Honeymoon Over For On-Demand Apps, Contract Workers

By Jennifer Van Grove

The San Diego Union-Tribune

WWR Article Summary (tl;dr) This article takes a look at the ever-expanding gig economy and its ramifications for the people who work within it. These gig workers look like regular employees but they also look like independent contractors. While the on- demand economy can be a great vehicle for women in business,  female entrepreneurs who operate as independent contractors need to understand their rights or risk being treated unfairly.


The gig is up.

The independent-contractor workforce is ballooning thanks to the rise of on-demand apps. But after a honeymoon period, lawyers and politicians are now being forced to consider the real humans behind these virtual businesses.

These workers participate in what’s sometimes called the “gig economy.” They’re technically working for themselves, picking up gigs from an expanding digital marketplace where technology companies link them to customers to perform individual tasks.

They drive for Uber or Lyft and take you from point A to point B, contract with DoorDash or Postmates to bring you takeout, moonlight for Handy and come and clean your home, and even work “flex” jobs for Amazon to deliver packages to your doorstep in a matter of hours.

Most of the companies in the gig economy let workers set their own schedules, as well as allow them to accept as many or as few jobs as they want, or even take gigs from competing providers.

Conversely, these companies set wages that can be changed at a whim or they control whether the worker can receive tips.

Sometimes they decree, as is the case with Uber, that workers must maintain high customer approval ratings to avoid repercussions such as temporary deactivation.

Exactly who is responsible for protecting these workers’ rights, and determining what those labor rights should be, is an increasingly heated conundrum.

“The current situation … is fraught with ambiguity and uncertainty,” said Seth Harris, a distinguished scholar at Cornell University’s School of Industrial and Labor Relations, and the former deputy secretary of the U.S. Department of Labor. “We’re seeing the emergence of a new structure of work relationships that is quite different from traditional employment and from traditional independent contract work.”

Gig economy workers are the backbone of an expanding on-demand world where nearly anything you might want, a ride, a smoothie, a latte, a massage, a bottle of wine, a doctor’s visit, is just a push of a button away on your smartphone.

Without them, your must-have-it-right-now cravings would go unsatisfied.

Estimates vary, but gig economy workers currently account for 1 percent of the U.S. working-age population, according to a 2015 McKinsey Global Institute report.

“The flexible employment model created by new digital marketplaces for contingent work can appeal to people who do not want traditional full-time positions, and if even a small fraction of inactive youth and adults use these platforms to work a few hours per week, the economic impact would be huge,” the McKinsey report states.

These gig workers look like regular employees. But they also look like independent contractors. The law, which allows for two classifications of workers, employees or independent contractors, seemingly overlooks them.

Thus, the group is at risk of being treated unfairly by companies that take a cut of a worker’s earnings, whether intentionally or otherwise.

“A lot of people are being deprived of benefits and protections because employers get a significant cost advantage, some people think as much as 30 percent or 40 percent, in classifying workers as independent contractors,” Harris said.

With independent contractors, employers are not on the hook to reimburse expenses, pay minimum wage or cover overtime.

Gig workers also have to manage their own tax withholding, don’t have access to employer-subsidized health care, aren’t legally authorized to form unions and don’t have access to federal statutory anti-discrimination protections.

“Nearly 90 percent of drivers say the main reason they use Uber is because they love being their own boss,” an Uber spokesperson said. “Drivers are independent contractors who use Uber on their own terms; they control their use of the app. As employees, drivers would lose the personal flexibility they value most, they would have set shifts, earn a fixed hourly wage, and be unable to use other ridesharing apps.”

You could, however, put Laurence Brown, 40, of San Diego, in the category of gig workers who might deserve additional protections. He’s seemingly locked into a full-time arrangement with Uber, but his non-professional driving career didn’t begin that way.

The commercial and theater actor was drawn to both Uber and Lyft last year because the work offered him a flexible way to make money and also attend auditions.

Happy with the part-time work, Brown decided to consider another offer from Uber. The offer was for a new car, which he could lease through Uber’s new non-prime lending company, Xchange Leasing, a wholly owned subsidiary of Uber. He could return the car at any time with two weeks’ notice and forfeiture of a $250 deposit. Brown liked the idea of not having to worry about how many miles he racked up while driving, a typical term included in vehicle leases.

On Halloween, Brown decided to go through with an Xchange lease for a 2015 Toyota Prius. Brown’s payments would be $181 a week, which adds up to about $784 a month and $9,412 a year. Even still, he was content with the deal because he knew he could easily make the payment, automatically deducted from his Uber earnings, with just a day’s worth of work.

Then Uber changed its fare structure in January, reducing fares for its most affordable options by 30 percent, in hopes of boosting demand for its drivers during a seasonally slow period.

“It went from one day of work to three days of work to make my payment,” Brown said.

Before the fare change, Brown says he was driving 50 to 60 hours a week and pocketing $1,000 after Uber’s 20 percent take.

Now, he says he’s lucky if he nets $700 a week. And he is, of course, still on the hook for the $181 weekly lease payment.

“I’m blessed. I’m fortunate,” said Brown, who rents out rooms in his house to pay his mortgage. “If it was someone else with a family, they would be in trouble.”

Brown’s request is simple. He wants Uber to return fares to previous rates.

The company, which initially said the cheaper prices were temporary, has not indicated if or when it will increase fares.

Bill Tesaro, 34, also of the San Diego area, is Brown’s near perfect foil. A full-time corporate tax professional, Tesaro typically drives three nights a week for Uber and Lyft to create breathing room in his household budget and allow his wife to stay home and care for their two young children.

He isn’t thrilled about making less per ride,  Lyft also cut its prices shortly after Uber did, but he doesn’t mind the work. He enjoys the social aspect of it even if the occasional intoxicated rider engages in questionable behavior.

“These people are how I make money, so if they do silly stuff. … I mean, as long I’m not getting assaulted, I don’t care,” Tesaro said.

In 2015, Tesaro grossed $28,000 from his temporary driving gigs. After accounting for taxes and expenses such as gas and maintenance, he said he pocketed $17,000 last year, netting more than 60 percent of his gross earnings.

Despite the early January fare changes, Tesaro believes he’s still making about the same per month, even if he is driving a little more, though he makes a sizable amount from driver referral bonuses.

“This isn’t for everybody,” Tesaro said. “I don’t want this to become an employee thing. … I just want to do what I’m doing. It works.”

But even Tesaro admits that what works for him won’t work for others, especially not for workers who make a majority of their income from gig work.

That’s why, in December, Cornell’s Harris co-wrote a proposal with Princeton economist Alan Krueger that advocates for creating a new legal class of worker called the “independent worker.”

The classification would apply to all gig workers, not just those working for tech companies, and give them a limited selection of benefits, including collective bargaining rights.

Also, as suggested by Harris and Krueger, companies would be required to provide tax withholding services to independent workers, and contribute 5 percent of workers’ earnings to support health insurance subsidies. In addition, companies could pool independent workers to offer better deals on health insurance and retirement accounts.

Harris admits that his independent worker proposal is, at least for now, far-fetched.

“We’re not yet in a political situation … to adopt the solution we put forward,” he said. “Both sides have to lose some. Right now, both sides think they’re going to win. They don’t feel a need to compromise.”

As it stands, however, gig economy workers are at risk of being deprived of their fair share of the American workforce social compact, Harris said. The social compact, a product of the Industrial Age when the workforce transitioned from artisan workers to wage workers, is recognized in labor law such that if you give over your labor and time, you get certain benefits that provide a level of economic security, he said.

“(The social compact) offers a modicum of protection from bad things happening in the workplace,” he said. “The (benefits) are quite limited. They are not a comprehensive package of guaranteed middle-class lifestyle benefits. But you only get them if you meet the definition of an employee.”

Collective bargaining rights, in particular, could prove essential to gig workers when it comes to negotiating better wages.

A contingent of local drivers interpreted Uber’s fare change in January as an unfair and unnecessary pay cut, but they couldn’t do anything, save for protest. Staged a few days after the cuts, the protest was attended by drivers who’ve grown increasingly cynical about Uber’s concern for their well-being. Their frustration that Uber is amassing a fortune while exploiting the people who do the work is amplified by their pinched paychecks or longer hours.

“What Uber has been doing in city after city, unilaterally imposing terms on workers, (taking) an if-they-don’t-like-it, they-can-leave (approach); that attitude is a race to the bottom,” said Mike O’Brien, a Seattle City Council member who co-sponsored a first-of-its-kind bill in his city.

The bill, adopted by Seattle in December, allows independently contracted drivers to unionize, whereas current federal labor law only grants the right to employees. But the bill could face legal challenges from Uber, Lyft and the U.S. Chamber of Commerce.

“As long as there are people who are desperate enough, that’s enough,” O’Brien said.

Now, Brown, the local driver with the Uber car lease, is banding with the same disenfranchised San Diego group that staged the driver protest.

Organized by Uber driver Kevin McGraham, 39, the local group wants to create a driver association with enough influence to sway city and state officials, who they hope will advocate for them in the same way Seattle’s O’Brien rallied on behalf of that city’s independent drivers.

Already, McGraham has made inroads with local officials, including Ralph Dimarucut, senior council representative for Marti Emerald, who chairs San Diego’s public safety and livable neighborhoods committee.

Dimarucut said the committee is actively looking at what it can do to support drivers. He plans to talk with the San Diego Metropolitan Transit System, the San Diego Police Department and the Public Utilities Commission, which regulates companies such as Uber and Lyft, to get a better grasp on the situation.

City-based policies, however, will do little to address national issues.

“There has to be some sort of adjustment in the law to account for this new breed of worker,” said Dan Eaton, a business ethics lecturer at San Diego State University and an employment lawyer. “The gig economy is still only a small percentage of the American workforce … but it’s better to put a legislative response in place as (the gig economy is) emerging, then to wait until you reach critical mass.”

The legislative response will vary based on the outcome of lawsuits that allege technology companies are illegally classifying workers as independent contractors.

The most prominent case, O’Connor v. Uber Technologies, is a class-action case that appears to be headed for a jury trial in June. Plaintiffs’ attorney Shannon Liss-Riordan believes Uber’s drivers are entitled to employee wage protections, and should be reimbursed for expenses, such as gas and vehicle maintenance. The lawsuit also challenges Uber’s practice of not allowing drivers to accept tips.

Uber, however, doesn’t accept that its drivers are employees. For every Laurence Brown, there are at least nine Bill Tesaros who are thriving because of, and not in spite of, the terms of gig economy work, the company would seemingly argue.

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