Just when we might have thought the “independent contractor vs. employee” battle had cooled down … another hot spot has popped up. The Attorney General of Massachusetts, Maura Healy, filed a lawsuit in July 2020, arguing that gig companies should classify their drivers as employees, making a lot of what they call “Uber/Lyft news.”
Then, in September 2021 more delivery and rideshare news came out of the Bay State. Uber, Lyft, DoorDash, and Instacart formed a coalition they call, “The Massachusetts Coalition for Independent Work.” The coalition has put forth a proposition for Massachusetts voters to determine how drivers will be classified, and the ensuing firestorm could ultimately affect all drivers as well as the gig economy as a whole.
In this post we’ll look at the situation in Massachusetts, putting it into the context of what’s rapidly becoming a worldwide controversy and how it could affect drivers everywhere. Specifically, we’ll address:
- What’s going on in Massachusetts?
- What’s in the Massachusetts Proposition?
- What do most drivers want?
- How would driver classification laws affect driver earnings?
- How strong is the movement to reclassify drivers, and how will it affect you?
What’s going on in Massachusetts?
As we said, the Attorney General filed a lawsuit against Uber and Lyft. The gig companies are fighting back by floating a proposition to counteract the AG’s contention that drivers should be treated as employees.
You’ll likely remember our coverage of a similar story from California, where a state bill was passed that classified drivers as employees.
Rather than comply with the new law, the gig companies got a stay from the courts while they pushed through Proposition 22, which classifies drivers as independent contractors and gives them limited benefits from the companies. The gig companies poured more than $220 million into getting Prop 22 passed, and then …
In August 2021 the California Supreme Court declared Prop 22 to be unconstitutional and unenforceable.
The Prop 22 pros and cons are numerous. For now, the arguments as to whether California gig drivers will be classified as employees or independent contractors will continue as the companies appeal the court ruling. Read more about the situation in California in this Gridwise blog post.
On the opposite side of the country from California, a state government is once again coming after the rideshare and delivery companies over how they classify their employees. Certainly there is some pro-worker sentiment involved in the state’s motive for taking action. There could be some other factors as well.
For instance, in Massachusetts the action came in the summer of 2020, when the Commonwealth was footing the bill for unemployment compensation for gig drivers. The companies, meanwhile, made absolutely no contribution to the fund on behalf of these drivers.
As it stands now, the ballot initiative Massachusetts voters could ultimately vote on is in its earliest stages. And, the lawsuit is also still pending. It’s interesting to note that the companies have floated the Massachusetts proposition even before the lawsuit has been settled. Perhaps they’ve learned from their California experience?
What’s in the Massachusetts Proposition?
The Massachusetts Proposition is in its early stages. The first step was accomplished, whereby the coalition behind the proposal received 3,200 signatures. The state’s Joint Committee on Financial Services held a hearing on October 6, 2021.. Once the proposition has been reviewed by lawmakers, it could appear on the Massachusetts ballot for voters to decide the issue in November 2022.
- The proposition lays out an “independent contractor California style” model, quite similar to what the gig companies and their army of attorneys put in Proposition 22. Here’s what the Massachusetts rideshare and delivery drivers could possibly get if the new proposition goes all the way and becomes law:
- Classification as “independent contractor” under Massachusetts law.
- Definition of “independent contractor” based on the following:
- Not required to work specific hours or days;
- Not required to accept specific requests;
- Allowed to work for multiple or delivery companies;
- Allowed to work for any other lawful business.
- Guaranteed minimum compensation equal to 120 percent of Massachusetts minimum wage (for time spent fulfilling requests).
- Compensation for mileage accrued while fulfilling requests starting at $0.26 per mile.
- Compensation for any differential between the driver earnings and tips and the minimum compensation amount.
- Paid sick time: 1 hour for every 30 hours spent completing requests.
- Eligibility for medical and family leave under the Massachusetts Paid Family and Medical Leave Act.
- Healthcare stipends for some drivers.
- Accident insurance purchased by the companies to cover drivers while fulfilling or accepting requests.
- Mandatory safety training.
- Protection from being terminated by the companies, or being blocked from driving for the companies, based on race, sex, sexual orientation, or other protected characteristics.
- Opportunity to appeal any termination by the companies.
This olive branch of sorts may be enough to please drivers who wish to remain as independent contractors – but as for the state being pleased with the proposition, that’s doubtful. This arrangement would still leave companies off the hook for paying unemployment compensation or worker’s compensation.
Under ordinary circumstances independent workers wouldn’t get these benefits. But as we saw during the COVID-19 crisis, regulations were temporarily eased, and states did pay unemployment benefits to independent contractors. From the point of view of the state, there is still considerable financial exposure under the conditions of the proposed bill.
Labor organizers would also see this proposition as falling short of what they believe drivers deserve. You can read more about groups that are fighting for better working conditions for drivers in this Gridwise blog post.
These groups seek classification of drivers as employees with full benefits, including sick pay, unemployment insurance, disability coverage, hazard pay, safety training, and discount dental care, in addition to a minimum hourly wage. Even under the proposed bills, Lyft and Uber Massachusetts regulations, once enacted, wouldn’t come close to meeting what these groups see as absolute necessities for drivers.
This leads us to another question, however …
What do most drivers want?
In terms of classification as employees vs. independent contractors, both the companies and many drivers favor the independent contractor model. The companies (for obvious reasons) like the idea of reduced costs, while drivers like the freedom of being able to choose their own hours, work for multiple companies, and have additional jobs besides gig driving.
The website Top Class Actions quotes Uber CEO Dara Khosrowshahi as saying: “Our drivers consistently tell us that the reason why they value Uber is they value their freedom. … They’re their own boss. They run their own business.”
A survey conducted by Gridwise in 2020 corroborates this. Citing a desire to retain their freedom and flexibility, 64.9 percent of the drivers surveyed preferred to remain as independent contractors. You can read more about the opinions drivers offered in this Gridwise blog post.
Most drivers would also probably not mind getting the “goodies” the Massachusetts proposition has to offer. They should also probably keep one eye on another extremely important factor in this controversy: driver earnings.
How would driver classification laws affect driver earnings?
Before we can know the full effect of these laws on driver earnings, we need to look at what driver earnings mean to different factions in this battle. To companies, driver earnings are calculated according to the time the driver is actually engaged in going to or completing a ride or delivery.
To drivers, when we look at our hourly wages, we like to think about how many hours we’re on the road, and how much money is coming in on an hourly basis. Of course, this ends up being averaged.
As you know, when you use Gridwise, you can always find your hourly rate by calling up graphs that detail your earnings across all the apps you use.
But, when you look at the issue of what “earnings per hour” really means, you can see the disparity between what the companies think it is and what it is for drivers. Opponents to the proposition, and to company attempts to keep drivers as independent contractors in general, see the companies’ way of calculating driver earnings as entirely unfair.
The companies fail to totally take into account the amount of money that comes out of a driver’s earnings. This includes mileage, which to some extent is accounted for in the Massachusetts proposition – but there are many more expenses.
How much do Uber and Lyft drivers make, and how much would they earn under this proposition? Earnings were going through the roof during spring 2021, with driver incentives in place. As you can see in this Gridwise post, the nationwide average earnings for drivers in June 2021 were about $15.77. They were much higher in some places, and lower in others. Check this Gridwise blog post to see the cities with the highest and lowest earnings.
The stipulations in the proposition for drivers to earn at least 120 percent of the minimum wage should work out to $18 per hour for drivers by 2023. However, opponents to the bill have different figures to report.
A USC-Berkeley study, according to a September 30, 2021 Insider article, found drivers could be making as little as $4.82 per hour when everything is taken into consideration. The study showed that drivers working a 15-hour work week, which is fairly typical, would make the $4.82 figure, and those working a 40-hour week would earn $6.74 per hour.
The disparity between the figures, according to the study, is due to the fact that companies would only guarantee pay while the drivers are “engaged,” either on the way to or in the process of completing a trip or a delivery. This constitutes only about 67 percent of a driver’s total time working. These additional considerations would play into the differential between the figures:
- Driver operating costs (beyond mileage);
- Health care costs (the stipend offered covers only a minority of drivers);
- Both the employer and employee shares of payroll taxes (self-employment tax);
- Inadequate data from the companies, including wait time, hours worked, and earnings.
How strong is the movement to reclassify drivers, and how will it affect you?
As of this summer, the companies have set up groups to lobby state legislators in Massachusetts, New York, New Jersey, Illinois, Colorado, and Washington. They’re hoping to get the states to enact laws that permanently classify rideshare and delivery drivers as independent contractors. The companies hope to elicit the support of labor groups, but that’s not very likely.
What is likely is that more lawsuits like the one filed in Massachusetts, and the reclassification bill that started the fight in California, will become more common. States see the rideshare and delivery companies getting a “free ride” in more than a few areas. As we mentioned, unemployment insurance payments and workers’ compensation funds are not benefiting from the immense amount of business these companies conduct.
Also, states and the labor organizations that ally with many politicians will push for the companies to raise the standard of living for drivers by making them full employees. This could be good for drivers, but in the long run, there’s a risk to the gig driving business as a whole. These companies already struggle to make a profit; if they’re forced to pay drivers benefits, they won’t offer the opportunity to as many drivers to earn their living with delivery and rideshare driving.
The controversy over reclassification will probably go on for some time, but if the federal government gets involved (as implied by the Secretary of Labor last spring), sweeping changes could radically change the way gig drivers do business. Read more about the possible involvement of the federal government in this Gridwise post.
If you’re wondering how this might pan out, consider this: Recently in the Netherlands, the Amsterdam District court came down with a decision that mandated the companies to classify drivers as employees. This was a huge victory for the labor movement there, but a gigantic defeat for the rideshare and delivery companies – and it also threatens to crush their European business model. So, as you can see, this controversy has gone global.
As with all disputes, there are at least three sides: Side A, Side B, and Side C, which is usually a compromise between A and B. Where do you stand? Leave us a comment below, or join us on Facebook and get the conversation started.
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