Sharing Economy Companies Sharing the Heat In Contractor Controversy
[Corrected 7/31/15, 2:34 pm. See below.] For some time, Uber and other Silicon Valley tech companies have been fighting off lawsuits and other claims that their labor practices are unfair to on-demand workers they classify as independent contractors rather than as employees.
The heat mounted this week on a number of fronts. The issue took center stage in the intensifying presidential campaign as Democratic candidate Hillary Clinton questioned a core assumption of the sharing economy—that both consumers and workers benefit when tech companies tap into the services of people in an on-demand relationship rather than as employers.
Clinton, while expressing support for tech innovation, said in a speech about her economic policies in New York on Monday that what she called the “gig economy” raises hard questions about workplace protections. Technological innovation is too often polarizing, she said, benefitting high-skilled workers while displacing or downgrading blue-collar jobs.
Following that Monday speech, the U.S. Labor Department issued guidance that may put further pressure on tech firms, AP reported. In a non-binding directive, the department’s wage and hour division said workers who are “economically dependent” on an employer should be treated as employees. Regulators usually have looked at factors such as how much control employers exercise over workers and their time to determine whether they actually qualify as independent contractors.
Meanwhile, Uber continued its ongoing battle with California regulators over their right to oversee its transportation model, which deploys non-staff drivers to provide rides for customers scheduled through the company’s mobile app. On Wednesday, an administrative judge for the California Public Utilities Commission concluded that Uber should pay a $7.3 million fine because it has resisted the agency’s demand for detailed records about rides it has facilitated, the Los Angeles Times reported. The judge also recommended that Uber’s service in California should be suspended.
In that case, the CPUC is trying to find out whether Uber drivers respond to ride requests from disabled travelers. But the case also addresses the same underlying issue seen in the contract worker controversy—whether the new ways of operating in the sharing economy model should be subject to the same regulations governing traditional businesses. Under California law, for example, taxi companies are obliged to serve disabled customers.
Applying state law to Uber’s workforce practices, the California Labor Commissioner’s Office held in June that an Uber driver who challenged her status as an independent contractor should in fact be treated as an employee. [An earlier version of this story mistakenly named the state agency taking this action as the “California Labor Commission.” We regret the error.]
Whether or not this week marks a watershed in the resolution of the contract worker controversy, there were signs that the on-demand tech sector is shifting its stance. Two San Francisco companies are changing their hiring policies, while another is going out of business.
Online grocery delivery service Instacart announced Monday that it would extend the option to become employees to personal shoppers—now classified as contractors—who assemble food orders at stores for delivery to Instacart customers.
Instacart said it had first offered the option a few weeks ago at its outlets in Boston and Chicago. This week, the company announced that the employment opportunities would be expanded to Atlanta, Miami, and Washington, DC. The offer of part-time jobs applies to shoppers who are “embedded” in stores. Instacart said it would extend the new policy to other cities among the 16 where it operates.
A fledgling on-demand startup, San Francisco-based Eden, also plans to convert its contract workers into employees, CEO and co-founder Joe Du Bey (pictured above) told Xconomy.
Eden, just founded in March and now part of this summer’s Y Combinator class, arranges in-home technical help on demand for customers who can’t get their laptops, iPads, or other devices to work right. Eden now employs about 25 “Tech Wizards” working as contractors at $30 an hour.
Du Bey says the company has learned during its short time in operation that it will remain more competitive if its Tech Wizards are employees. Bringing the technical helpers into the company fold will allow Eden to train them in a broader range of troubleshooting skills, coach them in customer relations, and teach them to “represent the brand,” he says.
“The customer experience, for Eden, is our North Star,” Du Bey says. Eden is growing in San Francisco and plans to expand outside the city. It announced this week it has raised a $1.3 million seed investment from Canvas Venture Fund, Eniac Ventures, Comcast Ventures, Maven Ventures, Y Combinator, and other investors.
While well-heeled companies such as Uber may be able to stave off regulatory actions with litigation, Du Bey says, competitive forces are likely to impel one class of on-demand companies to bring their contractors in-house. That class consists of companies such as Eden, which provide services that require a significant amount of training, he says.
“The world is telling a lot of companies that being low-cost isn’t enough for experiences that are high-touch,” Du Bey says. Companies such as Uber, which rely on common skills like driving, may always need to compete based on price, he says. They may therefore favor classifying workers as contractors.
Instacart, which has been sued for allegedly misclassifying its grocery store shoppers as contractors, cited reasons similar to Eden’s this week for its decision to offer its shoppers staff jobs.
“This model enables us to train our shoppers to improve the efficiency and quality of order picking, which makes for a better customer experience,” Instacart founder and CEO Apoorva Mehta said in a statement this week.
Meanwhile, Homejoy, a cleaning services on-demand startup that raised $40 million (and also went through Y Combinator), said today it is shutting down at the end of this month. In a blog post, co-founder and CEO Adora Cheung cited “many unresolved challenges in the home services space.” Whether or not it’s part of the reason for the shutdown, the company has been involved in several recent lawsuits over whether its contract workers should be classified as employees.
The distinction between an employee and a contractor was a bone of contention well before tech companies joined the fray. Regulators and labor groups have long tried to prevent companies from classifying workers as contractors to avoid the additional expense of taking on employees. These costs include overtime and vacation pay, reimbursement for staffers’ business-related expenses, and contributions to workers’ compensation insurance and Social Security benefits.
Now that Eden is converting its contractors to employees, the company has to re-think its compensation rates to take the new costs into account, Du Bey says. The Tech Wizards will still be well paid, though their hourly rate may not remain at $30.
“It’s not going to be materially different,” Du Bey says.