Opinion | A law that turns contract workers into full employees
4 min read . Updated: 16 Sep 2019, 10:46 PM ISTThe California bill is good news for such workers but could hurt app-based businesses
Last Tuesday, California’s legislature passed a watershed bill requiring companies like Uber, Lyft and Instacart to start treating their contract workers as employees. This is on the heels of a long-running debate on the topic. The bill becomes law on 1 January 2020 and will ensure that workers are designated as employees if a company exerts control over how they perform their tasks as part of a company’s regular business.
I call this a watershed bill since it is likely that the bill may influence other states. Labour groups have been advocating similar legislation in New York. Last year, New York passed a minimum wage for ride-hailing drivers. At that time, however, it did not try to classify them as employees. Similar bills have been on the table in the states of Oregon and Washington but failed to advance. These could see renewed momentum. Across the pond, European countries have been grappling with the same issue. In India, ride-hailing firms and those with similar business models such as restaurant food delivery classify their workers as “independent" business people.
“Today the so-called gig companies present themselves as the innovative future of tomorrow, a future where companies don’t pay Social Security or Medicare," according to California state senator Maria Elena Durazo. “Let’s be clear: there is nothing innovative about underpaying someone for their labour." Until now, if workers thought they had been misclassified as contractors, it was up to them to fight the classification in court. But the bill allows Californian city governments to sue companies that don’t comply. Dennis Herrera, San Francisco’s city attorney, has signalled that he may act.
To my mind, this is good news for many gig economy workers who are bossed around and bullied by algorithms. As Joseph Campbell, an American author and professor who worked on comparative religion, put it many years ago “Computers are like Old Testament gods; lots of rules and no mercy."
An example of Campbell’s quote ringing true was amply brought home by an article some weeks ago by Bloomberg about Instacart, an app which “outsources" grocery shopping and delivery. When Instacart’s app gets a new order, it alerts a nearby worker who gathers and delivers the groceries. The app sends the order to the worker’s phone with a bright green “ACCEPT" button and a repetitive ping sound. But even if that worker—who supposedly has the flexibility to reject the task —decides the task isn’t worth his or her time and effort, the app usually doesn’t offer an option to decline. According to Bloomberg, workers are forced to mute their phone, close the app, or sit through some four minutes of loud pings. Those who wait it out sometimes wind up having to repeat the ordeal when the same task pops back up.
The costs imposed by the new bill could be very large for app-based businesses, many of which are not profitable. Uber held a troubled initial public offering (IPO) earlier this year and has reported large losses and slowing revenue growth. On a related note, public markets this year seem much less friendly than venture capital and private equity funding rounds when it comes to IPO valuations. Take WeWork’s case. It looks like it will have to go public at 25% of its last private valuation; this would be a punishing “down round" for SoftBank, which last invested over $10 billion in the “flexi-office space" startup at a valuation of over $40 billion.
Uber has laid off hundreds of employees (not drivers) in recent months to cut costs. Uber and other companies like it will likely mount a legal challenge to the bill and continue to claim that their drivers are not employees because they do not work in organized shifts. Tony West, chief legal officer of Uber, released a statement saying the bill doesn’t apply to his ride-hailing company because driving for Uber takes place “outside the usual course of Uber’s business". According to him, several previous rulings have found as much. He says Uber’s business “is serving as a technology platform for several different types of digital marketplaces." He also said that the company was “no stranger to legal battles."
Some traditional firms, such as those in construction whose businesses were being “disrupted" by market aggregators of the gig economy, will no doubt breathe more easily since their own models, which include paying for disability insurance coverage and other benefits for employees, will be less assailable. However, the problem with the California bill is that it could unintentionally affect many more Californians than just the gig economy workers who are bossed around and bullied by algorithms. Reports say that up to 1 million workers could be affected—not just those whom the bill is trying to protect, but many workers in relatively traditional businesses. For example, the Wall Street Journal reports that small vineyard owners in California who rely on contract labour for trucking out their harvests, religious groups that hire heads of their congregations as part time contractors, and franchisers with small businesses in the state will all be affected.
While legal challenges to such legislation are sure to ensue, I am glad that legislators are beginning to take note of such issues. They might be a little more empathetic to their human brethren than die-hard capitalists or Old Testament gods.
Siddharth Pai is founder of Siana Capital, a venture fund management company focused on tech
