Uber Economy Could Spawn New Worker Classification

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By Chris Opfer

Nov. 18 — The rise of the sharing economy has some lawmakers considering a new employment and tax classification category aimed at workers operating in new business models, but which could also extend into a wide variety of more traditional workplaces.

“The fundamental nature of work is changing and I don't believe in the future that it's just going to be a binary choice between a 1099 worker or a W-2 worker,” Sen. Mark Warner (D-Va.) told Bloomberg BNA via e-mail Nov. 16. “There may very well need to be a third classification that allows for both flexibility and worker protections.”

Warner is among a growing number of lawmakers, industry leaders and worker advocates who say that the existing two-category employment and tax classification systems simply might not fit some of the work arrangements in place in sharing and on-demand businesses. The solution, they say, may be to add a third classification to cover workers who fall somewhere between traditional employees entitled to a full range of protections and benefits and independent contractors treated as self-employed entrepreneurs.

Still, the prospect of tinkering with decades-old classifications has been greeted with a heavy dose of skepticism from some Republicans who say Congress should be lifting the legislative burden on businesses, and from Democrats concerned about watering down existing worker protections. Many lawmakers are also still trying to get a firm grasp on just what the sharing—or “on demand” or “gig”—economy is, let alone the unique issues impacting workers and businesses in the new employment arrangements.

“Guys like me don't fully understand it yet,” Rep. Tim Walberg (R-Mich.), chair of the Education and the Workforce Subcommittee on Workforce Protections, told Bloomberg BNA Nov. 17. “Uber, for example, is using technology that wasn't in place six years ago in a way that's expanding all kinds of service for customers but also provides opportunity, choice and lifestyle for the entrepreneur.”

‘Gig' Jobs Blur Lines

The problem illuminated by on-demand and sharing businesses is that their arrangements with workers fall across a wide spectrum that isn't easily accounted for by the traditional employee and independent contractor categories.

For tax purposes, the distinction between the two categories typically depends on how much control an employer exerts over how a worker does the job and gets paid. Federal wage and hour laws also account for the nature of the relationship between the worker and the employer and the role that the worker's efforts play in the overall business.

Independent contractors are required to shoulder the full burden of Social Security and Medicare tax obligations and are not entitled to unemployment insurance benefits, workers' compensation, overtime pay, minimum wages or collective bargaining rights. They're generally considered to have more flexibility in how they do their jobs, however, and can write off health insurance and business expenses for tax purposes.

“When you look at how a lot of sharing economy companies operate, you really see that some of the classical tests that have been used to determine employment aren't really the most applicable,” Rep. Jared Polis (D-Colo.) told Bloomberg BNA Nov. 4. “I don't think legislation is imminent, but I think Congress should begin its fact-finding efforts in earnest, working towards a bipartisan legislative direction,” Polis, the ranking Democrat on the Education and the Workforce Committee's Health, Education, Labor and Pensions Subcommittee, added.

Rep. Bradley Byrne (R-Ala.), a labor and employment lawyer and committee member, said a third classification is one of the ideas that's come up as lawmakers sift through the issue. “The great thing about the gig economy is that it's introducing all sorts of innovations, which is good, but those innovations are causing all of us to think differently about certain traditional notions about labor law,” Byrne told Bloomberg BNA Nov. 17.

Training, Benefits Push Talk of ‘Third Way.'

Gig employers such as transportation suppliers Uber and Lyft ultimately may be forced by courts to reclassify their drivers from contractors to employees (169 DLR A-12, 9/1/15).

Vacation rental platform Airbnb and other online marketplaces are likely to be able to steer clear of any employment relationship with those who make money by using their sites.

The situation is a bit murkier for businesses like Handy, Care.com and TaskRabbit, which mostly link workers with customers seeking their services.

“We offer our contractors the ability to work in an incredibly flexible way,” Handy CEO Oisin Hanrahan told Bloomberg BNA Nov. 18. About 80 percent of the home cleaners and repair workers who find jobs through the company's website work fewer than 20 hours per week, according to Hanrahan, and the contractors earn a minimum wage of $15 per hour.

Hanrahan said Handy would consider shifting workers into a new category if it meant the company could conduct training to help them enhance the services they provide. He said the company is also interested in offering benefits to workers as a way to compete for labor with other on-demand operators.

Grocery delivery service Instacart and personal assistant provider Hello Alfred are among the on-demand business that have opted to make all or some of their workers full-fledged employees. Hello Alfred co-founder Marcela Sapone said the company wanted to be able to properly train workers who often enter clients' homes unaccompanied.

“What we found is that you can justify the costs though a decrease in churn,” Sapone told Bloomberg BNA Nov. 4, saying that the move has helped the company hang onto employees by offering benefits and higher wages. “We have happier customers and are spending less on recruiting.”

It's not just the new breed of business that's grappling with classification issues. The wide range of workers who have recently challenged their contractor status in court spans from delivery drivers and cable television technicians to professional baseball players and exotic dancers.

A new classification may be aimed at on-demand workers, but its unclear whether it would actually be tailored to exclude those in other lines of business.

Concerns on Both Sides of Aisle

Any new classification proposal is likely to get some friction from organized labor and its allies in Congress, who are concerned that a third classification will water down worker protections. It's also not necessarily going to be embraced with open arms by some Republicans who want less red tape and more clarity for employers.

“I think that when we have a new innovation in society—and we have a number of them now—that the last thing we need to do is come up with some new regulations to stifle that innovation,” Sen. Lamar Alexander (R-Tenn.), who chairs the Committee on Health, Education, Labor and Pensions, told Bloomberg BNA Nov. 17. “Surely, we ought to let it progress for a little while before we think about something like that.”

Aides for Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.), the ranking Democrats on Congress's two labor committees, declined Bloomberg BNA's request for interviews with the lawmakers.

David Rolf, a Service Employees International Union vice president, told Bloomberg BNA Nov. 12 that new categories would give employers an incentive to reclassify existing workers.

“I don't see the labor movement or the mainstream of the Democratic party supporting this idea,” Rolf said.

Larry Mishel, president of the union-backed Economic Policy Institute, is among those who've recently said the gig economy's impact is overrated and shouldn't be used to drive federal labor policy. An EPI analysis of data from the Labor Department's Bureau of Labor Statistics shows that the share of workers who identified self-employment as their primary form of work declined slightly last year to about 10 percent.

The problem is that one of the top sources for tracking contract, temporary and other nontraditional work arrangements—the BLS's contingent worker supplement to its current population survey—hasn't been updated in a decade (220 DLR A-8, 11/16/15).

The Freelancers Union has said that as many as 53 million workers earn at least some of their income from gig work, and about 21 million work primarily as contractors on a project-by-project basis. The Pew Research Center and the EPI peg the total number of full-time contingent workers at more like 13 million to 15 million.

The Labor Department hasn't exactly been at the cutting edge when it comes to the intersection of the workforce and technology. DOL in August asked for public input about employees' use of portable technology outside of the workplace and during off hours, an issue that can be traced back at least to the dawn of new smartphone technology some eight years ago (160 DLR A-6, 8/19/15).

In response to a request for comment, DOL spokesman Jason Surbey pointed Bloomberg BNA to Labor Secretary Thomas Perez's remarks on the gig economy during a July webchat. “Regardless of the employment context, our department uses the same analysis to determine whether a worker is an employee or an independent contractor,” Perez said when asked whether the DOL was considering any additional protections for on-demand workers.

DOL Wage and Hour Administrator David Weil said in guidance issued over the summer that “most workers” should be considered employees covered under the Fair Labor Standards Act. Weil has focused in his tenure and academic research on what he calls the “fissured workplace” created by companies' growing reliance on staffing firms to fill temporary, contractor jobs (109 DLR C-1, 6/8/15).

Portable Benefits Also in Play

Other workers' rights advocates are more open to the idea of tinkering with existing law.

Freelancers Union Executive Director Sara Horowitz told Bloomberg BNA Nov. 17 there are “any number” of ways to update federal laws to better serve on-demand and other workers. She said any new classification should require employers to provide certain benefits to workers in the new category in order to exert additional control and allow contractors to retain some of their tax write-offs.

“You don't want companies to provide benefits in times where they need to in order to retrain and attract people and then drop them when the market is tough,” Horowitz said.

Horowitz, the SEIU's Rolf, and Handy's Hanrahan were among an assorted group of economists, business representatives and labor leaders who recently urged policy makers to consider a portable benefits system for contract and other workers (217 DLR A-6, 11/10/15). The model would allow employers to pay into a universal system for unemployment insurance, workers' compensation, retirement and other benefits based on hours on the job, tasks performed or money earned for the business.

Although portable benefits may be a more attainable short-term goal, the question remains whether existing employment and tax laws would need to be updated to authorize employers to offer the benefits without having to automatically convert their workers to full-fledged employees. Some sharing businesses have said they're not likely to adopt a benefits plan without at least a safe harbor—or “time out” period in which to experiment without taking on additional liability.

In the meantime, Horowitz said some unlikely alliances may emerge as lawmakers start to take a closer look at worker classification and other issues impacting the on-demand business model. A small bipartisan sharing economy caucus—chaired by Reps. Darrell Issa (R-Calif.) and Eric Swalwell (D-Calif.)—was formed in the House over the summer (214 DLR A-14, 11/5/15).

“We're really going to start to see the interesting and unique bedfellows that want to be progressive about working class people's issues—whether they're Republicans or Democrats—and really take that seriously and are really concerned that we're not forgetting the people who work in this country,” Horowitz said. “I think that's strangely going to be a consensus builder.”

To contact the reporter on this story: Chris Opfer in Washington at copfer@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com