Last week Jim Brennan wrote about the recent FedEx legal ruling where a driver was misclassified as an independent contractor.
Almost simultaneously the California Labor Commissioner’s Office declared the same thing with an Uber driver. Uber is planning to appeal. In a statement, the company said the decision was “nonbinding and applies to a single driver.” They said individual cases about worker classification in at least five other states, including Georgia, Pennsylvania and Texas, have resulted in rulings that categorize their drivers as contractors.
So where does “contractor” end and “employee” begin? A refresher: The IRS has a 20-factor test to determine this. Most of the factors have to do with the degree of control the company exerts over a worker. Telling workers how to do their jobs--via training or active management--is typically one of the identifiers of an employee relationship. This is something a manager can't do with an independent contractor, at least not without worrying about the legal fallout.
The Uber case could start a domino effect that could potentially threaten the business models of the dozens of popular online labor exchanges that make up the so-called “on-demand” economy. With Uber valued at $18 billion, Airbnb valued at $10 billion, and new imitators popping up daily, the business world is clearly infatuated with the middleman model. Venture capitalists have invested $9.4 billion into these businesses since 2010.
Here are some of the new labor exchange delivery and service-work suppliers that have popped up in the past few years. There’s Drizly and Klink, which deliver booze. There’s Washio, for laundry and dry cleaning. There’s Homejoy for house cleaners; Swifto for dog walkers; Soothe for masseuses and Airbnb which allows people to list and book unique accommodations around the world.
So much for freelance work at the lower end of the spectrum. Work required here is mostly unskilled, requires management and workers should probably be classified as employees.
Let’s look at the other end of the spectrum. Here we find highly skilled workers doing software development, computer programming, marketing studies, writing, editing, photography, digital content, etc. Elance, Freelancer, Guru, Odesk and other labor exchanges are where you find these workers. Their work is not managed and their hours are not dictated. They even negotiate their own rates. They are truly independent contractors.
Our legal system is set up so that a worker is either an employee or an independent contractor --- one or the other.
In the real world, workers actually fit into three buckets. At one end of the spectrum there’s the truly independent contractors. At the other end are undisputed employees. But then there’s the group in the middle — a gray area where the line blurs between employee and contractor.
The fact is our labor laws haven’t caught up with the “on demand” economy. Even a judge underscored this when he described our current employment categories as “woefully outdated”.
The solution may have to be a compromise: a new class of workers, protected by laws that take into account emerging business models. Some advocate a new category of worker — the “dependent contractor” --- that extends some protections to those who take on project-based work but have little leverage or power in their work arrangements. Germany and Canada have special protections in place for such workers. And in the UK, Prime Minister David Cameron appointed a “freelance czar” in 2014 to help the country determine how best to support workers in nontraditional work arrangements.
This issue is not going to go away. Although the percentage of independent contractors has remained fairly constant for decades at about 10%, according to Intuit by 2020, more than 40% of the American workforce, or 60 million people, will be freelancers, contractors and temp workers.
Does anyone have any ideas on how to fix this?
Jacque Vilet, President of Vilet International, has over 25 years’ experience in Human Resources. In her current role she works with start-ups and multinationals on both domestic and international HR issues including compensation, learning/development, talent acquisition, workforce planning and mergers and acquisitions. Jacque has an M.S. in Psychology and an MBA from Southern Methodist University. She has been a speaker at conferences in the U.S., Asia and Europe. She is also a regular contributor to various HR and talent management publications and conducts frequent webinars.