Category Archives: Gig Economy

I am Uber the Uber Lawsuit

Uber Lawsuit and The Independent Contractor

Last month, Uber settled the  class action lawsuit involving its drivers in Mass and CA. The court papers reveal that the settlement was $84 million, while some estimates put actual damages, had they lost as trial at anywhere from $750 million to $4.1billion.  Is anyone surprised they settled?

Part of me hoped that the case would continue to the courts, since such a case might  have brought some needed clarity to the mess that is independent contractor  versus employee regulations.

In 1993, I started a firm, Collabrus, because of this very ambiguity.   Collabrus acted as an employer for consultants during a project when the nature of the work or the client’s risk profile warranted that structure. It offered health insurance as well as specialized benefits designed for consultants, like low cost errors and omissions insurance. In setting up and running that business I learned more about independent contractor compliance than I ever cared to know, hence my interest in the Uber case.

I thought, had it continued, the Uber case could go either way. One of the reasons that this is such an ambiguous area is because “independent contractor” is an undefined term in the law. Much of our employment law is derived from British master servant laws which date back to the 14th century. In fact, they were developed following the massive carnage of the bubonic plague; since so many had died, laws were needed to define who of the remainder were the masters and who were the servants. Back then independent contractors (ICs) were not part of the picture.

Since there is no legal definition of an IC, though some states have done so, tests have been developed that take into account agency law constructs as well as other factors. The IRS has put the most widely used framework together in its “20 Points” that define an independent contractor. These include things like having their own tools, being able to experience a financial loss, and receiving no training. Unfortunately, not all of the conditions need to be met, and some are more important than others. This makes for a very murky picture of who may be an IC and who may be an employee. In the last 20 years, the two key things that businesses have drawn from the “20 Points” are that the most important considerations are direction and control. If you direct and/or control the work of someone, they are likely your employee.

So lets consider the Uber driver. One thing Uber has going for them is that they don’t train their drivers; drivers come to them knowing how to operate a vehicle. Uber may certify that the driving record be clean, but this wouldn’t be considered training or direction. The fact that drivers can set their own schedule is also a plus for Uber, since it reduces that sense of control. The fact that so many drivers are very part-time, i.e. less than 10 hours, is also a plus for them. Technology, though, muddies the picture. Drivers are given an iPhone by Uber to be able to hook up to their ride-haling platform. As such, Uber is providing the tools to some extent. Perhaps the biggest issue, and the one that an Administrative Law Judge highlighted in a ruling in 2015 where he deemed a Southern California driver an employee, is that Uber sets the pricing of all rides. As such, this is preeminent control over the driver.

Given my interest in the subject and being a very regular customer of Uber, I quiz every driver about their thoughts on the lawsuit.  I have yet to encounter a driver who wants to be an employee.  Most are teachers or students or retirees, who want the flexibility of time. The one suggestion I did get was that Uber could have done a better job helping the driver prepare for the tax implications of being an IC; as one teacher said, he'd always been a W2 employee, so it never occurred to him that he needed to save all of his receipts.  So maybe Uber just needs a wonderful flyer, brochure or even app, entitled"Making the Most Money with Uber  - How to Manage your Business Expenses."  That seems like it would be a lot cheaper than another court case.

 

Just because it has an app, doesn’t make it a gig

A recent article in Forbeshttp://ww.forbes.com/sites/parmyolson/2016/03/21/gig-economy-app-blue-collar-job-on-demand/#51a7380f74e2, illustrates a problem with the media's focus on the gig economy.  The article, entitled "This App for Blue Collar Workers Offer a Twist on the Gig Economy" describes a well-funded start-up in Spain called Job Today which has launched an app to place workers in hospitality jobs that have "the Old School idea of a job where you are an employee."  I am sorry, Forbes, but being recruited into a job as an employee is by definition, not a gig.

Indeed Job Today is excited about the number of people it puts into jobs, not gigs.  It is a staffing segment that does not even represent white space in the staffing industry; there have been companies servicing  the hospitality industry with servers, bartenders and maids for decades.  Granted, the founders wanted to do a bit of  disrupting, since so many people find jobs in hospitality  by walking into a bar and offering up a paper resume.  This was a market inefficiency that technology could potentially address.

Using technology differently in the space is where the  confusion, probably arose.  Job Today has a Tinder Like app, where the user swipes to see different candidates. (The old HR Professor in me, sees some inherent potential discrimination issues in that, but hey... they are in Spain...) Just because there is a cool app, doesn't make a staffing firm a gig economy player.  Yes, sophisticated platforms for matching talent has enabled the freelance economy to be targeted and engaged more precisely, but this is sophisticated technology designed to help people get regular jobs. That said, they do handle some temporary ones, for vacancies or seasonal work, but their bread and butter is in the full-time regular hires.

So just to be clear, for any journalists or bloggers who might not understand my nuance here.  Regular employment  where people are hired as employees are not gig economy jobs even if a cool app is involved.  As McKinsey defines it, the gig economy is "contingent work that is transacted on a digital marketplace." Job Today has the second condition, but its goal is not the first.

Goldman Sachs buys into the gig economy

Honest Dollar in the Gig Economy

The headline in the Wall Street Journal yesterday read, "Goldman buys Retirement Startup". The story went on to report how the purchase of Honest Dollar, an Austin, Texas-based financial technology firm focused on retirement plans comprised of low-cost exchange traded funds targeted at small and mid-sized companies was a purchase designed to broaden Goldman's business into less exclusive services. It was also a play into a new distribution channel, where the emphasis is on technology.  The inference was that by purchasing this innovative financial technology company Goldman was buying entry into a hot new marketplace.

Although I can't speak to the technology, I can speak to the innovation because Honest Dollar is one of the few financial service providers targeting gig economy clients.  Some coverage of the transaction did mention that Lyft, the on demand car hailing service, was a client.  What was not mentioned was that they were a client not just for employees but for 1099 contractors.

One aspect of working on a 1099, independent contractor (IC), basis is that you are responsible for paying your own state and federal taxes  (FICA, FUTA and income) and managing your own benefits. The latter includes saving for retirement.  Whereas traditional employees have these payments deducted from their pay, ICs need to make the effort to coordinate it all.  Many pundits have suggested that this lack of access to benefits traditionally offered to employees is reason to eliminate IC status, unionize or at least slow the increasing presence of gig economy workers.

Honest Dollar saw this marketplace complexity as an opportunity. Providing retirement plans to 1099 workers represented a whole new target that was not underserved but unserved . William Hurley, co-founder of Honest Dollar says "It's the first retirement plan for the modern world." 1099 contractors who work for Honest Dollar clients can have retirement savings deducted from their fee payments.  Contractors can even set it up on a smartphone.

Now with the backing of Goldman Sachs, Honest Dollar is bound to expand its offerings,  the safety net for the gig economy may be improving.

 

Hollywood and the Future of Work

Stephen Kasriel the CEO of Upwork just wrote an article in Fast Company called "Why the Future of Work will Look a lot like Hollywood."   I agree wholeheartedly and in fact wrote a similar piece years ago on the movie model. I pointed out that It is no surprise, that  in the business analog, the first players  to become independent were the stars,  just like in the movie model. Back in 1988  ( before the internet...ouch!) it took me no time to build up a strong network of consultants numbering in the 1000s.  Independent expertise of the most credentialed sort  has been around for decades, well before the advent of what people typically think of as the gig economy,  i.e. the uber drivers or free-lance workers on the  Upwork platform. It's the stars, the highly accomplished independent consultants and interim managers,  who wanted to to take control of their careers and make choices about how they would use their talents.

 

But there are two salient  but potentially related differences  between the movie world and the high end of the gig economy.  The first is that no one seems to take issue with the movie model.  The fact that talents of all sorts, from cinematographers to actors to musicians, come together for a one year gig  to make a movie and then disband is not derided as a dangerous model. This gig economy is accepted for what it is - the best way to complete a large scale cinematic project. However the other key difference is the fact that  Hollywood is a land of unions. The  writers, composers, actors and directors are all in a union or guild.  Additionally, the agents who represent them are also union members.  Is it this labor affiliation that spares the movie model from criticism?

Just today, the AFL CIO declared that gig workers should be employees.  They implied but did not suggest outright that therefore they should be union employees.

I can't speak to the low level roles in the gig economy, but I can speak to those who represent the most skilled, the consultants who have gone independent by choice.  One once told me she never wanted to be an employee ever again.  I will extrapolate that she wouldn't want a union card either...

 

A Gig Economy Downside No one Mentions

I saw a blog post today from DCR Workforce announcing that there will finally be a "reckoning " of the gig economy.  http://blog.dcrworkforce.com/finally-official-reckoning-gig-economy Like most people who question the value of the gig economy, the author's concerns were about the  lack of a safety net for the workers.  There was also apparent relief that perhaps, in this reckoning, we would also "weed out cases where employees are being misclassified as independent contractors by businesses."  

I too think it would be valuable to have such an accounting  for what is becoming an ever-growing proportion of the labor force.   I too recognize that may of these workers are not doing gigs by choice but out of necessity.

That said,though, so many pundits and economists often overlook the fact that for so many the further maturation of this marketplace is not pernicious but empowering.  Many professionals have self selected into this gig economy labor force, because they can; they have the expertise that will command a market rate that will support their lifestyle.  And now, with the increasing sophistication of search algorithms, the ability to parlay that expertise to the market place is so much  more efficient.

It is not a free market, though, because legal obstacles especially in employment law around independent contractors and employees frustrate the free flow of talent. Yes, some players may inappropriately classify workers, but the flip side is true as well. Many companies are so worried about the employee independent contractor issue, that they refuse to engage anyone who is paid on a 1099, the tax form used to report non wage income.  It is not illegal to work on a 1099 basis, yet many consultants have been forced to change the way they do business to deal with this heightened risk profile. I should know, in 1992, I started a firm, Collabrus,  to employ consultants  for the duration of a consulting project, if  the nature of the work or a risk averse client required it. Similarly, many senior level consultants are forced to work through master vendor arrangements, where they become the employee of someone in order to complete a consulting project.

So the downside that many never seem to mention, for what is albeit the upper end of the gig economy labor pool,  are the marketplace inefficiencies  that institutionalize risk and increase costs to practitioners  who are forced to operate differently with  different clients.

So my question is this --  when the reckoning of the gig economy is done, will they also identify those workers who were misclassified as a temporary employee, when they could have operated as a 1099?  It seems only fair.

The Freelance Marketplace Platform Race

Now that I have embarked on my research for the next book on the high-end of the on demand expertise marketplace, I am having a lot of deja vu moments.  Certainly, there is the fact, that though I have been gone from my old firm for several years, things have not changed that much. Tremendous, credentialed  expertise of just about any type is available on demand. Companies continue to avail themselves of this resource in new ways, and new competitors continue to arrive touting different points of differentiation.

It is this last area where the deja vu comes in, because the new platform competitors appear to be cropping up everywhere.  My twitter feed is cluttered with entreaties from one firm to beta test a new platform that "won't suck." (I couldn't help but wonder if they shouldn't get a free

ipo-flops3-1

The Pets.com sock puppet

lance copy writer to come up with a better ask...) Quite frankly, I am reminded a bit of the frothy days of the internet when pets .com  became the 4th ( yes 4th) online pet supply store.  Despite the fact that dog food is not a high value shipping product, the firm had an amazing IPO valuing it at close to $100 million  in 2000 and was out of business 9 months later.

 

I am not suggesting that the online freelance marketplaces are headed for the same fate.  Indeed, I think technology is creating the platform to enable a market to be made in talent, in the true economic sense of the word market. I look forward to better understanding these business models to see how differentiated they really are.  Certainly, some are defined by the type of talent they seek to attract; the sites working with copy writer won't appeal to CFO's, but dancers will do... Interestingly, one in the UK, combines a totally automated service with consultant mixers, so freelancers can gather together.   I can't help but wonder if freelancers will subscribe to all that operate in their area of expertise, or if they will  choose just one.  If it were me, I'd definitely go for the one with the mixers...I am a sucker for cocktails...

 

 

The “Gig Economy” and the employment data problem

A recent news item little noticed apart from gig economy wonks like me was the fact that  the government is planning to get data on how many workers actually populate the "gig economy."  Labor Secretary, Thomas Perez, announced at the end of January that the department would team up with the Census Bureau and  restore the Contingent Worker's Supplement  as part of the May 2017 Current Population Survey.

It is being restored because in 2005, in the infinite wisdom of governmental agencies, the decision was made to discontinue data collection in this area. The Supplement had only been published 5 times and in fairness, it had its share of critics.  A major failing, was the fact that  it aggregated all contingent work arrangements, from  senior management consultants to security guards to cab drivers.  As such, drawing conclusions about income trends, potential wage and hour infractions or economic security was difficult.  Similarly, no attempt was made to try reconcile the differences between the self employed - a broad category which  consultants, architects and dry cleaners - and 1099 tax filers.

Now that the gig economy appears to be fundamentally redesigning work and income structures in the US economy, the Labor Department  wants to try to get a handle on the phenomenon in large part to better inform policy decisions. They do acknowledge that it will be difficult, since just the definition of what qualifies as contingent work is controversial. Additionally, one would hope that they will make strides to refine the data to be able to draw more meaningful conclusions.    That said, we should not get too excited, since this  there won't be data until early 2018 at best.

What is ironic to me, as someone who has been involved in the  high-end of the contingent work force for nearly 30 years,especially now in this political season is the constant emphasis on jobs creation as a metric of economic success.  When you consider 53 million people, according to The Solo Project, have chosen to define  themselves as  independent consultants , free agents or free lancers, the magnitude of the data problem becomes apparent.  These people do not want traditional jobs. What labor statistics are capturing this? Lets hope Perez can fix the data problems inherent in the Contingent Workforce Supplement, because the world of work is being redefined quickly and the government needs to catch up.

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