Does an app change the way an employee is defined? Though they haven’t been around long, “sharing economy” apps like Uber, Lyft, and more are already set to change the way people travel—not to mention the way they function in their everyday lives.
But their business model has already attracted numerous lawsuits many of which make it clear that it creates a gray area where laws don’t exist and mobile companies can possibly abuse the system.
The sharing economy is built on a customer interface that can take advantage of the already available resources;someone who’s willing to drive their car and pick up people or offer up their home for travelers, for instance. Consumers are now able to find a taxi or lodging or a delivery service all from the comfort of their own phone. And as TechCrunch explains, it’s turning industries on their head and dropping the middle out of the market:
Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.
Since the Industrial Revolution, the world has developed complex supply chains, from designers to manufacturers, from distributors to importers, wholesalers and retailers, it’s what allowed billions of products to be made, shipped, bought and enjoyed in all corners of the world. In recent times the power of the Internet, especially the mobile phone, has unleashed a movement that’s rapidly destroying these layers and moving power to new places.…[Now,] the interface layer is where all the value and profit is.
TechCrunch adds that these new breed of companies, the “interface owners,” are the fastest growing in history. The sharing economy launched onto the scene and very quickly started making problems for the gridlocked taxi services in cities like Seattle and Los Angeles.
Obviously ease of access for consumers was a huge advantage for apps in the sharing economy, but it helped that they didn’t have to worry about overhead and labor costs getting too out of hand. In the case of ride-sharing apps like Uber and Lyft, it also means that drivers need to pay for expenses (gas, vehicular maintenance, etc.) out of pocket.
But if their drivers were classified as employees, like one class action in San Francisco is pushing for, Uber and Lyft would suddenly experience a huge knock to their finance model. Not only would they have to factor in reimbursement for expenses, but benefits, workers’ compensation, overtime, minimum wage, and more.
The problem is there’s no infrastructure in place to support the case one way or another, legally speaking. Tests made to determine independent contractor vs. employee were established before new, technology-centric business models were in place and now, as Taylor E. Whitten writes for Labor & Employment Law Perspectives, they could go either way. In only two of the examples she gives:
Supplying Tools and Supplies
The rider gets into the driver’s car, and the driver uses her phone to get the rider to the destination. But without the online platform, the rider would very likely never have gotten a lift in the first place.
Length of Time Work Is Performed
The rideshare driver can decide not to drive, but that might hurt her chances of getting scheduled to pick up new riders. The driver can also work through the rideshare company indefinitely, if not fired, which contrasts with the one-time, temporary status of an independent contractor.
Whitten goes on to explain there’s no easy solution in sight, whether it be from the lawmakers or the courts:
As technology has caused commerce to evolve in many industries, and as seen particularly from the explosion of rideshare services and users, the old classification and independent contractor tests can pose more questions than they provide answers. Although we suspect that the current standards test are unlikely to undergo any formal revisions in the near future, it may become increasingly hard to argue that revisions are necessary to account for the ways technology continually brings people together, and creates opportunities for businesses and entrepreneurs to use online platforms. Companies making novel and creative use of technology tools to give people more freedom, and using independent contractors to make it work, could be in for a bumpy ride as these issues play out.
Evan Mix of Labor & Employment Law Blog echoes that sentiment as he notes, in a post on recent lawsuits filed against ridesharing services, that when a traditional test is applied it’s a lot like taking a square peg and looking at two round holes:
Both courts admittedly struggled to apply the traditional multifactor test to the Lyft and Uber business models, noting that some factors cut both ways while others were ambiguous. For instance, while neither company controls when its drivers were on duty, both exercise significant control over drivers when they work through established qualifications, performance standards backed up by customer reviews, and the reservation of the right to terminate drivers deemed subpar. Further, although drivers are paid per ride, neither company allows drivers to set the rates charged. Finally, while drivers provide their own cars, the courts determined that driving requires no specialized equipment or skill and is central to the companies’ business model. Ultimately, both courts found summary judgment inappropriate because a reasonable jury could rule either way on facts material to the employee/contractor test.
As Ars Technica notes, the case isn’t unique; FedEx drivers have been fighting for employee status for years. But with a mobile apps now in play, there’s more at stake for this court case. Silicon Valley’s entire sharing economy is built on the independent contractors who relinquish 20 percent of their profits to use an app to find customers. If it turns out that these workers needed to be classified as employees, who came with the need for benefits, reimbursements, worker’s compensation, and a pile of other costs, the whole house of cards could collapse.
There are some, like Mike Konczal and Bryce Covert, who think that the case could pave the way for a worker-owned business. In their article for The Nation:
It takes an entrepreneur to start up ride-sharing, but not to run it as a firm. A worker collective is the obvious transition. Uber and the rest of the “sharing economy” companies will try to close the door behind them, either by putting their workers in binding contracts or by lobbying government officials to build their own set of industry protections. But a transition to workers’ owning their firms is necessary, economically smart, and one way for workers to gain power in the digital age. Because you know what worker-run firms do? Share.
There’s already at least one New York-based app that’s taking this approach, potentially there’s room for others the road. For now we’ll have to see as Uber and Lyft’s case progresses to a jury whether their drivers end up as independent contractors, employees, or some sort of new category entirely. Right now all that seems clear is that the standards of the past yield more questions than answers. Either way, startups whose work hinges on independent contractors are in for a bumpy ride.