In the Sharing Economy, No One's an Employee

What do construction companies, strip clubs, and services like Uber and Lyft have in common? The answer is that they’ve all been sued for trying to skirt the law by treating their workers as contractors instead of employees—a long-standing issue that is being exacerbated by the rise of the so-called sharing economy.

Doing so is great for employers but potentially terrible for workers. There are lots of legal perks that are tied to being an employee: minimum wages, overtime benefits, health insurance, workers compensation for those hurt on the job, unemployment benefits for those who are laid off, proof of employment for those trying to rent or get a loan, and, perhaps most significantly, lower taxes (workers who are “independent contractors” have to pay the employer’s share of  payroll taxes). When employers choose to call workers contractors instead, it absolves them of these legal obligations, and saves them tons of money. A 2012 report from the National Employment Labor Project estimates that between 10 and 30 percent of employers were incorrectly labeling their workforce.

This problem, known as worker misclassification, isn’t new and it happens a lot, and in pretty broad, disparate fields of work such as construction, delivery services, and yes, adult entertainment. In April, a judgment in favor of workers in Utah and Arizona forced construction companies who were labeling workers as independent contractors, instead of employees, to pay more than $700,000 in back wages and damages.

But the emerging sharing economy makes it easier to muddy classification categories, especially because of the heavy reliance on new technology. According to Shannon Liss-Riordan, an employment attorney who has worked on issues of worker misclassification for more than a decade, and who is currently suing both Uber and Lyft for the same issue, the problem stems from an organization trying to misrepresent their central function in order to avoid additional requirements and expenses. “A lot of these new so-called technology companies aren't technology companies. Uber and Lyft are car services, and Homejoy is a cleaning service, and Postmates is a courier service.” She says that when it comes to hiring, these companies say that they are simply connecting contractors providing the services with clients who want them, which is a misrepresentation, akin to when Fedex claimed to not be a delivery company or when strip clubs claimed that they were simply bars, that happened to have naked women dancing in the background.

The lack of employee status can leave workers with little protection when something goes wrong.  That can be particularly problematic in some new companies, where an employee’s job can rely heavily on subjective and nebulous assessments, like customer ratings, according to Liss-Riordan. The lack of employee status can also mean limited recourse for workers who face discrimination or want to unionize.

Of course, there are some companies who say that workers prefer the flexibility that accompanies the lack of an actual employee title, and the restrictions that come with it. Miriam Cherry, a law professor at St. Louis University, says that, for those who are doing particularly well in their field, it can afford them the ability to work for multiple employers, or charge more in the name of having to cover their expenses, or ramp up or pare down on hours, depending on their needs at the time.

But when it comes to sharing-economy employees, that’s not always the case, and for many workers in misclassification suits, nonemployee status isn’t a choice, it’s the cost of having a job at all.

According to both Cherry and David Mack, director of public affairs at Lyft, the evolving nature of sharing-economy jobs means that perhaps a new method of classifying employees is needed—one that helps to provide some protection without burdening innovation. "It seems clear that people should be open to evolving the current system," Mack says. "Many people of all levels are recognizing that there should be a third way." Representatives from Uber did not respond to a request for comment.

Many often describe work in the gig economy as secondary—jobs that folks with some initiative are doing in their off hours to supplement income from a more steady position. In some cases, Liss-Riordan says, that’s true. But many of her clients rely on these jobs for all of their income, whether it’s from one company or attempting to piece together a living wage off of several such positions. “There are a whole lot of people who are trying to pay their bills, pay their rent, and put food on the table,” she says. For them, employee protections are crucial. But for everyone, Liss-Riordan says, it’s simply a matter of the law.

Cherry largely agrees, “There's still a minimum wage law, it's on the books for a reason. We decided some of these issues back in the Great Depression, that we needed a minimum wage, we needed overtime protections, that we wanted to have things like unemployment benefits. Nothing's really changed except the technology, but that doesn't necessarily change the fact that we have the same issues and workers still face many of the same problems.”

Liss-Riordan says that changing their worker-labeling practice wouldn’t break companies that are doing well. And companies that aren’t able to provide adequate protections for their workers probably shouldn’t be in business. She also argues that hiring workers as employees, and providing all the necessary protections, doesn’t have to completely destroy a company’s bottom line. Many workers are enticed by the promise that they’ll get to keep the bulk of the revenues they generate. But they don’t take into account just how much they’ll wind up spending on expenses associated with their new venture. Liss-Riordan says that one compromise may be for employers to take a higher percentage of revenues in exchange for covering the basic tools needed for employment. While not as enticing, that approach might be more honest and give workers a better idea of whether or not they can adequately make a living.