Why do we need a new worker classification?
The Uber - Lyft - Doordash proposal seeks to create a new legal classification for workers in California because Uber - Lyft - Doordash believe people who earn income using their software applications (meaning Gig economy workers) do not meet the legal definition of a traditional employee.
In their proposal Uber - Lyft - Doordash are seeking to define a middle ground between the employee and Independent contractor worker classifications.
Uber - Lyft - Doordash do not think it is reasonable to force them to treat Gig economy workers as employees… they contend Gig economy workers do not qualify as traditional employees primarily because the Gig economy workers have important freedoms not enjoyed by traditional employees.
The joint Uber - Lyft - Doordash effort seeks to work with the California politicians and Gig economy worker advocacy groups who believe Gig economy drivers do not “pass” the employee vs. Independent contractor test codified into California employment law by a new law known as AB5. (More on AB5 in a moment)
Some politicians and very vocal Gig economy workers advocacy groups do not think it is appropriate to classify Gig economy workers as Independent contractors… they have made clear they believe Gig economy workers should always have been classified as and treated as traditional employees.
Personally, I believe if Gig economy workers understood what they will have to give up if they become traditional employees, most Gig economy workers would support at least a conversation (negotiation) about a new worker classification… a “middle ground” between traditional employee and Independent contractor.
Employer control over traditional employees
Employers have a great deal of control over traditional employees and very little meaningful control over Gig economy workers who are currently classified in California and most of America as Independent contractors.
The kinds of employee control we’re talking about here allows businesses to intelligently manage the cost of doing business specifically the largest expense for almost every business… their Workforce… their traditional employees and/or Independent contractors.
All businesses control how many employees are “on the clock” at a given time and in a given place… they carefully control employee payroll and related employee benefit expenses.
Allowing a business to control how many workers it needs sounds reasonable to me… controlling how many workers are paid how much should be 100% under each business’ control.
After all the local retail store; Fast food restaurant; manufacturing plant; software company; etc. has complete control over how many workers they employ and complete control over how many hours the workers are required or allowed to work.
Before the Gig economy was created no one seemed to question this control and no one seemed to be trying to tell businesses how many employees they should hire and pay.
Obviously, there are regulations and laws related to overtime and what constitutes a full-time vs. a part-time employee but it has always been a given that a business gets to control the size of the Workforce and how much those employees work and where they work.
Impact of converting Gig workers to employees
If Gig economy workers suddenly became employees without any changes to the level of control Gig economy employers have over these workers… the cost of doing business would spiral out of control and (in my opinion) the Gig economy in California would be over.
Again, sounds pretty reasonable… being a traditional employee means the hours you work are defined (controlled) by your employer.
In very sharp contrast Independent contractors control when, where, and how much they work.
Contractors can pick and choose all three metrics: when, where, and how much.
I think it’s pretty obvious the Gig economy is not going to disappear from California so if making an “overnight” switch to traditional employees won’t work it makes a lot of sense to define a middle ground… middle ground that could look like a new worker classification… a classification that is somewhere between employee and Independent contractor.
What’s behind this controversial activity
The Uber - Lyft - Doordash proposal is more or less a response to a new California law known as AB5 (California Assembly Bill 5)… a law that defines a three-part test for all California employers (not just the Gig economy companies) related to how they classify a worker… Independent contractor or employee.
AB5 is law only in California and despite what you may have heard Uber, Lyft, Doordash, and all of the other Gig economy business are not currently in violation of California’s AB5 by continuing to treat Gig economy workers (like rideshare and independent delivery drivers) as Independent contractors… AB5 does not mandate (force) any company to reclassify any worker from Independent contractor to traditional employee.
If you are not yet up to speed on the details of AB5 and the implications of the new law for Gig economy workers in California I’ve written frequently about AB5 most recently in a two-part blog post Assembly Bill 5 (AB5) and Independent contractor Agreements in California and California Assembly Bill 5 and Uber Technologies Inc – Guide for Drivers.
As stated earlier the Uber - Lyft - Doordash proposal seeks to define a “middle ground”… a worker classification that gives California politicians and Gig economy worker Advocacy groups some of what they are asking for without forcing Gig economy businesses to completely redefine their Business models or stop operating in California.
Why making Gig workers employees won’t work
Most news articles I’ve seen and most of the talking points used by California politicians and Gig economy worker Advocacy groups suggest Gig economy workers could simply be reclassified from Independent contractors to employees without making any changes to the way companies do business.
Most reasonable voices will agree that after the change the cost of the fares passengers pay would probably have to go up.
The politicians and Advocacy groups tend to say that Rideshare drivers have always been treated as if they were traditional employees (meaning controlled by the company) and that Uber, Lyft, and the other Ridesharing companies have always wrongly classified drivers as Independent contractors.
In fact, some California Uber and Lyft drivers have come together to claim that Uber and Lyft owe them at least $630 million dollars in back wages due to this historical misclassification.
$630 million owed in back wages and that's only for the California drivers!
This effort suggests that Uber and Lyft also owe drivers for overtime hours they worked in the past… the fact that no one asked them to work more that 40 hours per week isn’t being included in the conversation.
It seems completely unreasonable to me to try to make a case for back wages and “overtime” hours that were volunteered by drivers… but I guess it’s possible to claim or believe most anything… I say: “Good luck on that one my fellow drivers.”
All of the over-simplified (and illogical?) points of view in the $630 million dollar story and the article referenced for this blog suggest that the Gig economy Ridesharing companies like Uber and Lyft (neither have ever earned a single dime of profit) should just pay up and figure out how to do business with massively increased cost of doing business while the Gig economy workers give up essentially nothing.
Minimum wage for Rideshare drivers - talking points
An idea that is popular with California politicians and driver Advocacy groups is the Gig economy companies are taking advantage of Rideshare drivers… that these companies have always taken advantage of Rideshare drivers… and the sole reason the Gig economy companies are taking advantage is to increase their profits.
These most popular talking points (usually accepted without public argument or debate) would have us believe that the additional expense is the only reason Gig economy companies don’t want to make the switch from Independent contractor-drivers to traditional employee-drivers.
The reality is not that simple… and as is true when logically analyzing many popular “news” stories these days the “truth” is somewhere in the middle.
Is the Independent contractor to employee switch reasonable?
One important reason why simply reclassifying the Independent contractor Ridesharing drivers as traditional employees is not reasonable (so unlikely to prevail/win in a lawsuit) is the core difference between a traditional employee and an Independent contractor.
Traditional hourly employees are guaranteed an hourly pay rate for every hour they are “on the clock” BUT businesses control their labor costs by controlling how many employees are working at a given time and place.
Under the current system Independent contractor Rideshare drivers have 100% control over when, where, and how much they work.
Currently an Independent contractor Uber driver can choose to:
- Clock-in and out whenever they want
- Stay clocked-in (online ready to complete passenger trips or deliveries) essentially as long as they want including choosing to work over 40 hours in a single week
- Work in the part of their city/market they choose
This means under the current Independent contractor driver system there can be an unlimited amount of “clocked-in” drivers at any point in time and in any part of a given city.
This works for Uber and Lyft because drivers are Independent contractors, they are not guaranteed an hourly wage, in fact, they are not guaranteed to receive any passenger trip requests at all meaning they are not guaranteed to earn any income.
Hours and places of work would have to be controlled
If Gig economy companies were forced to reclassify workers as employees and pay them a guaranteed hourly wage for every hour there are “clocked-in” the current Business model collapses immediately.
The Gig economy companies can’t afford to pay an unlimited number of workers a guaranteed hourly Minimum wage and give them unlimited flexibility to work when, where, and how much they choose… and in the pre-Gig economy world no reasonable person would expect companies to give workers that kind of control.
It is beyond unreasonable to expect Uber and Lyft to pay a guaranteed hourly wage to an unlimited number of drivers; at any time of day the drivers choose to “clock in”; and allow this unlimited number of drivers have 100% control over where they work, how much they work… and yet that is exactly what some California politicians and the driver Advocacy groups want?
For an employee-driver Business model to work the Gig economy companies would have to find ways to control access to “clock-in” meaning (in the case of Rideshare driving) limiting the number of drivers “clocked-in” and finding ways to ensure drivers are spread throughout a given city and not clumped up too densely for the anticipated amount of passenger trip requests at a given place and time.
Employee Ridesharing drivers would lose their work flexibility
The flexibility to work when, where, and how much they choose is at the core of why Gig economy jobs appeal to most Gig workers.
This is true in part because most Gig economy workers only work part-time hours and they have 100% control over working only when they want to… only when doing “extra” work fits into their individual schedules.
In my case this means I can always do what I need to do for my kids… I never have to ask a boss for permission or disappoint my kids because I can’t make an event that is important to them.
Because I have 100% freedom over when I “clock-in” and “clock-out” I am able to be an important part of my children’s lives now while they are young… providing guidance I hope will help them become successful adults for the rest of their lives.
I think this flexibility is the most important “benefit” of Gig economy work and I do not want to lose it.
It’s all about the flexibility
When speaking publicly Uber and Lyft talk about the loss of flexibility that would come with an employee-driver Business model (from the referenced article):
“We [Lyft] agree with the bill’s [AB5] goal to protect workers, but we don’t agree that this protection should come at the cost of the flexibility our community relies on to supplement their income, support their families, and set their own schedules…”
I think the message could be clearer and stronger!
But if the message were stronger Lyft - Uber - Doordash would have to be clear about at least two things:
- Reclassifying from Independent contractor to employ would mean a significant loss of Rideshare driving “jobs”
- Reclassifying would also mean some cities/markets currently served would lose the services completely
These are not at all positive messages and would not be well received.
And at this point in the negotiation process it would not be logical to “stir the pot” with these extremely negative-sounding truths.
If Gig economy drivers are reclassified from Independent contractors to employees by force of law, I believe the following would also be true:
- Every current driver would have to interview hoping to be hired as an employee-driver
- For a variety of reasons many current drivers would not be hired as employee-drivers… not hired means no more Rideshare driving income (loss of jobs)
- Employee-drivers will lose most if not all of the work schedule flexibility they currently enjoy
What does the Uber - Lyft - Doordash proposal offer?
I hope I’ve made a strong case all interested parties should be at least listening to the joint Uber - Lyft - Doordash proposal.
Let’s take a look at the most important point… the guaranteed $21 an hour income during active passenger trips.
From the referenced article:
“After talking with thousands of California drivers and listening to experts in labor laws, we’re proposing a revision that protects driver earnings and the flexibility to earn when and how you want. Our proposal includes additional workplace protections for drivers and a minimum earnings floor.”
For Uber and Lyft drivers this means they would be guaranteed to earn at least $21 per hour from the moment they accept a passenger’s trip request to the moment they drop the passenger off at their destination and the trip ends.
Drivers would not be guaranteed to be earning $21 an hour for the time they are waiting for the next passenger trip request.
For a Doordash delivery driver this means from the moment they accept a delivery request until the moment the delivery is complete.
Again the driver waiting for their next “gig” would not be earning any guaranteed income.
You might be wondering: “Why not just pay a guaranteed hourly wage?
And: “This sounds like just another way to take advantage of drivers?”
The Uber - Lyft - Doordash proposal seeks to find a compromise that preserves driver's freedom to work when and where and how much they want without requiring Gig economy companies to completely redo their Business model.
A guaranteed minimum hourly wage for every minute a driver was online would require Gig economy companies to create work schedules; limit the number of drivers “on the clock” at a given time; define where drivers would have to be in the city when they start work; manage moving drivers around during their shifts; sanction or even fire drivers who missed shifts or signed out early or failed to follow directions to relocate to a different part of the city/market during their shifts.
And all of this employer control activity would require the Gig economy companies to hire managers to make schedules and manage driver’s activities.
Think I’m exaggerating and making this sound more complicated than it would have to be?
Go back to my earlier point… the Gig economy companies are not going to be the only companies on the planet to pay a guaranteed Minimum wage for every minute a worker is “available for work” and also allow workers to work when they want and where they want and how much they want.
The notion that Gig economy workers should get the most important benefit a traditional employee gets (guaranteed income for every hour they are ready and willing to work) without giving up most of the Independent contractor freedom to work when, where, and how much they want… that notion is just naïve or maybe just plain dumb.
Attempts to educate interested parties
A problem with being a Gig economy company in the current environment is almost everyone is saying negative things about aspects of your company’s Business model.
Driver Advocacy groups claim you have always taken advantage of them… since the moment you opened your business.
Politicians echo similar messaging at least in part because media outlets report on what the politicians say and the politicians can make the case that they are “standing up for the little guy” and “working to bring protections to exploited workers.” Messages that make a case that they are doing their jobs and voters should continue to support them.
The fact that employees contribute more to government tax roles compared to Independent contractors might have something to do with the outrage politicians voice to the press… but that’s a topic for another day.
News articles almost never say anything good about these Gig economy companies despite the reality that they have made life better for hundreds of thousands of Americans.
With so much negativity being spread so “loudly” it’s almost impossible for Gig economy companies to do anything but be on the defensive… and if you’re always defending the way you conduct your business it’s hard to not sound like you are probably guilty of what you are being accused of doing (or not doing.)
Uber is trying to reach out publicly and communicate what the joint Uber - Lyft - Doordash proposal is about and provide a format for interested parties to understand and hopefully support their efforts (from referenced article):
“On the heels of a driver-led protest outside Uber’s San Francisco headquarters, where drivers showed their support for gig worker protections legislation (via Assembly Bill 5) and demanded a union, Uber is circulating a petition urging people to ‘protect ridesharing in California.’”
Uber petition to protect Rideshare driving in California
Driver Advocacy groups are not interested in compromise
So far the very vocal driver Advocacy groups operating in California don’t sound interested in any compromises… they sound like they want what they want… they think they are right… and Uber, Lyft, and the other Ridesharing companies are just wrong, exploitive, and perhaps just plain evil.
From the referenced article:
“Everything that Uber and Lyft are offering is insulting to drivers,” Lauren Casey of Gig Workers Rising told TechCrunch.“
Wow!
“Everything… [they] are offering is insulting...”
Doesn’t sound to me like the driver Advocacy groups think there is any room for negotiation? With a message like “insulting” doesn’t sound like they are interested in even talking?
I don’t drive in California… I drive in Denver/Boulder Colorado… but if I did live in California I would say:
“You’re not advocating for my interests as a driver! You are not representing me or my interests and you don’t sound like you are even willing to sit down and talk?”
I don’t want to sound rude… but to be very blunt, saying “Everything… is insulting...” sounds like a personal attack… as a parent if I offered a potential compromise to my kids and they responded saying “that’s insulting” I’d think they sounded like spoiled brats and certainly not at all professional.
If I did choose to be represented by an Advocacy group, I’d want them to behave in a professional and respectful manner… it’s possible to disagree without getting personal.
Unfortunately in our current world, strongly influenced by social media, it might seem like the “right” or at least popularly accepted way to behave (like a spoiled brat) but in the real world of business… negotiation employment practices… with lawyers and ivy-league trained senior executives (the world where deals gets done) behaving like an adult is still the accepted norm and behaving like a spoiled brat accomplishes nothing… probably moves “the bar” in the wrong direction.
Not every Ridesharing driver wants to be an employee
These driver Advocacy groups don’t even try to represent all drivers, or even most drivers.
I don’t want to be an employee-driver I want to stay an Independent contractor.
About 70% of drivers work on average 10-15 hours per week and I suspect most of these drivers are smart enough to understand that it’s completely unrealistic to demand guaranteed middle-manager level income and benefits to do a job that almost every adult in America has the necessary skills to do… namely the ability to drive a car.
Again, Uber and Lyft are trying to get the word out; communicate and educate; and behave like adults:
“Uber has also created a new website called ‘Independent Driver' to showcase stories from drivers who want to remain Independent contractors. Lyft, similarly, is circulating a petition urging people to demand legislators fix AB 5.”
What else is in the Uber - Lyft - Doordash proposal?
So we’ve talked about the $21 per hour while in an active passenger trip or delivery what else is in the Uber - Lyft - Doordash proposal?
“In the petition, Uber advocates for a policy that would offer drivers a minimum of $21 per hour while on a trip, paid time off, sick leave and compensation if they are injured while driving, as well as a collective voice and ‘the ability to influence decisions about their work.’”
I like the sound of paid time off and sick leave but having worked middle-manager positions in corporate America Technology companies as well as entry-level, essentially zero required skills seasonal retail work I know that low-level, part-time jobs get very little if any paid time off or paid sick leave and full-time salaried jobs typically don’t get the level of benefits people think they do.
“Sick leave” could just mean if you have to be out sick your Gig economy “job” will still be there for you when you are well enough to work again. I already have that as an Independent contractor rideshare driver.
This would be an easy benefit for Gig economy companies to offer their workers because they are constantly bringing on new workers. For a lot of people these are transitional jobs they never intended to work long term… annual driver turnover is on average greater than 100%.
Paid time off is typically earned in direct relationship to how many hours/days a worker puts in on the job. A reasonable benefit here for both sides of the equation (Gig economy companies and workers) might be a day of paid time off for every three months of full-time hours work or equivalent number of hours for part-time workers.
Again, a relatively easy benefit to offer. While driving for Uber and Lyft there are constantly bonus offers where I earn extra income for accomplishing a goal… earning some paid time off would essentially be just another type of bonus offer.
I'm just guessing now what is meant by “sick leave” and “paid time off” which isn't particularly interesting because it's just a guess.
Now this one: “…compensation if they are injured while driving…” is very important and would be a substantial added benefit included in the Uber - Lyft - Doordash proposal.
When I read messages like: “a collective voice and ‘the ability to influence decisions about their work” I don’t get too excited… I can be a bit cynical and doubt the “influence” would equate to significant changes for drivers.
Uber and Lyft already have driver advisory councils with driver representatives, and I think I would be a good representative for drivers because I understand how business works and I would not advocate for “nonsense” benefits for drivers.
Of course having a voice in the “big meetings” would be great but in an environment where there is zero profit I could see requests/demands for changes that would cost the company money always being shot down with: “Maybe someday when/if we become profitable?”
It is common to see Ridesharing drivers calling for a union to force the Gig economy companies to comply with worker demands… I don’t see the logic of forming a union to try to force companies that are losing billions of dollars a year to give their workers more?
I wouldn’t voluntarily join a union and pay union dues in the current environment… I’m thinking that if Rideshare driving is not working for you maybe just walk away and do something else?
Unions make sense for highly-skilled workers who have probably invested years of their lives in their careers working for companies that are earning significant profits and arguably not sharing the wealth fairly with their workers.
Benefits for Gig workers and companies
But the point I want to make is Gig economy workers expectations for benefits should be in line with equivalent skill-level traditional jobs in America… that is what would be reasonable in a negotiating process… in a conversation between adults.
For example, I sometimes hear the driver advocacy groups talking about health care coverage. I suspect they mean at least the full-time Gig economy workers should receive free or low-cost health insurance.
Check out this company-sponsored health insurance story:
My close friend who is still working in corporate America pays around $400 a month for the health care coverage he gets through his company.
This is a household name Fortune 500 technology company… you’ve heard of them.
My friend is a mid-level manager with over 20 years of experience doing high-level work in the company’s professional services division.
So his health insurance coverage costs $400 a month and the first $6,000 every year for healthcare expenses comes out of his pocket… his medical costs deductible is $6,000.
Let's run the numbers of my friend’s health care benefit through a calculator…
He pays $4,800 a year for health insurance coverage even if he never goes to the doctor.
If he had $6,000 worth of doctor bills his total yearly out-of-pocket expense for healthcare would be $10,800 before his company-paid healthcare benefit kicked in a dime… and this is the cost of a company-sponsored health insurance policy for just for him, his children are covered under his wife’s employers policy.
I'm oversimplifying a little bit… he does get a free annual physical and because he's over 50 there are other annual check-up procedures that are fully covered.
I have a lot of friends still working corporate America jobs and this is a typical company-sponsored healthcare insurance package… most have higher out-of-pocket expenses.
The point is if you see a Rideshare driver protest and someone holding up a sign saying “Drivers deserve health care coverage” don't think there is any chance that coverage would be free to drivers and don’t expect it would be comprehensive… likely the meaningful coverage would essentially be catastrophic occurrences (hit by a bus.)
And not to sound like I’m belittling Rideshare drivers, after all I’ve been driving full-time hours for over 4 years, but the best traditional employee benefit packages go to the highest skilled workers… workers that are hard to find… hard to hire… and hard to retain… driving a passenger vehicle (not commercial) is a very common skill.