A California Labor Commission ruling is casting uncertainty over the sharing economy’s business model. The ride-sharing company, Uber, which is valued at more than $40 billion, claims to only be a provider of the technology that connects ride-hailers to private drivers. However, the Commission’s ruling has challenged that assessment, ruling in favor of the plaintiff, Barabara Ann Berwick, who has sued the company for over $4,000 of expenses, claiming that she operated as an employee rather than as an independent contractor as Uber claims. The commission stated that the company is “involved in every aspect of the operation”, from “vetting drivers and terminating their access if their approval ratings fall, to setting minimum standards for their cars,” and as such does not merely act as a lead generator and middle-man. The Financial Times:
“It’s a big deal in the sense that it is the first measured decision to apply the traditional test to a company of this consequence, size and growth,” said Bill Gould, Stanford Law School professor and former chairman of the National Labor Relations Board.
“It is clear that a major element in this business model for this employer was depriving these individuals of employee status. That advantage, if the courts uphold the commissioner, is gone.”
Prof Gould added that the issue is also the subject of a class-action lawsuit in California and the Labor Commission’s “well-reasoned” decision could prove “instructive” to that case.
The decision may be “instructive”, but we worry that attempting to force the freelance model into the old employment template is bad for everyone.
One part of the problem is that our entire system—from health insurance to retirement and other benefits—was set up for a time when long-term steady employment was everywhere. That world, we are afraid, is just not coming back. We will never again be a nation of Ford factory workers doing steady full time jobs for thirty years and then retiring on a defined benefit pension.
The other part is bureaucratic path dependency. The laws favor a traditional employment because government finds it easier to control and tax people on payrolls. But the country should not be stuck with an out of date employment model because it is more convenient for the IRS.
One can already see a future emerging where people make a living by doing a combination of things: driving for Uber, doing temporary office work, running a freelance design studio from their home, and using Airbnb to rent out a spare room or couch. We need a legal and tax system to match that reality, a system that encourages freelance and part time work. We need a regulatory framework that supports this kind of individual entrepreneurialism.
Smart, forward-looking politicians should start looking hard at how to help the country transition into the future rather than trying to turn back the clock.