The Editorial Board
Published 6:20 PM EDT Sep 16, 2019
The next time you take Uber or Lyft, ask yourself this: Should your driver be considered an employee or an independent contractor?
It’s a difficult question, one with immense implications for the nation’s sprawling gig economy, which accounts for about 1 in 3 jobs.
As is frequently the case with social change, California is on the cutting edge. The Golden State led the nation on reducing vehicle emissions, mandating paid family leave and offering a $15 minimum wage. Now it is plunging forward to address the complicated issue of workers who are employees in all but name yet are classified as independent contractors.
Last week, its legislature passed strict standards making it tougher for employers to classify workers as independent contractors, effectively codifying last year’s state Supreme Court ruling that did the same. Gov. Gavin Newsom says he’ll sign the measure. Other states are watching, and, as has happened before, might follow.
Directly in the crosshairs are the San Francisco-based ride-sharing giants Uber and Lyft, whose business models rely on millions of drivers working as independent contractors. That designation frees the firms from costs that traditional competitors bear, including paying a minimum wage and providing paid leave, overtime, health care, unemployment and workers compensation.
UBER: Drivers tell us they don’t want to be employees
The jobs can be risky: For-hire and taxi drivers are 20 times more likely than other workers to be murdered, according to a federal analysis.
Companies save an estimated 30% in business costs avoiding employer expenses. For Uber and Lyft, the savings is estimated at about $3,625 per worker each year.
Meanwhile, widespread misclassification of workers as contractors costs taxpayers a fortune: $16 billion a year in federal Social Security, Medicare and unemployment taxes; $7 billion annually for California.
Nonetheless, this is far from an open-and-shut issue. No one forces a driver to work for a rideshare company, and better compensation would undoubtedly translate into higher fares for passengers.
Harry Campbell, founder of The Rideshare Guy blog and a former Uber and Lyft driver, points out that the majority of drivers enjoy flexibility, working a few hours a week whenever they choose to supplement other income.
They fear losing the control of their time, and it doesn’t help that Uber and Lyft are stoking their angst with intracompany emails warning that flexibility is at risk. Both companies are also threatening to spend $90 million on a referendum to overturn the new state law.
At the same time, pay is the single biggest issue for drivers. Despite their allegedly independent status, they don’t set rates, often earning less than minimum wage as they watch ride-sharing firms take a third of each fare.
And there’s a core of drivers who work 40-plus hours a week and depend on the job for their livelihood. A study of of drivers for ride-sharing apps in New York City found wages so low that 40% qualified for Medicaid and 18% for food stamps. New York is now requiring ride-sharing firms to at least pay minimum wage.
Part of the problem is that decades-old labor standards laws didn’t envision a day when there would be an app for everything. California’s governor says he would like to negotiate a third way with ride-sharing companies and labor officials to preserve flexibility, while allowing drivers to bargain for benefits and higher wages.
Uber and Lyft executives have suggested something close to this, raising the opportunity to temper dramatic change with some sensible compromise.
The rideshare companies used technology to disrupt a hidebound industry that was sorely in need of disrupting. But they have an obligation to ensure that their success doesn’t come at the expense of either passengers’ safety or workers’ rights.
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