The Gig Economy won't last because it's being sued to death (By Sarah Kessler): - If Uber, Lyft, and others don't stop relying on contract workers, business could crumble. Is it time for a new definition of employee? When Vilma and Greta Zenelaj came across a Craigslist job ad that promised they could make as much as $22 an hour and get paid fast, it seemed like a good deal. The Albanian sisters had moved to Santa Monica to get a foothold in the film industry, and though they had produced a few independent features, they had run out of savings before they could also make a living. Now they were desperate to pay their bills.
Handy (then Handybook), the company that posted the Craigslist ad, is best known as a cleaning service. But unlike Merry Maids or your local cleaning franchise, it doesn’t actually employ any cleaners. Instead, it relies on an army of independent contractors to complete jobs, taking a 15% to 20% commission of every hour worked. It’s part of the "gig economy," a much-hyped new class of the service industry where workers are expected to operate like mini-businesses. The influence of these companies is growing: according to an analysis by Greylock Partners, the value of transactions over platforms such as car services Lyft and Uber, grocery delivery service Instacart, courier service Postmates, and others could grow as large as $10 billion this year.
But the Zenelajs had never heard of the gig economy, and it wasn’t until orientation that they realized they would not be employees of Handy. Soon they were booking up to four cleanings a day through the platform. Handy promised to turn them into entrepreneurs, and it was true that when things went wrong, they were responsible: They didn’t get paid to wait for a client who was running up to 30 minutes late, though they drove to his house (Handy does reimburse cleaners for one hour if the client doesn't show up); they didn’t get paid if they stayed home sick; they didn’t get paid when they got stuck in traffic between jobs. There was no overtime pay or benefits, and they had to buy their own supplies and gas.
But the sisters (pictured above) allege that other kinds of work independence were a farce. When they couldn’t finish a job in the allotted time slot, they had to call customer service if they wanted to stay longer for more pay. First-time clients could not book cleanings with them specifically, which made leveraging relationships for recommendations difficult. They say there were suggestions, which they interpreted as rules, about how to listen to music (only with headphones, with permission from the customer) and go to the bathroom (discreetly). After about two months, both of them were banned from the platform: Handy says one sister performed poorly and the other sister funneled jobs to her after she was banned. (Vilma and Greta say they had just teamed up to complete jobs, which is also against Handy's terms of service, and that's why both of them were fired.)
"It is not fair, because there are laws here," says Vilma. "They are claiming to be just giving us contracts, and they’re not. They’re acting like an employer. But they’re not paying for it."
She and Greta filed a class action lawsuit against Handy in October, alleging that the company misclassified them as independent contractors. They are seeking compensation for missed lunch breaks, minimum wage compensation, reimbursement for business expenses, and overtime, in addition to other penalties. According to Handy’s math, this compensation would cost $291,000, not including attorney’s fees. Not only that, if Vilma and Greta prevailed, the lawsuit would also apply to all its current and former workers in California over the last four years. As of this past fall, that was about 2,000 people. That’s a potential penalty of almost $600 million—a lot of money for a company that has only raised about $42 million in venture capital.
Lawsuits like the one being brought against Handy are just the most threatening cloud in a brewing storm. Uber drivers have protested in San Francisco and Los Angeles and gone on strike in New York. Anecdotes in high-profile stories about Homejoy, a cleaning service similar to Handy, detail grueling hours and so little pay that in one instance, the worker was homeless. Workers on Amazon’s Mechanical Turk, an online platform that pays independent contractors cents per task, recently orchestrated a letter-writing campaign to Jeff Bezos asking for him "to see that Turkers are not only actual human beings, but people who deserve respect, fair treatment, and open communication." Legally, Uber and Lyft are also facing charges of misclassifying workers, and a case against an online work platform called Crowdflower that uses independent contractors to complete tasks is in the process of being settled.
This rising legal retribution is a huge threat to the gig economy. Not being responsible for employees’ taxes and benefits allows companies like Handy to operate with 20% to 30% less in labor costs than the incumbent competition, leading to eye-popping numbers like Uber’s $40 billion valuation or Instacart’s latest $220 million round of funding. Lose this workforce structure—either by a wave of class-action lawsuits, intervention by regulators, or through the collective action of disgruntled workers—and you lose the gig economy.
"If you had the liability that we’re talking about for Handy, it would shut a lot of these companies down," says Shelby Clark, who runs an organization for sharing economy workers called Peers, which is at least partially backed by stakeholders in the platforms they work on.
What’s at stake with these lawsuits and protests? The very definition of "employee" in a tech-enabled, service-driven 21st century American economy. Gig economy companies do not own cars, hotels, or even their workers’ cleaning supplies. What they own is a marketplace with two sides. On one side are people who need a job done—a ride to the airport, a clean house, a lunchtime delivery. On the other are people who are willing to do that job. If Uber and other companies are going to be as big as some claim, a new deal has to be brokered, one that squares the legal rules governing work with new products and services. What benefits can you expect from a quasi-employer? What does it mean to be both independent and tethered to an app-based company? The social contract between gig economy workers and employers is broken. Who will fix it, and how, will determine the fate of thousands of workers and hundreds of millions of dollars.
In a certain light, the gig economy looks like a dream; after all, full-time employment has been falling for years. Between 1995 and 2005, when the government kept data on what it calls "contingent workers," about 30% of the labor force fell into this non-full-time-employment category. In 2009, employment law firm Littler Mendelson estimated that about half of the jobs added after the recession will be contingent, making the workforce 35% freelance, temp, and part-time workers. A year later, Intuit estimated that it will be more like 40%. Meanwhile, the United States has a record number of 2.87 million temp workers, who arguably occupy the bleakest corner of the contingent worker universe.
Thanks to these new on-demand startups, though, whether you’re a stay-at-home mom with a few odd hours to spare or a recently unemployed fast-food worker who needs to make ends meet while looking for a job, you can work whenever you want, doing whatever you want. "I like the flexibility and I feel like it gives me a better work and life balance," says Chris Otey, who has worked as an independent contractor on Amazon’s Mechanical Turk for about the past five years. In the gig economy, you’re better than an employee; you’re a little business. "I want to live in a world where people can become entrepreneurs or micro-entrepreneurs, and if we can lower the friction and inspire them to do that, especially in an economy like today, this is the promise of the sharing economy," Airbnb’s CEO, Brian Chesky, once told the Wall Street Journal. Just like the government didn’t begin to regulate the Internet before it was a behemoth, these people argue, regulating this new economy before it’s fully created could halt innovation.
But the gig economy can also be interpreted as a loophole for avoiding labor laws—more of a familiar nightmare than a new dream. Robert Reich, a political economist and the former secretary of labor, compares it to the piecework system of the late 19th century, the very same system that led to trade unions and labor protections in the first place. "There is no economic security, there is no predictability, and there is no power among workers to get a fair share of the profits," he says. "You and I and everybody else, if the present trends continue, will be selling what we do to the highest bidder."
There’s not much public data about how many people try and fail to make money with gig economy jobs, and platforms are unlikely to volunteer it (Uber recently released some data about its drivers' pay, though it did not account for driver expenses like gas or disclose data about driver turnover.) But it’s safe to say that there are advantages to being an employee (security, safety laws, minimum wage, benefits) and that there are also advantages to being an independent contractor (freedom, independence). Similarly, there are advantages to hiring employees (quality control, dependable workers) and hiring contract workers (cheaper, don’t need to guarantee work). Where platforms get into legally dubious territory is when they try to claim the advantages of both systems at the same time. "These weren’t just people working for five minutes, they were putting in hours and effort," Otey says of his time working for one Amazon Turk user, a company called CrowdFlower. "I didn’t have control over the work I did. It was all done on their platform. I couldn’t choose my own hours. I had to work when they provided the work. They pretty much controlled all the aspects of the work that was being offered."
The laws that determine independent contractor and employee status vary from state to state and from situation to situation, but many of them focus on the question of how much control workers have over their work. If their employer is mainly focused on the outcome of that work, there’s a good chance they’re fairly being classified as an independent contractor. When their employer begins to control not only what work they do, but how they do it, that classification gets murky. So Handy, by doing things like giving workers suggestions for how to clean and asking them to wear a shirt with the Handy logo, made itself more vulnerable to a lawsuit. Similarly, though traditional taxi drivers are often independent workers rather than employees, a platform like Uber takes a certain amount of control when it fires them for low ratings or changes their fare prices. "Imagine going into work one day and your boss tells you that you’re going to have to do the exact same job you did last week but for 30% less money," is the way one Uber driver put it recently.
"They almost can’t help but step into the shoes of the employer," says Alek Felstiner, a labor lawyer with Levy Ratner, PC in New York who has studied independent contractors on platforms like Mechanical Turk. "They are going to have a choice between taking actions that make them more marketable, and thus becoming vulnerable as employers under these laws, and remaining completely hands off. But they can’t really can’t have their cake and eat it, too."
Lawsuits are a big, visible threat to the gig economy, but even if none are successful, there’s another, slower-burning problem that will corrode the gig economy if left unresolved. It’s a problem that gets worse every time a worker like Solominsky, who has completed almost 600 jobs on the TaskRabbit platform with nearly unanimous perfect reviews of his work, who the company once interviewed on its promotional blog, decides that there is nothing that TaskRabbit could ever do to win him back as a dedicated laborer. "They don’t have our interests at heart," he says. "It’s a shame, because they really lost lots of good people who used the site."
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