In her first major speech laying out her economic agenda, Hillary Clinton on Monday slammed the “on-demand economy”, accusing bosses of exploiting their workers by “misclassifying them as contractors.”
The presidential hopeful said that while the sharing economy, led by high-profile technology startups like Uber, Airbnb and Lyft, is “creating exciting opportunities and unleashing innovation … it’s also raising hard questions about workplace protection and what a good job will look like in the future.”
Her criticisms come on the heels of numerous lawsuits against these tech companies, which connect people with workers who provide services. At the heart of the lawsuits is a fundamental dispute over what responsibility a company has toward the people it relies on, whether they’re employees or contractors, to build and maintain its brand.
The suits also raise larger questions about which employment models are best – for employers, workers and the customers they serve.
Uber court case
The ride-sharing service Uber, for instance, which connects drivers with riders using an app, has upended the taxi industry and changed the way people get around. The company has experienced staggering growth in its six-year history, and in May it was valued at an estimated $50bn. Uber’s success is due in part to its employment model – its workers are classified as independent contractors, and not employees, which means Uber isn’t responsible for a host of expenses like payroll taxes, fuel, car insurance and sick pay.
But that could soon change. The California labor commission last month ruled that an Uber driver was indeed an employee. The commission sided with the driver, Barbara Ann Berwick, agreeing that Uber was “involved in every aspect of the operation.” The company was ordered to pay Berwick around $4,000 in owed expenses. Uber has appealed the ruling, and said in a statement that the decision is “non-binding and applies only to a single driver.”
Now the company is facing a possible class action lawsuit lodged by three more Uber drivers, who say they should also be viewed as employees. On Thursday, Uber filed a motion arguing that the lawsuit represents only a small number of its drivers. Included in the motion were declarations from around 400 Uber drivers in California, asserting that the current model works for them. One driver, Howard Hsu, a real estate investor with three children, said, “I would not want to be an employee of Uber because that would mean less flexibility. Uber could tell me where to drive, when to drive, and how to drive … It would definitely make driving far less desirable if I had to be an employee.”
Uber said in a statement that there is “no typical driver”, and in one of its lawsuits noted that its 160,000 drivers in California have “little or nothing in common.” Since its inception, Uber has maintained that it is merely a platform that connects drivers with riders. Other companies that rely on a similar business model, like Uber’s ride-sharing competitor Lyft, grocery shopping service Instacart, and Postmates, a delivery company, are also facing lawsuits from workers demanding employee rights.
Uber fights back
Uber says its drivers will suffer if they are stripped of their status as independent contractors. “As employees, drivers would drive set shifts, earn a fixed hourly wage, and lose the ability to drive using other ride-sharing apps as well as the personal flexibility they most value,” an Uber spokesperson said in a statement. “The reality is that drivers use Uber on their own terms: they control their use of the app.”
And indeed, experts say that changing its business model may in fact hurt Uber drivers. A typical Uber driver earns between $16 and $30 an hour, depending on the state, which is around $6 an hour more than an average taxi or limo driver. If the company’s drivers are classified as employees, Uber will likely raise its rates and lower its pay to remain competitive.
“This will mean thousands of Uber drivers will have the basic protections of all California employees, but may be making less money,” said Roxanne Davis, an employment law attorney in Los Angeles. “Uber could easily lower the pay for the drivers to minimum wage, reimburse mileage at $0.575/mile and cover their insurance.”
Is the contractor model better for workers?
While the contractor model offers flexibility, workers aren’t always paid enough to cover insurance and retirement savings, which typically would be included in their overall compensation if they were employees.
If companies don’t stump up the extra cash to pay for these out-of-pocket expenses, then it falls squarely on the shoulders of the contractors.
“To say ‘Oh I want you independently and I’m going to pay you no more than you would get as a regular wage employee,’ – that seems like a really crummy deal,” said John-Paul Ferguson, an assistant professor of organisational behaviour at Stanford University’s Graduate School of Business.
It doesn’t have to be an either/or scenario, experts say. Whether workers are classified as employees or not, companies can probably pay more and still turn a tidy profit. Massively successful companies like Uber and Lyft would have had a hard time securing venture capital if their long term profitability was based solely on paying their workers the absolute minimum.
“What we’d like to take off the table is the assumption that the sharing and on-demand economy is not profitable,” says Ferguson, “and if we were to impose any additional costs they’d go out of business.”
Some experts say it’s only a matter of time before companies like Uber have to change the way they employ people.
“Technology has caught up with the faster business model, but labour regulations have not,” said Raj Narayanaswamy CEO of Replicon, which helps big companies better optimise their time. “And this has opened up a loophole for businesses to be morally bankrupt, ignoring the obligations to its workforce because no legal conduct has been established.”
Whatever the outcome of the pending lawsuits, it’s unlikely that just one model will work for everybody. “There are enough differences in nature of work and industries,” said Ferguson, “It’s better if we have flexibility.”