I agree...why a 3rd category??
Because a W2 employee involves a lot more overhead for the employer than a 1099; but in this case, we have people who arguably don't qualify as 1099s, but don't have the "stickiness" of a W2 employee that would normally make it worth the extra trouble to classify them as such.
A 3rd category could get around this by reducing the friction to hiring a W2 - For example, one of the big hassles comes from withholding and payroll taxes; if an employer could just "pay" these directly to the employee (which of course would get horribly abused, but let's skip that for now), and the employee bears the responsibility of quarterly withholding and dealing with schedules C and SE, it would reduce most of that overhead. The same idea applies to insurance, 401k, paid leave, etc - Employers don't typically balk at the raw dollars involved, but rather, the increase in organizational complexity inherent in tracking all that. Make it just one more line item, and you'll see much of the resistance vanish.
To think of this another way, Uber has 550 non-driving employees. That takes an HR department of around 6 people, plus that amount again in additional "HR-related" support staff (accountants, lawyers, etc). Uber has 160,000 drivers. Treating those as FTEs would more than quintuple Uber's total current headcount, just for HR. And those extra people don't just draw their own salaries - They exist to correctly pay expense reports and taxes and insurance and manage depreciable assets and process liability lawsuits, all extra costs that don't exist for an army of 1099s.
