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Uber Alles
To Be or Not to Be (Employees)

A jury will now have the chance to decide once and for all whether 160,000 Uber drivers in California are independent contractors, as the company contends, or traditional employees, as the plaintiff in a California class action suit argues. It took less than a month for a federal judge in California to allow the case against the company to proceed as a class action suit. The ruling has wide implications not just for Uber’s future, but for the labor model upon which much of the sharing economy rests. From the NYT:

The case, filed in 2013, presents challenges to Uber’s business model. Classifying workers as contractors lets the company keep its labor costs low while recruiting scores of people who use their own cars to ferry passengers around more than 300 cities worldwide. Uber’s rapid growth in just five years has given rise to a new service economy applying a similar contract-worker model across multiple sectors, from house cleaning to grocery delivery […]

The class-action certification may also set a precedent. Lyft, a competitor to Uber that has also raised venture capital, faces a similar class action.

Indeed, an estimate referred to in the FT predicts that “the labour costs for most sharing-economy companies would rise by between 25 and 40 per cent if they were forced to switch from being simple marketplaces to full-service companies.”

Uber, and the sharing economy at large, relies on a labor model characterized by low barriers to entry. UberX, Uber’s largest and most controversial offering, allows individuals without special certification—often those with other full or part-time employment—to register as drivers and pick up fares at their own convenience. For this large swath of drivers, the money made from driving is a very welcome supplement to their main source of income. Yet, when the company must begin sponsoring health insurance and retirement plans, this notion of the casual driver seems less tenable. In such a case, is classification as an employee indeed in the best interest of the driver?

Ultimately, policymakers will have to get creative in finding ways to accommodate this young and booming segment of the economy, to balance fair worker treatment with a regulatory framework that fosters the service and sharing economy (0ne key shift here has to be thinking through ways to delink benefits like health care from employment in the first place). We might not yet know what form that will take, but the answer isn’t to regulate new industries with outmoded classifications. Freelance work is not just an integral component of the new service economy; it also gives workers autonomy and encourages entrepreneurialism.

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  • FriendlyGoat

    The first sentence of the last paragraph sounds good if anyone on the “right” side of politics actually believes it and is committed to acting upon it. There is no sense talking about a “balance” which includes “fair worker treatment” if all that is EVER intended is one-sentence lip service. Therefore, this article needs more work

    What, exactly, do you have in mind for health care?

    Why, exactly, do you believe it might be better for Uber drivers to pay both halves of Social Security and Medicare taxes on “self-employment” income than to have Uber itself contributing half. After all, this one is an either/or issue. Why is Uber supposed to get a pass when every other corporation with actual employees does not get a pass?

    As for the “sharing” economy, please don’t over-sell the size and significance of it. Everything together which makes up the so-called “gig” economy is so far merely a niche. Citizens would be wise to keep it a niche—-even a shrinking niche—-UNLESS the corporations in it are committed to the workers in it. That’s a big social issue. I hope the jury will be properly instructed on the depth of what they will be asked to decide in the Uber and Lyft class actions. A decision for contractor status would prompt every employer and his dog to ditch as many defined employees as possible, after all.

    • Stephen Spero

      Many if not most economists believe that corporations only care about total compensation costs when they hire a traditional worker. This leads them to understand that the boss gets the money to pay the employer share by reducing the wages of the employee. If I had my druthers, I would force all businesses to raise wages of under-the-cap employees by 6.25 percent and get the employee to pay the full shot.
      This would have the added bonus of showing the employee the true rate he is paying,

      • FriendlyGoat

        You have a point about what economists can calculate. I have never been convinced, though, that employers as a whole would suddenly give everyone an equivalent raise if they were relieved of the employer half of Social Security taxes. There’s theory, and then there is practice.

        • Government Drone

          On the other hand, if an employer can shift that 6.25% over to the employee, it becomes a deductible expense to the company, rather than another tax. (Of course, the employee would see his own income taxes rising because of this “raise”, & actually take home less.)

          • FriendlyGoat

            Aren’t the matching FICA taxes paid by an employer already just as deductible from the employers’ net income as a 6,25% raise ti employees would be?

          • Government Drone

            I did not think so, but then I thought I’d look it up. For self-employed people, for instance, only the “employee” part of their FICA withholdings are counted as part of their taxable income, but the “employer” portion is not. (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employment-Tax-Social-Security-and-Medicare-Taxes) To get the business-side of deductions, I consulted IRS Pub. 535 (2014), “Business Expenses”, section 5 “Taxes” (http://www.irs.gov/publications/p535/ch05.html#en_US_2014_publink1000208829), under “Employment Taxes” partway down the page,it does specify that the employer’s part of Social Security & Medicare are deductible expenses for the employer… I stand corrected.

            I guess to make it tax neutral for everybody, shifting the entire FICA bill over to the employee could be handled by treating everyone as “self-employed”, though it would put a rather odd strain on the current debate over who is an employee vs. a contractor/franchisee/whatever.

          • FriendlyGoat

            Wow. If you will go to the IRS website to research a comment-section comment, YOU are a diligent discussion partner. I like that!

            I have nothing against entrepreneurship. I had a very small business of my own for a while. In some ways, I see the Uber thing as both cool and not cool, The service it provides is cool for sure. The opportunities for Uber itself to be valued and eventually traded WAY beyond the financial opportunities for the actual drivers is maybe not so cool. I would not like to see it become like Amway and other multi-level marketing, for instance, where the COMPANIES do great but the “independent contractors” below them do not necessarily fare so well.

            There are people out there just praising this “gig”economy stuff to the moon. I think it may be just another step toward enabling our once-loyal employers to simply divorce themselves from any responsibility for workers. So, in some ways, I’d like to see the lawsuits produce a finding of an employer/employee relationship. We’ll see in time, I guess.

          • Government Drone

            Intelligent? No, more like I had some time on my hands.
            As for the “gig” economy, we’ll have to see how it evolves; the folks praising it to the moon are definitely crying up the notion, but that’s just the usual hyperbole of those who think they see the Next Big Thing — like all the breathless predictions about the Internet in the 1990s, or railroads in the 1860s, for that matter. A labor market of “jobbers” who work from one contract to another has been around for a long time, & has in fact been predicted to be on the verge of becoming the “new normal” for a good while now. Such workers are all over the pay spectrum, whether day laborers, IT contractors, etc., so it’s not a merely a way for greedy employers to minimize obligations to their workers.
            Employers, I think, are about as loyal as they’ve always been. They have incentives to hire employees & keep them for the long term, mostly related to the sheer hassle of trying to find replacements & then training them to some minimal standard to competence. But I would be very leery of any moves to legislate long-term employment as the norm. Europeans have that sort of system, but they tend to have employers who are somewhat hesitant to hire new people because they’re rather difficult to shed when they don’t work out, or if the economy goes bad. Japan was able to get away with something like that for over a generation, but that was a combination of a long postwar boom, plus a rather cartelized & protected internal market which also kept prices high for consumers.
            I would suspect that if we were to impose all sorts of regulation on employer-employee relationships, for whatever reason, the result would be a rather more bureaucratized economy with a lot of barriers to entry for anyone not part of the established order of any industry. I don’t think such an economy is going to be more prosperous than ours, nor any more equitable. And certainly no less corrupt, given that influence in government becomes even more important vs. competence in business, as a means to success.

            That’s my long-winded take on it, at any rate.

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