Controlling Workers in the Platform Economy

I. The Rise of Worker Misclassification

While the numbers are contested, the last two decades have seen the arrival and rapid growth of electronically-mediated employment, often called “gig work” or participation in the “sharing economy.” Employers such as Uber, FedEx? , Amazon and others have rapidly grown their workforces in part by relying on differences in how the law treats “employees” versus “independent contractors”. By classifying their workers as contractors, they are able to avoid substantial costs in the form of unemployment insurance taxes, worker’s compensation premiums, and other contributions to the safety net that exists for traditional employees. The workers forgo these benefits in exchange for flexibility in their work schedules. So what is the difference between an employee and an independent contractor? It depends who you ask. The distinction is premised on the idea that independent contractors are entrepreneurs with multiple clients who have relatively more bargaining power than employees of a single boss who can dictate terms. So employees receive protections and benefits as required by various state and federal statutory schemes, including the Fair Labor Standards Act, the Employee Retirement Security Act and the Affordable Care Act; independent contractors, in contrast, are expected to fend for themselves. Various states and federal agencies, however, apply different legal tests to distinguish employees from independent contractors, and there is substantial variance in the tests and their outcomes. Employers thus have a clear incentive to stretch these tests to comprise as much of their workforces as possible, and they devote substantial resources to defending their classifications.

II. Recent legal developments

Worker misclassification is part of a larger trend of outsourcing and the dismantling of the 19th-century vertically-integrated corporation dating to the late 70s, but only in the late 90s and early 2000s did the problem gain wider attention. In this pre-smartphone period, misclassification was concentrated in the construction industry, where the work was especially dangerous (ie, expensive to insure) and the employment relationships often contingent and semi-formal. From 2004 to 2012, twenty-two states attempted to address the problem through legislation, tightening their statutory definitions and/or creating or increasing penalties for misclassifying workers, with mixed success. These statutes, however, did not comprehend the rise of digital on-demand service platforms such as Uber and Taskrabbit, which effectively created a new class of worker uncomfortably situated between the two existing categories. These “platform workers” have been almost universally classified by their employers as independent contractors, though they do not fit neatly into either category. While initially trumpeted as win-win innovators creating better services for consumers and more freedom and opportunity for workers, in the last few years these companies have come under increased scrutiny. Two prominent class-action cases brought by drivers, O’Connor v. Uber and Cotter v. Lyft, were recently settled for hundreds of millions of dollars; however, the terms of settlement in each case stipulated that drivers were to remain independent contractors. Perhaps more significantly, in the past three years, Uber and Lyft mounted a successful lobbying campaign across 41 states to gain specific statutory carve-outs for rideshare drivers to ensure that they would continue to be defined as independent contractors. In many cases, these were passed as part of a larger package of ostensibly consumer-protection-oriented regulations, such as requirements that drivers carry certain insurance or pass background checks. These companies have been remarkably successful in their aggressive lobbying efforts by mobilizing their user bases to apply ‘grassroots’ political pressure and employing a substantial number of well-connected lobbyists, including former Obama strategist David Plouffe.

III. Control

Transportation network companies, like most gig-economy employers, base their defenses of their worker classification schemes on the supposed freedom that workers have: after all, they may log in and out of the platforms at will, or even operate more than one simultaneously. Statutory and common law tests use a variety of factors to determine whether a worker is an employee, but a unifying feature is the element of control: does the employer determine the manner and means by which the work is accomplished? Traditionally, workers were “controlled” through direct supervision on-site, with stipulated tasks and hours and the ever-present threat of termination. The platform economy relies on few of these levers to control the behavior of their workers, but it has replaced these with more subtle means. Smartphones allow the constant surveillance of workers, and their performance is constantly evaluated by customers whose ratings determine whether a worker retains her job. TNCs have begun using psychological techniques to influence driver behavior, using nudges to alter their performance of work in ways that benefit the platform but not necessarily the drivers themselves. Advances in wearable technology and “people analytics” promise a dystopian degree of worker control of which the industrialists of yore could have only dreamed.

IV. Implications for the future

While jobs driving vehicles will soon go the way of the dodo, the problem of worker misclassification is likely to persist as long as it presents an opportunity for regulatory arbitrage. A few solutions have been proposed, from the creation of a third class of “independent worker” to more rigorous enforcement of existing statutes and definitions to include platform economy workers. Even some platform employers have proposed legislation for portable benefits for their workers, in the hope of avoiding employee classification for their workers. But underlying all of this analysis is the fact that the various overlapping schemes and the need to classify workers at all would be obviated by more comprehensive safety nets. FLSA, ERISA and other programs came about as part of a grand bargain between labor and capital at a time when the nature of their relationship was changing due to structural factors. Technology is creating new power asymmetries between workers and employers, with implications that go beyond ride sharing. Such a change seems to be upon us again, and a more radical renegotiation of the labor compact may be called for.