Should Uber Drivers be Employees?
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KEY SOURCES
Department of Labor
Pew Research Center
Berkley Technology Law Journal
Brookings Institution
Mercatus Center
Center for American Progress
Economic Policy Institute
Department of Industrial Relations
Employee Responsibility and Rights Journal
National Labor Relations Board
Bureau of Labor Statistics
Uber
WHY THIS QUESTION MATTERS:
California recently passed legislation that will change the employment status for more than one million people in the state, and set a new precedence for “gig economy” workers in general.
Let’s take a step back: "Gig" workers are engaged in non-traditional work such as driving passengers via Uber, delivering food via GrubHub, or performing an errand via TaskRabbit. Gig workers are currently classified as independent contractors; however, California’s AB 5 bill would reclassify these workers as employees.
LET’S BREAK DOWN THE GIG ECONOMY:
According to the Pew Research Center, 97% of U.S. adults have heard of Uber or other ridesharing apps, meanwhile 8% of Americans have earned money in the last year from an online platform. The proportion of Americans that earn money via online platforms is expected to grow significantly as new gig platforms continue to enter the market. While Uber is still the most dominant player in the ridesharing space, there are many other tech companies already engaged in the gig economy, including Lyft, DoorDash, Homejoy, PostMates, Upwork, etc. Services range from giving people rides, delivering food or groceries, cleaning homes, to consulting for small businesses. Gig workers are free to choose which tasks or projects they partake in and are free to work with as many gig platforms as they choose.
This flexibility is one of the key reasons experts predict gig work will continue to grow. However, policymakers are grappling with how to ensure workers engaging in the gig economy also receive proper protections under the law.
ONGOING DEBATE OVER WORKER CLASSIFICATION:
In the 2018 Dynamex Operations West, Inc. v. Superior Court decision, the Supreme Court of California endorsed new and more demanding standards for classifying a worker as an independent contractor. The landmark decision, often referred to as Dynamex, established an “ABC test” to determine if workers should be classified as employees or independent contractors. The ABC test is much more stringent than federal requirements under the Fair Labor Standards Act (FLSA). Under federal law, employment status is determined by a “multi-factor standard” test. According to the Department of Labor, this means that federally there is no “single rule or test” for determining if an individual is an independent contractor or employee, which is why a multi-factor approach is used.
The Dynamex decision set a new, stricter standard in California where a single 3-part test (ABC test) will determine employment status. The California legislature codified this test into law with Assembly Bill No. 5 (AB 5). Under the new test all Californians will be considered an employee unless the employer can demonstrate that a person is (1) “free from the control and direction of the hiring entity in connection with the performance of the work,” (2) “the person performs work that is outside the usual course of the hiring entity’s business,” and (3) “the person is customarily engaged in an independently established trade, occupation, or business.”
Unless otherwise exempt, this bill would have far reaching implications on the gig economy in California. Gig workers would be reclassified as employees instead of independent contractors.
UBER AND ITS DRIVERS:
Throughout the remainder of this article we will assess the impact of reclassifying gig workers as employees through the lens of Uber drivers. Please note that this assessment may be applied more broadly to other major players in the gig economy, like Lyft and Grubhub.
According to Uber’s IPO filing in April 2019, the company had already settled with many of the 60,000 Uber drivers who filed arbitration demands over employment status. These settlements cost the company between $146 million and $170 million. It has vowed to continue fighting California’s new classification of Uber drivers as employees instead of independent contractors.
What do you think?
THE COMMON THREAD:
Supporters and opponents of the bill both say that workers’ freedom and livelihood should be protected.
FIND YOUR THREAD:
Supporters of reclassifying drivers to employees say employment status will give workers more protections and benefits. Opponents say that it would limit worker's freedoms and increase costs for consumers.
Yes, Uber drivers should be classified as employees.
Reason 01
Uber drivers should enjoy the same protections as employees to protect their rights.
While flexibility is an essential benefit for Uber drivers, all too often flexibility does not make up for poor pay, few benefits, and the lack of real power to negotiate for better workplace conditions. Uber drivers are not eligible for minimum wage, overtime pay, or other employee benefits. (Center for American Progress)
After deducting Uber fees and driver’s vehicle expenses, Uber driver compensation averages $11.77 per hour. This is less than the average hourly compensation of private-sector employees of $32.06. (Economic Policy Institute)
Because they are independent contractors, Uber drivers are not eligible for federal protections around unionizing to negotiate pay and benefits. (National Labor Relations Board)
Reason 02
Classifying Uber drivers as employees will improve company accountability for both worker satisfaction and rider safety.
Uber itself notes in its S-1 filing that “as we aim to reduce Driver incentives to improve our financial performance, we expect Driver dissatisfaction will generally increase.” (Uber SEC S-1 Filing)
Classifying workers as independent contractors can save companies up to 30% in labor costs. (Bureau of Labor Statistics)
Uber drivers may also pose a risk to customers (which is why Uber added a “Panic Button” to their app). Uber should be required to classify drivers as employees to motivate the company to more carefully screen and control safe business conduct. Currently they disclaim liability based on driver’s independent contractor classification. (Employee Responsibilities and Rights Journal)
Reason 03
Classifying Uber drivers as employees is more equitable for taxpayers and drivers.
29% of independent contractors say they’ve suffered from wage theft. Uber drivers specifically claim the company wrongfully deducted taxes and did not pay them the full income for their rides. (Pew Research Center)
In California alone, the labor department estimates that wrongly classifying workers as contractors costs the state roughly $7 billion a year in potential payroll tax revenue (note this figure is for the market in general, not just Uber.) Why should labor laws be updated to match the new gig marketplace? (Department of Industrial Relations)
No, Uber drivers should not be employees.
Reason 01
Most individuals choose to be Uber drivers to earn money and maintain independence - not to be employees.
Uber drivers function as independent entities, each with complete control of their cars, work schedules, log-in locations, and options at any moment to switch or to simultaneously work for a competitor ride-share or different venture altogether. (Department of Labor)
Uber drivers have no requirements for hours worked, number of rides, or any obligation to remain with the company for any period of time. These factors suggest that the worker is economically independent from a potential employer. (Department of Labor)
Roughly one-quarter of digitally enabled gig workers are students; fewer than half are employed full time. (Pew Research Center)
Having something to do in one’s spare time and filling in gaps in income are the top reasons people turn to technology-enabled gig work. These incentives and structure are not aligned with a typical employee-employer relationship. (Pew Research Center)
Reason 02
Reclassifying Uber drivers as employees would be harmful to drivers and riders.
Uber and Lyft CEOs also warn that reclassifying workers as employees misses the point that “most drivers prefer freedom and flexibility to the forced schedules and rigid hourly shifts of traditional employment.” Being classified as an employee risks these freedoms. (Op Ed: Uber and Lyft CEO)
Increases in expenses for Uber (health insurance, etc.) will also increase cost to riders. (Berkley Technology Law Journal)
Reason 03
Classifying Uber drivers as employees may impact innovation; we’d be better off creating a new worker classification.
While established companies like Uber may be able to absorb higher costs of employee status, would-be future competitors would likely have a harder time getting over this hurdle. (Mercatus Center)
Instead of classifying drivers as employees, some experts suggest a new classification of workers as “ridesharing drivers aren’t just independent contractors as they generate the core source of revenue for Uber” but “drivers aren’t quite employees either.” Why shouldn’t labor laws be updated to match the new gig marketplace? (Brookings Institution)
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