Call Uber and Lyft drivers what they are: employees
By David Weil, 7.5.19.
Originally appeared in the Los Angeles Times as an Op-Ed piece.
Uber and Lyft are mounting a full court press to convince policymakers in California that their drivers should be classified as independent contractors and not employees. Uber’s chief executive and Lyft’s founders claim that the designation is critical for the companies. They recently argued “we can make independent work better if we update century-old employment laws.” In other words, don’t change our business model, just change the law.
As the former head of the federal agency that enforces some of those laws (which are nowhere near a century old), I understand the complexity of this issue. There are certainly companies whose workers operate in the gray area between employees and contractors. In those cases, workers in some ways act like employees (e.g. because their activities are supervised in part by the company and they are closely integrated into the company’s operations), but in other ways they act like contractors (e.g. because they determine the way they deliver that service, set their prices and face entrepreneurial risk).
Uber and Lyft are not among those close, gray area cases. Their status as employers is really quite clear. And though that designation would reduce their profits, it wouldn’t be a threat to their existence.
Let’s start with the basic question of what these companies are delivering and how they are doing it. Uber and Lyft argue they are technology platforms that connect customers needing transit from point A to B with drivers who operate as independent contractors.
If you provide a service whose corporate name is so dominant and pervasive that it has become a verb, it suggests you have created a very strong brand. Until Uber and Lyft, most of us followed the same advice we gave our children: “Don’t get into cars with strangers.” People jump into a car with a “U” on it because they view it as part of a larger company they trust. Why would our capital markets value a digital-enabler of hitchhiking at $75 billion (Uber) or $25 billion (Lyft)? Those values reflect investments in a brand and a belief that those companies can deliver on it.
This gets us to a second reason why Uber and Lyft are clearly employers. Their success arises from connecting users and drivers quickly and efficiently in ways the old taxi system failed to do. They deliver on that promise through hypersensitive pricing (set entirely by the companies) that consistently incentivizes drivers to be in the right place at the right time. Service quality is reinforced by customer feedback, making drivers, who fear low ratings, highly responsive to the needs of customers.
In other words, these companies have created a sophisticated management system to achieve core strategic ends. It just happens to be a management system based on software rather than human beings to send, evaluate, act upon and record those decisions, millions of times a day.
Through algorithmic systems, Uber and Lyft produce a highly valued brand experience for consumers and investors based on their ability to control and direct drivers who are central to the service they provide. And that means under the three-part test established by the California Supreme Court and proposed in AB 5, currently being debated in Sacramento, those workers are employees, not contractors.
Uber and Lyft insist that they cannot survive if they no longer can treat their drivers as independent contractors. Such a change would mean that they would have to factor in the real costs of drivers into their business model. They would have to figure out how to comply with workplace laws like the minimum wage, provide certain baseline protections like unemployment insurance and workers compensation, and collect and pay state and federal payroll taxes. In other words, they would have to do what millions of other businesses do every day.
Yes, this would be more costly. Given the higher cost per trip facing these companies, Uber and Lyft would have to deploy fewer drivers on their platforms than they do under the present system where they can act as if the costs related per driver are very small (because so many of the costs, from gas to insurance, are absorbed by the driver, not the companies and their investors).
As extremely smart, innovative companies, however, Uber and Lyft can figure out clever ways to use their data-driven platforms, algorithms, and high-powered incentives to deploy “employee” drivers efficiently in a manner similar to their current system. I am sure they would still allow driver flexibility on start and stop times and incentives to get the right number of vehicles to the right places at the right time. That’s because flexibility is not only valued by the drivers — it is critical to their business strategy whether the drivers are employees or contractors.
I have little doubt that these companies, had they started with the employee model, would still have outcompeted the old taxi system hands down. They would have had to charge somewhat higher prices and be a little less profitable. But their great idea would not have been undermined. They would simply have had to operate in a world of workplace regulations.
We all value companies that innovate, build and grow. But there’s no reason that new businesses can’t be built on a system of rights and protections — like fair wages, rules against discrimination and safeguards against work-related injury — that we also value as a society.
By David Weil, 5.14.19. Originally appeared in the The American Prospect as part of a section entitled “The Future of Real Jobs: A Prospect Roundtable,” with contributions by Robert Kuttner, John Schmitt, Heidi Shierholz, and David Weil.
When I was working on the manuscript for The Fissured Workplace, I sought a term to capture the profound business restructuring that was emerging in a variety of industries. Those changes included but were not limited to offshoring, outsourcing, and the use of staffing agencies that led to work characterized by low wages, noncompliance with core workplace statutes, limited benefits, more contingent employment, greater risk exposure, and weakened bargaining leverage for workers in general. I purposefully chose a somewhat obscure geologic term as the metaphor for this fragmentation because I wanted to highlight that the practices associated with fissuring arose from a more fundamental change in how businesses structured themselves beginning in the 1980s.
The fissured workplace connotes restructuring motivated by capital market demands that major businesses focus on the core competencies that provide value to customers and investors and concomitantly shed activities to other entities to carry out those efforts. But the organizations that undertake that fissured activity for lead businesses are guided by exacting standards and high-powered incentives to ensure that core competencies are met.
Think detailed subcontracting and supply chain requirements; franchise agreements; and most recently, the highly calibrated incentive systems created by platform algorithms. This allows major businesses to have it both ways: to benefit from work executed in strict compliance with central corporate objectives while not being required to treat the workers who do it as their employees with the obligations that relationship holds.
This more comprehensive definition of transformations in the U.S. workplace (and elsewhere around the world) gives rise to the challenge of how to measure its prevalence. Start with the kinds of alternative work practice tracked by the Bureau of Labor Statistics’ Contingent Worker Survey (CWS) that are certainly a piece of the fissured workplace. The CWS tracks on-call, temporary help agency, and contract-firm workers based on household survey. But workers may not even be aware of the presence of such intermediaries in a setting where all of the managerial outcomes are set by a lead business (think hotel, retailer, or fast-food brand) even if the employer of record is a different entity. Indicative of the often hidden nature of relationships is that “temporary agencies” now predominately deem themselves “staffing companies” because of the permanence of their placements. And people who work for staffing agencies are often payroll employees—yet still clearly part of the fissured workplace.
The CWS definition of alternative work also includes independent contractors—that is, those workers who are not considered employees under the definitions of workplace laws. Though the criteria for classifying independent contractors vary under state and federal statutes (allowing widespread misclassification of workers as independent contractors), a growing body of evidence indicates that workers often incorrectly classify themselves as employees. Abraham et al. show that self-employment has been growing when using Internal Revenue data sources (based on actual tax filings) even though household sources like the CWS suggest little change in incidence. Ongoing work by Abraham, Hershbein, and Houseman indicates that part of the discrepancy may arise from household survey respondents misunderstanding their actual employment status.
But the fissured workplace does not stop there. A variety of other organizational setups also allow businesses to follow the fissured recipe. The growth of franchising from its familiar presence in fast food into areas like hospitality, janitorial services, and home care is driven by a fissured-workplace calculus. So too the heightened use of subcontracting that shifts activities to businesses that may provide full-time, W-2 employment, but operate under very different economic constraints and incentives than if those jobs had remained inside their original organizations. Such employment would never be picked up in the CWS and would require information about contracting relationships between companies rather than household surveys to detect.
The comprehensive change in the wiring of our economy ripples outward beyond its impacts on compliance with laws, access to benefits, or volatility of employment, as important as those outcomes are. It alters the way wages and salaries are set in our economy and, therefore, links to the well-documented growth of earnings inequality. Shifting work outward means that wage-setting processes that were internal to a company (thereby including considerations of the implications of raising pay of one group of workers on the morale of another group) become a price-setting process externalized to another entity. If that other organization—be it a staffing agency, franchisee, or independent contractor—is under more intense market competition, the resulting wage and other compensation decisions will likely be driven downward.
Work and the workplace have changed fundamentally. It’s important that discussions of the May 2017 Contingent Worker Survey include the caveat that it captures only a part of more fundamental changes in the workplace. The task is how to best measure the new wiring under the hood through a combination of household, establishment, and administrative measures. Declaring that the results of the CWS demonstrate that nothing has really changed misses the point and leads us away from more fundamental questions of what is required to address worsening conditions for far too many working people.
Ratcheting Up Workplace Protections
By David Weil, 4.1.19. Originally appeared in the University of Pennsylvania Regulatory Review
State legislatures and agencies have an important role to play in improving workplaces for workers.
Louis Brandeis famously wrote, “it is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”
But Brandeis also commented, in a famous dissenting opinion concerning competition between states and regulation, that “the race was one not of diligence, but of laxity.”
In the current world of workplace regulation, where the federal government has stepped back from the proactive role it played during the Obama Administration, an important question to ask is which of Brandeis’ views characterizes the relationship between federal and state workplace policy today: laboratory of democracy, or race to the bottom?
The default assumption is often the latter. States, seeking to increase economic activity within their borders, face strong incentives to reduce regulations. Given that business interests are almost always better resourced in legislative battles than proponents of progressive policies, the predisposition to racing downward is further amplified, as seen during the recent Amazon second-headquarter competition. Recent lobbying efforts in multiple states by platform-based companies to redefine their workforce as “independent contractors” rather than employees similarly suggests a deck inherently stacked against working people.
Yet the record over time of workplace policy is more nuanced, suggesting a more hopeful outcome.
Passing workplace legislation has always been difficult. Major pieces of federal workplace legislation, such as the Worker Adjustment and Retraining Notification Act (WARN) of 1988 or the Family and Medical Leave Act (FMLA) of 1993, took years to move through the U.S. Congress and sign into law.
Yet Brandeis’ laboratory of democracy played a role in the passage of those laws. Major workplace legislation going back to the New Deal were preceded by the passage of state-level laws that broke ground, such as by assuring workers of notification of major plant closings, providing for unpaid leave, or, going back even further in time, providing for minimum wages and child labor protections. Equally, the long gaps between the passage of increases in the federal minimum wages were preceded by many states raising their minimum wages to exceed the federal standard.
In each of these cases, states created innovative workplace laws, moving the bar upward. As more states moved forward, once united business opposition to legislation began to fracture. Large businesses operating in multiple states faced growing incentives to break from their small and medium-sized counterparts that opposed any federal legislation, and instead to pursue greater consistency in regulatory requirements by the adoption of a federal standard.
The repeated failure to pass reforms to the National Labor Relations Act (NLRA) of 1935 can also be read as evidence of this dynamic, since the NLRA preempts states law and therefore undermines Brandeis’ laboratory dynamic.
Seen in this light, the legislative dynamic between state and federal law often “ratchets up” workplace standards. A ratcheting dynamic that could fracture unified business opposition to new workplace laws is particularly relevant
During the Obama Administration, the Wage and Hour Division—which I led—put in place a program of “strategic enforcement” of the laws administered by the agency. These efforts entailed adopting a variety of practices, including:
- moving toward proactive and focused targeting of investigation resources rather than relying on complaints to drive priorities;
- taking a systemic approach to changing the factors driving non-compliance;
- working closely with state-level agencies to leverage information and enforcement tools;
- building relationships with worker advocates and unions, consulates, and employers and employer associations to assist in both enforcement and in educating workers and businesses on their rights and responsibilities under the law; and
- rigorously evaluating the impacts of interventions on compliance goals.
In 2014, only a handful of states engaged in efforts embracing these elements. Most relied upon complaint-driven models with a focus on simply recovering back wages owed under state laws. In the past few years, however, a wider number of state agencies have embraced strategic enforcement concepts and are innovating in a variety of ways to expand them. States are sharing and learning from their collective experience, which is a different laboratory dynamic, further spreading and “ratcheting up” effective approaches. And, in the longer term, the lessons from this period of innovation can inform and “ratchet up” future policies at the federal level.
Advocates for instituting progressive economic policies face an uphill battle, particularly in an age of wide and growing inequality. The strength of the business lobby can indeed push to a race to the bottom and undermine protections for working people. Yet the ratcheting perspective provides an important caveat to pessimism about the inexorable forces of political economy and can help guide a progressive approach to improving workplace conditions.
Thinking about the Future of Work in the PresentDavid Weil, 3.18.19
Many of us over the past few years have participated in panels, conferences, seminars, and seances regarding the “future of work.” In one flavor of those convenings, the subtext is that AI, robotics, and other digital innovations that will lead to a workplace without workers. In another flavor, discussions focus on a future where everyone will be entrepreneurs, enabled by digital platforms, to innovate and build businesses giving them flexibility creative freedom.
Both flavors miss a more fundamental issue: rather than focusing on the “future of work” we should be thinking about how technologies and other organizational changes have transformed the “present of work.” Rather than robot overlords, we should be concerned with the private and public choices we have made that have led to a workplace of growing inequality and where workers bear more and more of the risks arising from employment.
In the last month, I have had the opportunity to participate in two discussions that have provided a far more nuanced discussion of these issues. The first was at the Harvard Kennedy School’s Institute of Politics in February, chaired by David Eaves and with Jason Furman of HKS and Mary Gray of the Microsoft Institute. The second was held at a conference that was part of the culmination of the “Going Digital” of the Organization of Economic Cooperation and Development (OECD), held this March.
Links to videos of both events can be found below. I hope you will find both conversations a different and useful way to think about the important issues surrounding work and technology in the present and the future.