Commentary

A new way forward on protecting workers in the gig economy

Uber’s major settlement last month illustrates the pressing need for regulatory action in the emerging “gig economy.” And a recent speech by Senator Elizabeth Warren last week shows us the direction that regulatory action should take.

Cases brought by Uber drivers to district courts in California and Massachusetts throughout the past year have shed light on the problems that accompany the flexibility and autonomy of working in the on-demand economy. Many companies like Uber have been challenged on whether drivers are legally classified as employees of the company or as 1099 independent contractors.

This classification has far-reaching implications, since contractors are not covered by basic employee protections like minimum wage, workers compensation, health and safety rules, and collective bargaining. In particular, the ability to bring class action suits against an employer and bargain as a group has been completely eliminated by mandatory arbitration clauses in Uber drivers’ contracts.

On Tuesday, Katherine Stone provided an excellent analysis of the recent legal developments on EPI’s Working Economics Blog. Last fall, a district court judge in San Francisco ruled Uber’s mandatory arbitration clause unenforceable, allowing drivers to bring a class action suit against company. With a favorable ruling from the district court and a trial scheduled in June, many observers were optimistic that drivers would finally receive employee status and the benefits that come with it.

Unfortunately, the hopes for a new precedent protecting all Uber drivers were dashed when the plaintiffs chose to settle, fearing a decision that would leave them with no alternative but arbitration. While the settlement awarded the plaintiffs close to $100 million, it can hardly be considered a victory for workers:

The Uber litigation demonstrates that a company can not only get an exemption from specific employment laws, it can avoid the entire issue of whether its workers are covered by the laws in the first place. The question of whether Uber drivers are employees or independent contractors has ramifications that go beyond Uber drivers and affect many other workers in the on-demand economy. However, as the Uber litigation portends, that issue may never be decided in an authoritative way.

With the matter left unsettled, it is crucial that policymakers act to ensure protections and benefits extend to all workers. The good news is that Senator Elizabeth Warren has helped point the way to enacting the protections that Uber drivers—and all workers in the gig economy—need. In remarks to the New America Annual Conference last week, Senator Warren argued that while the discussion of Uber and similar on-demand companies is “hip” and “exciting” it only scratches the surface of a much larger issue that Americans have grappled with for decades—how to ensure that regulations protecting workers and monitoring employers keeps up with technological advancement:

More and more of today’s jobs have sharply limited protections and benefits. Long before anyone ever wrote an article about the “gig economy,” corporations had discovered the higher profits they could wring out of an on-demand workforce made up of independent contractors. Labor law makes a sharp distinction between employees and 1099 independent contractors, and many employers figured out how to exploit that distinction. They hired people who do the work once done by people characterized as employees, but then re-characterized them as independent contractors or as somebody else’s employees. The result was that these workers lost their benefits, lost the stability of guaranteed work, and lost the ability to form a union and bargain collectively.

In other words, while the gig economy has provided a flexible and independent source of employment for many people in search of work, Uber is only the newest in a long line of companies that have failed to adequately provide for their workers using ambiguity in labor laws, technological advances, and legal loopholes.

An insufficient safety net only compounds this problem. Senator Warren’s proposed solutions include basic measures to strengthen the safety net, primarily through enforcing Social Security payroll tax withholding and providing both catastrophic and paid leave. She also argues that employee benefits for health care and retirement must be made fully portable, in the style of Affordable Care Act—a suggestion long supported by North Carolina advocates as well.

More broadly, however, the senator calls for “some legal and regulatory certainty in the labor market,” the sort of action that would provide security not only for Uber drivers but for workers in all sectors of the economy. Existing labor laws must be enforced, especially those pertaining to employee classification. Labor laws need to be streamlined, both at the federal and the state level. Most importantly, employees must be able to organize and bargain collectively in order to improve working conditions and hold employers responsible.

Lawmakers here in North Carolina would do well to follow Senator Warren’s advice and skip the legal battles that are sure to arise when employers do not provide the benefits and security their employees need.

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