Keeping Up With the Gig Economy Requires Moving Beyond the Old Employer-Employee Dichotomy

Eline Chivot August 28, 2020
August 28, 2020

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Editor's Note: A version of this article was published by French media outlet Contrepoints on August 27.

In an unexpected shift of events, a California appeals court granted ride-hailing companies Uber and Lyft a temporary reprieve to keep operating with their drivers as independent contractors. A lower court had initially ordered the companies to treat these workers as employees to comply with a new state labor law, while they challenge it in court. The decision is a welcome step: Uber and Lyft had suggested they would be forced to shut down their activities in California, leaving many workers with less work and consumers with fewer options. But the outcome of the case remains uncertain, and while a referendum this fall could eventually repeal the law, their business model remains under attack. The case could have ramifications for the wider "gig economy" as policymakers in other jurisdictions may follow suit.

But forcing platforms to classify their workers either as employees or as self-employed independent contractors based on a centuries-old relic from common law is not the right approach. It would upend a promising business model that benefits both workers and consumers. More varied work arrangements can provide both parties with the flexibility they need in a rapidly changing economy.

Gig economy platforms like Uber and Lyft offer an efficient way to match customers with workers who want to provide a personal service. Gig work provides significant flexibility, which is important to individuals who do not like having a boss, do not want to work full time, or want to arrange their schedules independently from an employer. Indeed, workers in the gig economy report higher levels of satisfaction with their work-life balance than the average worker and similar levels of satisfaction with compensation. A recent poll commissioned by Lyft shows that 71 percent of respondents said the freedom of being an independent contractor outweighs the benefits of being an employee. In addition, platforms have made many changes in recent years to give workers strong social protections and more control over fares, rides, and how they use the system. But current law punishes these efforts by increasing the probability that regulators will consider the workers employees.

The success of gig platforms also shows their popularity among consumers, who benefit from more choice between different types of ride services, the use of convenient applications to book and pay, and prices that are often lower than those of traditional taxis. Making the workers of gig platforms traditional employees would require platforms spend much more on legal and human resources, raising employee costs for consumers. It would also remove much of the flexibility associated with these jobs, possibly excluding workers from the workforce—a move many workers oppose.

A better approach is to improve labor laws to allow flexibility in employment structures and encourage alternative arrangements that are more relevant to the realities of a constantly shifting labor market.

First, labor laws are relatively inflexible when it comes to meeting the needs of workers who do not fit into the traditional employer/employee relationship. Yet many drivers need independence and freedom to work if, when, and where they want to. These preferences should not be silenced to pursue a judge or a policymaker’s idea of workers’ rights. Second, the current employee-independent contractor distinction is outdated, provides little effective guidance to companies or workers, and does not benefit the workers that it intends to protect. Policymakers should create a narrow exemption from labor laws for Internet platforms, so they can experiment with new ways to help their workers such as providing them with help for training, career advice, business planning, and tax filing. Uber recently issued a proposal for extending additional legal protections to gig workers and allowing them to choose the work benefits that are most valuable to them—a plan which drivers and voters overwhelmingly support.

Other taxi and food delivery apps rely heavily on self-employed riders to conduct their business without having to meet a range of employee costs and benefits. Shoehorning all workers into the antiquated employer/employee model will reduce flexibility and employee welfare. Rather than forcing the old employee-independent distinction to apply to the gig economy, policymakers should ask themselves whether a more modern arrangement would be better for everyone.