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Disrupting Labor Law With the Sharing Economy

· September 15, 2015

Ride-sharing — or as they prefer to be called, “transportation management” — companies like Uber and Lyft have been in the news recently for protests in France and increased competition in China. But a bigger issue here in the United States may be the impact of these new modes of local transportation on the model for corporate-employee relations.

I have written before about the California Labor Commission’s ruling in July that Uber drivers should be classified as employees of the company, not independent contractors. Just last week, however, a second wave of attack on the contractor model for app-based sharing services arose in, of all places, Seattle. The city is considering an ordinance that would require transportation management companies to allow “exclusive driver representatives” to negotiate terms and conditions of work — that is, to unionize — on behalf of all drivers. The sponsor of the bill, Councilman Mike O’Brien, said it is necessary to “innovate and try a new approach to help these drivers realize Seattle’s dream that everyone can make a living wage.”

Whatever one thinks politically about income inequality and the proper role of government in safeguarding a “living wage,” this local initiative raises a number of serious questions. First and most importantly, it fails to reflect the rapidly changing nature of employment in the U.S., especially in the aftermath of the 2008-10 Great Recession. In the face of massive layoffs and reductions in hiring, many people, particularly students and recent college graduates, opted for part-time positions, unpaid internships or “1099” independent contractor arrangements in order to make ends meet and to gain an advantage in pursuing full-time employment opportunities with both blue-chip and emerging growth companies. The accelerating one-two punch of automation and offshoring just added to the pressures on workers to find new models of paid jobs other than low-wage retail positions.

As Computerworld observed, this fundamental transformation is particularly significant in technology industries and for millennials:

It’s common knowledge that the cohort of workers 35 and under prefer a flexible, DIY workstyle, using their personal mobile devices to communicate and work from anywhere at any time. What’s not so commonly known, however, is that some millennials — some say it’s a growing number — are eschewing traditional employment altogether to work as independents.

It is true that independent contractors aren’t entitled to minimum wage, overtime compensation, unemployment insurance or protection from workplace discrimination. They also are not legally entitled to benefits and do not have the right to join a union. At the same time, on-demand workers are already a sizable and growing piece of the U.S. workforce. For instance, a recent study found that 34% of U.S. workers are freelancers and that 40% of those surveyed work for two or more companies. And as history professor Philip Zelikow told ThinkProgress, this is happening “not because employers are wicked, but because we have a system that strongly incentivizes them to try to solve their labor cost problem that way if they possibly can.

That does not make these new modes of hiring “like turn of the century sweatshops,” as some labor activists assert. Instead, what it signifies is that as the American economy matures and as less-developed countries increasingly replace well-paid positions in the U.S. with low-cost foreign workers, our labor market is in the midst of substantial disruption. The question that raises, namely whether and how to apply labor law and policy to this new economic reality, is not answered by reflexively urging extension of 1930s-originated labor statutes like the Taft-Hartley Act, designed for smokestack industries, to the sharing economy. After all, child labor, massively long working hours and a lack of weekends — the conditions that led to the labor movement a century ago — largely no longer exist in America, and organized labor is losing members. Moreover, as CNN perceptively reported on Labor Day this year, many unions “are still run by people who don’t look like the increasingly female, diverse and immigrant work force they want to represent.”

There is a real legal problem with Seattle’s approach, too. While some workers not covered by federal labor statutes have in the past organized under the auspices of state and local laws, Congress explicitly excluded independent contractors from the National Labor Relations Act of 1935, meaning that state regulation is in all likelihood preempted. Also, the Seattle ordinance:

  • circumvents federal labor law by granting rights to organize a union to independent contractors who do not work for the same company; and
  • would require a union election without any indication of interest in collective bargaining by workers, further undermining the uniform application of federal standards (which mandate an initial indication of interest in union representation of at least 30%).

There’s a different approach to this problem that merits consideration. Instead of applying a century old model of employment to the new paradigm of independent workers, perhaps it is better to adapt those now-archaic labor laws to the new reality of post-industrial America and the burgeoning sharing economy? As Senator Mark Warner (D-Va.) pointed out at a Thursday panel on the 1099 economy at the Aspen Institute, “the 20th century definition of an employee or contractor are not going to be enough.”

Warner added that “We’ve got to make certain this doesn’t get caught in the partisan divide.” Unfortunately, that’s not the trend we are witnessing today. A federal court earlier this month certified a plaintiffs’ class in a civil lawsuit alleging that Uber illegally misclassified its workers as contractors, and the U.S. Labor Department in July issued a memo that includes a new set of standards for employers to follow to decide who is an employee and who is an independent contractor. (The Massachusetts legislature held hearings earlier this week on regulations for ride-sharing services — which the Internet Association characterized as raising “specious consumer protection concerns as a pretext for limiting competition and choice” — but the proposed bills do not authorize state-level unionization.) Coupled with federal and state initiatives challenging unpaid internships — which some predict will end internships forever — all of this demonstrates as much polarization in labor policy as we consistently see today in American national politics.

The sharing economy and the globalization of commerce, both powered by digital technology and the Internet, are revolutionizing work in the U.S. while they offer new and improved products and services to consumers. It is time to take a close look at the classic approach to labor law in America and decide whether the sharing economy should be sacrificed to an ideal from the Great Depression or whether labor laws fashioned then should be updated for today’s post-Great Recession and global economy.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.