 
part of this registration statement or as prospectuses or prospectus 
supplements pursuant to Rule 424 (Sec.  230.424). These documents and 
the documents incorporated by reference in the registration statement 
pursuant to Item 3 of Part II of this Form, taken together, constitute 
a prospectus that meets the requirements of Section 10(a) of the 
Securities Act. See Rules 428(b)(1) and 428(d) (Sec. Sec.  
230.428(b)(1) and 428(d)).
* * * * *
Item 2. Registrant Information and Participant Plan Annual Information
    The registrant shall provide a written statement to participants 
advising them of the availability without charge, upon written or oral 
request, of the documents incorporated by reference in Item 3 of Part 
II of the registration statement, and stating that these documents are 
incorporated by reference in the Section 10(a) prospectus. The 
statement also shall indicate the availability without charge, upon 
written or oral request, of other documents required to be delivered to 
employees pursuant to Rule 428(b) (Sec.  230.428(b)), and to platform 
workers pursuant to Rule 428(d). The statement shall include the 
address (giving title or department) and telephone number to which the 
request is to be directed.
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
7. The general authority citation for part 240 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et 
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, secs. 503 and 602, 126 Stat. 326 (2012), unless otherwise 
noted.
* * * * *
0
8. Amend Sec.  240.12g5-1 by revising paragraph (a)(8) to read as 
follows:


Sec.  240.12g5-1   Definition of securities ``held of record''.

    (a) * * *
    (8)(i) 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 Act (15 U.S.C. 78l(g)(1)), an issuer may 
exclude securities:
    (A) Held by persons who received the securities pursuant to an 
employee compensation plan, or a compensation plan for platform workers 
pursuant to Sec.  230.701(h) of this chapter, in transactions exempt 
from, or not subject to, the registration requirements of Section 5 of 
the Securities Act of 1933 (15 U.S.C. 77e); and
    (B) Held by persons who received the securities in a transaction 
exempt from, or not subject to, the registration requirements of 
Section 5 of the Securities Act (15 U.S.C. 77e) from the issuer, a 
predecessor of the issuer, or an acquired company in substitution or 
exchange for excludable securities under paragraph (a)(8)(i)(A) of this 
section, as long as the persons were eligible to receive securities 
pursuant to Sec.  230.701 of this chapter at the time the excludable 
securities were originally issued to them.
    (ii) As a non-exclusive safe harbor under this paragraph (a)(8):
    (A) An issuer may deem a person to have received the securities:
    (1) 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 Sec.  230.701(c) of this chapter; or
    (2) Pursuant to a compensation plan for platform workers if such 
plan and the person who received the securities pursuant to the plan 
met the plan and participant conditions of Sec.  230.701(h) of this 
chapter.
    (B) An issuer may, solely for the purposes of Section 12(g) of the 
Act (15 U.S.C. 78l(g)(1)), deem the securities to have been issued in a 
transaction exempt from, or not subject to, the registration 
requirements of Section 5 of the Securities Act (15 U.S.C. 77e) if the 
issuer had a reasonable belief at the time of the issuance that the 
securities were issued in such a transaction.

    Note 1 to paragraph (a)(8)(ii):  Section 230.701(h) applies only 
to offers or sales of securities occurring prior to five years 
following the date of effectiveness of Sec.  230.701(h). On that 
date, Sec.  230.701(h) will expire and will no longer be effective.

* * * * *

    By the Commission.

    Dated: November 24, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-26374 Filed 12-10-20; 8:45 am]
BILLING CODE 8011-01-P


