Should rideshare and delivery drivers be employees or remain independent contractors?
This is a question that’s been hanging in the air for years. When Proposition 22 passed in November 2020, the rideshare and delivery companies overturned a California law that sought to make the companies treat drivers and delivery people as employees. There’s also been continued debate regarding employee vs. contractor issue which calls for better wages for gig drivers.
So far, activity surrounding this issue has arisen on the local and state levels. New York and Seattle set minimum wages for drivers, while in California, the controversy played out on the state level.
Recently, though, US Secretary of Labor Marty Walsh spoke up, and what he had to say did not bode well for rideshare and delivery companies who are against an employee model. This post will take you through the controversy that’s been brewing, and present some points worth consideration, including:
- What did Secretary Walsh say?
- What happened after the Secretary spoke?
- What this might mean for rideshare and delivery companies
- Other related activity that’s taking place around the country and the world
- What federal intervention could mean for drivers and the future of the gig economy
What did Secretary Walsh say?
In an April 29, 2021 interview with Reuters, Secretary Walsh didn’t say anything definite, nor did he cite specific rules that would take effect. He made it clear, however, that he feels gig employees are not being treated fairly in all cases, and he believes the federal government should do something to change that. “We are looking at it but in a lot of cases gig workers should be classified as employees… in some cases [gig workers] are treated respectfully and in some cases they are not,” Walsh said, “and I think it has to be consistent across the board.”
Even before Walsh was appointed, there was a proposal to rescind a rule that would have made it easier to classify workers as independent contractors. In the Reuters interview, Walsh said his department would have conversations with companies that utilize gig workers, to make sure these workers get consistent wages, sick pay, health care, and “all of the things that an average employee in America can access.”
Beyond that, Secretary Walsh didn’t say much more about the gig economy… but what he did say caused a whole lot of controversy.
What happened after the Secretary spoke?
In the immediate aftermath, Uber, Lyft, and DoorDash all took substantial hits on their stock prices. The price of Uber shares dipped 6%, and Lyft plummeted by almost 10%. DoorDash shares closed down 7.6%. Why would this be?
As we all know, these companies have struggled to become profitable. The costs of making rideshare and delivery drivers employees would be high, and it would set them back even further in their collective efforts to swim out of a sea of red ink.
Company spokespeople reacted quickly and with resolve, according to the Reuters article.
They emphasized that gig workers value their independence to choose when and where they will work, and regulations that required them to be classified and treated as employees would take that away from them. Uber’s spokesman said the United States should be encouraging companies to use independent workers, not make it harder for people who want this kind of work to get it.
The other side of the argument, also emanating from Walsh’s Reuters interview, is that if the federal government had not stepped in with supplemental unemployment compensation during the pandemic, these workers would have suffered even more than they already have.
Rideshare and delivery drivers are caught in the middle of this argument. Although there are many ways they might benefit from being classified as employees, the ensuing stress on the companies could mean that many drivers won’t have any work at all.
What this might mean for the rideshare and delivery companies
Federal regulations on companies almost always mean higher costs and lower profits. In the case of the companies that depend on gig workers, they have yet to make a profit as it is. Making rideshare and delivery drivers employees would mean companies would have to deal with some gigantic costs.
The companies, for example, would have to cover higher pay to meet minimum wage standards, unemployment insurance, HR compliance, liability (insurance and possible litigation costs), software development, and driver supply disruptions. They would also have to deal with the risk of being fined if they don’t meet government requirements. Read more to learn everything you need to know about rideshare drives and Proposition 22.
The business community’s perspective is that the federal government should, within limits, stay out of a company’s business, including when it comes to how they classify workers. The gig economy has created revolutionary new opportunities for many people, and these could be lost if regulations make it harder for gig companies to operate.
While Uber, Lyft, and a few other gig companies were successful in beating back the State of California, we can’t help wondering if they would be as successful battling the US Government.
Other related activity that’s taking place around the country and the world
In March 2021, the UK Supreme Court forced Uber to provide drivers with minimum wage payments and other benefits. And the battle rages in other parts of the world as well, with labor movements seeking more security for drivers. Again, while it’s true that drivers could benefit from these changes, there’s a delicate balance that must be achieved.
Even though rideshare and delivery drivers are aware that companies might have difficulty achieving profitability, many still believe they should be treated like other organizations treat employees.
In the US, here are a few examples of groups that are actively pursuing employee status for gig workers:
- In Philadelphia, the city council fought to include gig workers in a bill that provided extra sick leave during the COVID-19 pandemic.
- In Massachusetts, there is an active debate about how the commonwealth should treat gig workers.
- In Colorado, this organization is bringing gig workers together so they can fight for protections under the law.
- In New York, the service workers’ union (SEIU 32BJ) backed food delivery workers in an April 22, 2021 protest in which more than 2,000 of them biked through the city demanding fair treatment from the “tech giants” that run the gig industry.
Obviously, even with the success the companies had with Proposition 22 in California, they face opposition from many different factions. This latest salvo from the federal government, if it ever translates into policy or law, will probably be the most formidable of all.
What federal intervention could mean for drivers and the future of the gig economy
Although what Secretary Walsh had to say affected the companies’ stocks, it doesn’t mean very much to the rest of us… yet. However, if the federal government does indeed impose regulations that require the companies to treat all workers as employees, it will have a huge impact on the gig economy.
While rideshare and delivery drivers would benefit greatly from benefits such as health insurance and guaranteed wages, they would come with a steep price tag. Not only would drivers lose their ability to choose when they wanted to work and for how long – they could also lose the opportunity to work for these companies at all.
More stringent background checks, Human Resources compliance issues, and a limit to the number of employees (due to the companies’ inability to pay for an unnamed number of them) could literally kill the gig driving business.
This is the concern the companies have, and many drivers share it – as our September 2020 survey proved. One finding: 65% of polled drivers prefer to remain as independent contractors. You can see the exact figures in our article about gig drivers and what these changes will mean to rideshare flexibility.
If drivers are no longer able to work as independent contractors, the gig companies will suffer, and so will the rideshare drivers, the delivery drivers, and the customers they serve. While it’s easy to welcome any ideas that support the wellbeing of gig workers, it’s essential to look at both sides of the issue … the cons as well as the pros.
How do you feel about the federal government stepping in to decide how gig companies should treat their workers? Leave us a comment and share your thoughts.
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Whether you’re gung-ho for leaving the gig economy as it is, or you’d rather see the government make sure you get the benefits of an employee, you still need to track your earnings and record your expenses.
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