Is rising income inequality just an illusion?
Gig economy is no excuse for lax protections for American workers
The Colorado state Senate recently passed legislation based on the proposition that in the brave new economy, platform business models that provide flexible employment opportunities can require their workers to bear the downside risks of wage theft, unemployment, injuries, and even sexual harassment at the workplace. This simplistic tradeoff is not only wrong, it's dangerous.
Legislatures in Arizona, Florida, Kentucky and Indiana have also adopted similar legislation, often passed with truncated public review, that define large numbers of workers who find their work through digital platforms like Uber and Handy as independent contractors. The justification for this sweeping exemption is that platform businesses act as markets that simply connect potential customers, such as people needing a ride or someone to fix their sink, with the suppliers of those services. It is true that some parts of the on-demand world operate similarly to newspaper classified ads or Angie's List where small businesses advertise to potential consumers, but that represents only part of the story.
On-demand businesses can be broken into two models. In one model, a digital app connects potential users of services with providers. The app serves as a market by providing potential users nuanced information about providers, such as customer ratings and information on provider expertise, in a low-cost way to transact business. The suppliers on these platforms are more likely to act as true independent contractors because they set their own prices, compete based on their reputations, make decisions that will affect their profits, and provide services that are not integral to the app itself.
However, that is not the entire digital landscape. Other apps connect potential users with a service that has been carefully crafted to have distinctive qualities and consumer benefits. In this case, the app provides users with a service at a specific quality standard, with characteristics assured by the app provider, and in most cases at a prespecified price set by the platform and not the individual providers.
In general, branded platforms like these dictate to their network of providers, which are the drivers, handymen and cleaners, the type of service, the prices that will be allowed, the timing and in some cases the place that services will be delivered as well as other central attributes of the service. Some of these companies have billions of dollars in market values precisely because they are selling a branded service, just like a brick-and-mortar company that brands its products.
In other words, they are employers. For these companies, regarding their business model as a "marketplace" is a misnomer. The danger of considering legislation like that is that it ignores these distinctions, improperly excluding thousands of workers from the protections we have tied to employment for decades. The legislation passed by the Senate makes platform workers ineligible for unemployment insurance should they lose their job, or workers compensation if they are injured.
But as independent contractors, workers also lose assurance of receiving minimum wages and overtime pay or even the idea that a person should receive compensation for the work they do. Workers deemed independent contractors even lose protections from sexual harassment under federal civil rights law since technically, they do not have an employer. Exemptions like these also create incentives for employers to alter their business models simply by using the internet to dispatch workers in order to dodge employment responsibilities for their workforce.
Many companies, including Honor in home health care, Managed by Q in office services, and Ask Alfred in personal assistance manage to be profitable and treat their workforces as employees. They do so because their business models require them to carefully manage their workforce and embrace the employment responsibilities that accompany their core strategies. One can grow an innovative on-demand company while treating workers responsibly. We don't need to trade fairness for profits.
David Weil is professor and dean of the Heller School for Social Policy and Management at Brandeis University. He led the wage and hour division of the U.S. Department of Labor during the Obama administration.