“For many, the gig economy is simply the next step in a losing effort to build some economic security in a world where all the benefits are floating to the top 10 percent.” This quote comes from Senator Elizabeth Warren (D-MA), but she is far from alone in her criticism of the growing sharing (or gig) economy. Even Democratic presidential candidate Hillary Clinton has implied that these companies only succeed by taking advantage of workers.
Yet not everyone thinks that new work opportunities made available by widespread peer-to-peer online interaction are harmful to workers. In what follows, The Heritage Foundation’s James Sherk defends independent work and shares the finding from his new paper, “The Rise of the ‘Gig’ Economy: Good for Workers and Consumers.”
Most workers in the gig economy prefer flexibility and control over their hours.
Jared Meyer: Why is independent contractor status crucial to the gig economy’s success? And what legal obligations do companies face with employees that do not apply to independent contractors?
James Sherk: Central to the appeal of gig economy jobs is that workers can choose when and where they work, or if they work at all. Most Americans want regular “9 to 5” jobs with predictable hours. But most workers in the gig economy prefer flexibility and control over their hours.
A survey of Uber drivers found that three-quarters of them preferred controlling their own schedule and being their own boss to working regular hours with employee benefits. Many gig economy workers have other things going on in their lives—school, family obligations, even another job—that they schedule their gig work around. Regular full-time employment rarely lets individuals work at their own convenience.
Gig workers can do this because they are (currently) classified as independent contractors. Legally they work for themselves, using software platforms to find clients. Since they work for themselves, they can set their own schedule and work at will.
If the government instead classified gig economy workers as employees, this freedom would end. Companies have many legal obligations to their employees that they do not have toward contractors. These include paying at least the minimum wage (going to $15 in New York and California) and paying overtime. State law often imposes additional obligations. For example, California requires firms to document that their employees take a 30 minute lunch break each day.
Companies facing these legal obligations need control over their employees’ schedules. They cannot let workers choose their own hours, then rack up large overtime bills. They must also ensure that their employees produce at least enough in value to cover the cost of the state (or local) minimum wage. That means selecting hours and locations for the workers, instead of letting workers choose when and where they work. Employee status significantly curtails the flexibility that attracts workers to the gig economy in the first place.
Unions dislike self-employment because a union of self-employed workers makes little sense. Self-employed workers do not strike against themselves.
JM: Yet, regardless of the benefits of independent contractor status, companies all across the gig economy face lawsuits over their worker classification decisions. Do these lawsuits have any merit?
JS: No and yes. The lawsuits are largely being driven by two groups: the first is trial lawyers. They hope to win rulings reclassifying gig economy workers as employees and forcing the platforms to pay damages for not paying their “employees” overtime, the minimum wage, etc. Contingency fees on any one of these cases would turn the lawyers filing the suit into multi-millionaires overnight. Thus far the trial lawyers have either lost all these suits, or settled, but the prospect of hitting the jackpot keeps them filing more.
The second group is labor unions. Unions dislike self-employment because a union of self-employed workers makes little sense. Self-employed workers do not strike against themselves. They would not hire unions to negotiate with themselves for higher salaries. Consequently unions typically support laws that push workers into employment relationships.
For example, a few years ago the Teamsters teamed up with environmental groups to push expensive environmental regulations on all trucks shipping out of the Port of Los Angeles. Self-employed (and non-union) truck owner-operators could not afford the necessary upgrades—but large trucking companies could. These environmental regulations effectively reserved the Port’s trucking work for employees—employees the Teamsters could unionize. In the same spirit unions are trying to reclassify gig economy workers as employees. They want to unionize and take dues from them, and they cannot do this if they work for themselves.
The gig economy platforms have the stronger legal arguments, but these lawsuits are not wholly baseless. Courts use complicated multi-part tests to determine whether workers are independent contractors or employees. Many of the elements of this test do point to gig-economy workers as self-employed: they set their own hours, accept jobs at will, use their own business judgement, provide their own equipment, and can work for multiple employers simultaneously.
However, some elements of the self-employment test do go against the gig economy platforms. Many gig economy jobs do not require particularly specialized skills, and their tasks are central to the business of the gig economy platforms. Uber would not have a business without its drivers. These facts point toward an employment relationship. The unions and lawyers are pushing the legal envelope, but they are not entirely blowing steam.
JM: Many policymakers on Capitol Hill mention Uber and the sharing economy in a positive light while speaking with their constituents. What can these federal lawmakers do to protect independent work from its opponents?
JS: The best long-term solution would be to amend federal law to clearly define self-employment status. Congress could state that any workers who choose their own hours, use their own business judgement and their own equipment, and have the freedom to work for multiple companies are independent contractors—full stop. Congress can say “if you do all this you are an independent contractor,” and not leave the courts guessing about how to apply the 20-factor common law test.
If Congress does not do that, then it should create a temporary safe-harbor for the gig economy by declaring that for the next seven years or so these workers and firms have an independent contractor relationship. Congress could then come back later to see how that safe-harbor provision worked out. Most likely Congress would find self-employment serves the needs of gig economy workers very well.
JM: While having this debate, policymakers need to keep in mind that the benefits of independent work extend far beyond Uber. Skilled professionals—everyone from plumbers and lawyers to music instructors and personal chefs—gain from easier access to customers. Online platforms make it easier and more affordable for independent workers to earn a living without laboring under employers. It is also important to keep in mind that consumers clearly benefit when they can access higher-quality goods and services at lower prices. The gig economy is good for workers and consumers.
Republished from Economics21.