The Gig Economy: California, Classification, & The Future of Work

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By Chris Sands

Audio Version here (also on Itunes & Spotify)

The way in which we work is changing. I pay ode to this as I record a podcast in my Pacific Northwest studio, just shy of a conference call with my New York counterparts. The future of work is here, but for many it is much more impactful than simply working from a distant home rather than a corporate office. For the Uber drivers, Lyft drivers, Instacart shoppers, and many other gig workers, they are getting caught in the middle of what is becoming a heated legal battle - where a way in which they earn income is at stake.

Independent contractors value flexibility, whereas employees value stability. But what happens when a technology fuels a new economy - the gig economy - one of which, in its very nature, is unfit for both employment and independent contractor relationships? To get perspective, I borrowed brains from a law partner, policy reformer, and venture capital partner.

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 Andrew Moriarty (Law Partner @ Perkins Coie) 

What we're seeing is this struggle between people who view the gig economy as a threat and people who view the gig economy as an opportunity. We haven't reached anything close to a national consensus on the issue. There is a split between jurisdictions and agencies that seem to accept that there's something new, and different, and worth protecting about what I'm calling the gig economy, and the jurisdictions that think that the gig economy is a threat to the entire social contract - to the post new deal, implicit agreement between employers and employees that employees will have certain, basic protections that they can't waive even if they want to. What I would say about the pushback that gets reported in the media is that it's not necessarily reflective of the views or the experience of the vast majority of participants in the gig economy. It only takes one person to file a class action lawsuit in which the person claims to speak for the entire population of gig economy workers who are working with a particular company.

 My own view is that many of them understand that if you turn this hyper-flexible, self-directed, unsupervised, episodic work into a job, then it becomes a job. All of the things that I just mentioned, the hyper-flexibility and the rest of it, go by the wayside because once the company has the obligations of an employer with respect to the worker, the relationship just changes. There's only so much flexibility and self-direction that you can build into an employment relationship.

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 Seth Harris (Policy Reformer, Former Deputy Secretary of Labor)

In the online platform economy, the worker opts into work. They decide whether, when, how, where they are going to work. You don't have that in employment. That's not the same as saying therefore, they are independent contractors. There are other indicia of being an independent contractor that these folks don't satisfy. They look more like employees. So you're stuck with the hard question: given that they are a little bit of one and a little bit of the other, what do you do? If you make all these workers employees, it significantly increases costs. There are estimates that the difference between an independent contractor and an employee could be anywhere from 25 to 40% of labor costs. If you make them employees, I don't think you can allow an opt-in work system anymore.

 I don't think you can allow workers to decide for themselves when they're on the clock and when they're off the clock. You would have to schedule them, limit them, have some kind of oversight. What that means, if you just have an opt-in system, is essentially unlimited liability for the companies, or liability that they can't control or measure. I just don't think that they can operate that way.

This is an existential question for these companies. Addressing this issue is really core to their business model, and their revenue projections, and EBITDA moving forward.

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Guissu Baier (Partner at Broadhaven Ventures)

 I have strong conviction around the degree of innovation and the strength of this gig work, and the businesses that are growing around this economy. The number of people working in the on-demand platform economy rose from 3.2 million in 2015 to 3.7 in 2016, and forecasted to double in 2020 to about 7 and a half million, and continuing to surge beyond that to 2021. That's more than the entire population of New York City contributing to an economy that we still have not really figured out how to interact with and what our responsibilities are as a society in terms of creating the appropriate social safety nets for this workforce.

The current construction of both the regulatory framework and the labor codes that exist, particularly in states like California and Massachusetts, make it incredibly difficult for platform companies to make those contributions unilaterally without creating some sort of baseline agreement that that would absolve them of liability. If we can try and get our minds around a third category, I think that we can really achieve an optimal outcome for this growing workforce.

 

Work is changing. Systems are recalibrating. During these architectural transformations, I worry whether the stakeholders of these issues are effectively communicating on the facts, or whether there is a polarizing tone that promotes black and white solutions. Independent contractor or employee, which is it? The prevailing attitudes of California law makers have a clear anti-corporate, anti-big tax sentiment attached; just look at the incoming California consumer privacy laws. The problem here is they kind of have a point. Silicon Valley has been in the best position to structure a third-party classification for the gig economy but have instead invested resources into short-term gains awarded by maintaining the independent contractor status. Of course, this is an outsider's perspective. These gains could have been well worth the reputational, operational, and financial risks. On the other hand, the failure to get ahead of this issue could potentially act as a ball and chain on these companies for years to come.

Split issues like this make me wonder about the over-reliance on old systems and methods to solve new problems. And who better to lead with innovative solutions than the tech industry? How can we create better collaboration and problem-solving mechanisms to foster innovation and prosperity? Do let me know. I'm Chris Sands, and this is Good Counsel.