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Since Uber barged into the Canadian market three years ago, the talk has been all about forcing the United States-based ride-hailing service to play by taxi industry rules.

There have been court challenges, bans in several cities and angry clashes with taxi drivers.

But it's futile to turn back the clock. The taxi industry, like many others, will never be the same. The online "gig" economy is rapidly upending the world of work, forcing policy-makers to rethink labour and tax laws.

Beyond the reach of regulators, consumers are connecting directly through smartphone apps with private contractors offering a wide range of services – from shopping and cooking to house cleaning, home repairs and snowplowing. This is creating a vast new army of independent workers who have none of the benefits, protections and security that the rest of us take for granted.

There are now 20,000 Uber drivers in Canada and more than 400,000 in the United States. They work for Uber, often exclusively, but the company does not consider them employees.

Thousands more work for other fast-growing online sharing intermediaries, including Airbnb, TaskRabbit, Lyft and DogVacay.

On the surface, this arrangement seems to suit everyone. It's highly efficient for the technology intermediaries, such as Uber. They pay workers only for as long as they're needed, while assuming none of the heavy responsibilities that most other employers do.

Meanwhile, workers have the freedom to work only when they want to. They can set their own hours and work for multiple employers.

But there is a darker side. These workers often toil in a legal and institutional vacuum. They generally aren't eligible for minimum wages, workers' compensation, employment insurance or the right to unionize. Most don't charge GST and HST because they don't generate sufficient revenue, and their employers don't withhold income taxes, Canada Pension Plan contributions and employment insurance from their income.

"Our system is not well set up for this type of work arrangement," Princeton University economist Alan Krueger lamented at a Brookings Institute event in Washington earlier this month. "We have just two classifications: independent contractors and employees. The law is often vague as to how to classify the workers … and these relationships fall into this grey area. And that's creating a tremendous amount of legal uncertainty, inefficiency and costs in our system today."

The challenge for policy-makers is to find a place for Uber and its workers, without quashing the productive power of the gig economy.

Uber and companies like it should not be allowed to succeed solely by ducking labour laws and forcing an industry's work force to become independent contractors, Prof. Krueger argued.

"We want them to thrive because they have better technology," he said.

Prof. Krueger and colleague Seth Harris of Cornell University have argued for creating a new special status for these workers. It would allow them to retain their independence, while also protecting them from mistreatment.

Labour economist Thomas Kochan of the Sloan School of Management at the Massachusetts Institute of Technology says the time has come to update "employment policies to catch up with changes in the economy, work force and employment structures."

In the United States, drivers are pushing back by demanding better treatment. Earlier this month, Seattle City Council approved legislation to allow ride-hailing drivers to unionize and negotiate their own pay and working conditions.

Meanwhile, a California judge has granted class-action status to a lawsuit by 160,000 drivers challenging their classification by Uber as independent contractors rather than employees. The drivers want more secure jobs and fairer pay.

A win could have implications far beyond California, and Uber.

Much of the gig economy depends on cheap independent contractors.

Companies such as Uber could face much higher overhead costs if their contractors were to be treated as employees. The current job classification means the company is not responsible for a wide range of workplace costs, including U.S. social security, health insurance, paid sick days and overtime. Drivers are also responsible for gas and car repairs.

Canadian policymakers should take notice. Uber – and businesses like it – are here to stay.

Instead of trying to shut them down, governments should focus on building a regulatory regime that protects workers and employers alike in this dramatically changed world of work.