Tech companies, labor advocates, and think tankers of all stripes call for sweeping reforms to the social safety net
But is it possible to let tech-enabled companies offer some benefits to independent contractors, without eroding those of traditional employees?
November 12, 2015
It’s a classic strange bedfellows story: Companies in the “on-demand economy” find common cause with labor unions, and left-leaning think tanks join up with free marketeers around a proposition that seems to make so much sense that nobody could talk it down.
That’s what seems to have happened this week around an issue that’s crucial to the growth of new businesses like Uber and Taskrabbit: How to provide benefits to workers who use those platforms to find clients. On Tuesday, a letter surfaced calling for a new social safety net regime that could allow people to move easily from gig to gig without losing the benefits and protections usually contained within the traditional employment relationship. Right now, companies say, it’s difficult for them to offer employment-like perks without running the risk of getting hit with lawsuits.
The missive was signed by a long list of people ranging from the chief executives of Etsy and Lyft to activists for guest workers and home care aides— a disparate group, to be sure. But it also reflects the coalescence of views on one side of a policy debate that has divided the left: The question of whether companies should be allowed to classify workers as something between regular employees and independent contractors, or whether doing so would allow employers to evade responsibility by pushing people who should really be employees into a middle category with fewer protections and benefits.
“Most people still get their benefits through their employers,” says David Madland, director of the American Worker project at the Center for American Progress, who knew about but didn’t sign the letter. “How do we design it so all workers, regardless what their classification is, get good benefits, without undermining what other workers get? That’s where the difficulty would come in.”
Momentum building for change
The group got its start in San Francisco in July, where McKinsey Global Institute co-founder Lenny Mendonca — who has retired to a life of sitting on boards and dabbling in politics — had been convening groups of people to talk about public policy solutions to various problems. The letter came together after a second meeting in September, with the help of people like Natalie Foster, a fellow at the research organization Institute for the Future and Greg Nelson, a senior advisor to President Obama at the National Economic Council.
What they arrived at is basically a statement of principles: That new, flexible work arrangements are a good thing and should be supported by public policy, that workers should have access to a set of benefits that travel with them from job to job, and that companies should be able to “experiment” with different benefits arrangements — without fear of getting sued for treating employees like independent contractors.
It’s that last part that’s really important for companies like Handy, a platform for home cleaning services that connects freelance workers with people who need their homes cleaned. A former rival, Homejoy, folded after being hit by several misclassification lawsuits. Handy itself has been sued as well, as have Uber, Lyft, and Instacart. Handy’s CEO Oisin Hanrahan says the company would like to offer more benefits, but can’t, without jeopardizing the independent contractor status that he says is fundamental to preserving the flexibility that underlies Handy’s business model.
“There are some lines in the sand around the classification of contractors,” Hanrahan says. With a “safe harbor” for experimentation, he thinks companies like his would start to offer healthy benefits packages of their own accord. He’s already had to compete for workers, which has driven his wages up to an average of $18 an hour. “I expect that we would see the same thing if we were able to provide benefits, if we were able to give more training,” Hanrahan says.
The idea was fleshed out in a follow-up brief by the conservative R Street Institute, which described a private benefits exchange through which companies with quasi-independent contractors could provide support without fear of being forced to treat them as employees, with all the costs and risks that entails.
That’s the kind of thing that worries Ross Eisenbrey, vice president with the left-leaning Economic Policy Institute, which wasn’t invited to the discussions that led to the manifesto. “Does that mean that someone like Uber should be able to do what they’re doing regardless of the worker’s classification?” Eisenbrey said, after reading it.
His suspicion was first piqued by something more basic: How the letter quantifies the size of the independent workforce. It cites a survey by the Freelancer’s Union, which pegs the number at 53 million people. Official numbers from the Bureau of Labor Statistics, recently analyzed by the Pew Research Center, estimate there are more like 14.6 million self-employed workers, which has actually been declining both in absolute terms and as a share of the labor force for a couple decades (though current statistical methods may not be capturing the growth in on-demand work).
“It’s not true, and I think it’s in service of making people think that things are changing much faster than they are, and that therefore the legal models that we have shouldn’t be applied,” says Eisenbrey. “That’s Uber’s wish, that they escape from employment obligations, that they not have to pay minimum wage and overtime. I think that something like this could be misused.”
Uber has long argued that its workers already net more than minimum wage, and that the contractor relationship offers a degree of flexibility that drivers also value (though some dispute the idea that you couldn’t do that with employees as well). Still, Uber did not sign the letter, even though strategist David Plouffe has been on a media tour to argue on behalf of the company’s flexible employment model and the need for new policies to accommodate it. Spokeswoman Jessica Santillo said that they were aware of the discussions and hadn’t foreclosed the possibility of signing on in the future. “This is an interesting proposal and we want to be a part of the conversation,” she said.
Why portable benefits could help workers
But right-wing think tanks, tech companies, and the people who fund them weren’t the only ones to sign on. The letter also had people like Saket Soni, head of the National Guestworkers Alliance, which has fought for the rights of low-wage immigrants. He said that you can believe in both things: That most people still belong in a traditional employment relationship, and also that benefits should be available for those who genuinely do not.
“Where there is pernicious misclassification, and outright lying, those people need to be held accountable,” Soni says. “In the future, there will be a big enough part of the economy where a large enough group of workers are forming small enough tasks, and in the workers’ experience, they are happy with the flexibility, but unhappy with the deep insecurity, and want to carry their benefits with them.”
“IN THE FUTURE, THERE WILL BE A BIG ENOUGH PART OF THE ECONOMY WHERE A LARGE ENOUGH GROUP OF WORKERS ARE FORMING SMALL ENOUGH TASKS, AND IN THE WORKERS’ EXPERIENCE, THEY ARE HAPPY WITH THE FLEXIBILITY, BUT UNHAPPY WITH THE DEEP INSECURITY, AND WANT TO CARRY THEIR BENEFITS WITH THEM.”
— National Guestworkers Alliance executive director Saket Soni
Also on the letter was David Rolf, president of a large and very politically active Service Employees International Union local in Washington State. In the spring, he co-authored an article in Democracy Journal arguing for a “shared security” system that would allow companies to contribute retirement, vacation, and disability benefits on a pro-rated basis to an account that would travel with the worker. University of California law professor Katherine Stone penned a riposte, arguing that Rolf hadn’t taken into account the need for clear definitions of what makes an employee, as well as some form of worker organization that could prevent wages from eroding further as unions have declined.
Overall, though, Rolf says that liberals should support the idea of making sure that all workers have access to non-cash benefits, regardless of their employment status. “Historically the left fights with itself, and I think that’s one of its greatest weaknesses,” he said.
And at the end of the day, the two sides may not actually disagree on the solutions. Eisenbrey’s Economic Policy Institute has supported expanding Social Security, which could involve requiring companies that use independent contractors to contribute to the fund. Progressives and tech company CEOs alike have championed the Affordable Care Act, which helps non-employees buy healthcare policies that would travel with them from job to job.
Simon Rothman, a partner at the venture capital firm Greylock Partners, has advised several companies in the “on demand” space. He signed the letter too, and says he looks for start-ups that will be profitable enough to pay for the kinds of benefits the letter contemplates, if they’re eventually required.
“The question should not be is there more money to share and distribute. There is,” Rothman says. “These are businesses that I think at scale will actually produce real money and margins that are attractive. So the question is, where do they get distributed? Do they go to the company? To the shareholders? To the worker? To the customers? They need to go somewhere.”
The National Economic Council’s Greg Nelson, who is helping to coordinate the group’s efforts, says it will be holding a public meeting in Washington D.C. in December to build on all these ideas. Though nobody thinks any sweeping reforms will get passed in 2016, such policy overhauls need to start somewhere, he says.
And in the mean time, some progressives in Silicon Valley are hoping that the outcome could help bring the tech community around to the idea that government can enable progress, rather than impede it.
“I like that this conversation will eventually be a rejustification for liberal values,” said one tech company executive, who asked for anonymity in order to avoid antagonizing the letter’s signatories. “Many of these marketplace platforms were created with libertarian values. But once they have large enough scale, the people who created them realize they actually do need to create rules to manage the marketplace, otherwise it spirals out of control pretty quickly.”