Misguided Steps in Efforts to Harness the "Gig Economy"

Open up a legal or business paper today, and you'll notice they are filled with articles on attempts to understand the emerging "gig" or sharing economy - an authentic and "disruptive" movement that is revolutionizing several industries, including personal transportation, product delivery, and others. Many of the articles describe the economic and commercial novelty of the industries' growth and the potential for significant benefit to the entrepreneurs, customers and workers involved in these industries. However, others also describe the various measures taken to curb or regulate the emerging industries and their use of the sharing concept.

One of the particularly divisive issues that come up is the legal status of workers in these industries and the way they should be classified: are they employees or independent contractors? There have been several lawsuits attempting to adjudicate the status of those workers. Some have resulted in finding that they should be classified as employees, while others hold they may properly be classified by the service provider companies as contractors. Two of most significant recent cases have settled for the latter.

Two of the more unusual attempts to regulate the working relationship in sharing companies involve efforts by local government to provide collective bargaining rights to sharing platform drivers. One effort involves the Seattle City Council's decision to allow nonprofit organizations to represent drivers in collective bargaining for taxicabs and "transportation network companies" regarding driver pay, hours of work and other working conditions. Another is a bill, the 1099 Self Organizing Act, filed in March in the California Assembly. This bill targets "hosting platform" companies who hire workers through contracts and identify them as independent contractors, while providing that such workers "shall have the right to engage in group activity." In other words, the legislation attempts to provide union representation rights and collective bargaining rights to independent contractors working for companies like Uber, Lyft, Airbnb, and TaskRabbit, as well as other independent contractors such as real estate agents, barbers and others.

The Seattle City Council ordinance is mired in litigation in federal court about antitrust and federal labor law issues and, at the last minute, the California legislation was pulled back from further discussion, although the bill's sponsor promised to resurface the legislation in the next session.

What makes these efforts to impose a collective bargaining regime in these industries misguided? The first problem is that the legal framework advanced by the legislative efforts won't work. It won't work for at least two reasons: First, the federal National Labor Relations Act (NLRA) preempts or takes precedent over local (such as state or city) laws that may interfere with the jurisdiction of the National Labor Relations Board (NLRB) activities. The Seattle ordinance and the California legislation both appear to directly conflict with the NLRB's enforcement efforts and attempt to provide their own worker representation schemes. Implementation of either scheme will likely create direct conflicts between the federal legislation and the local attempts to provide collective bargaining rights and processes. The second problem with the local efforts is that they attempt to provide collective bargaining rights to independent contractors - something that is not permitted under either federal or state union organizing statutes. In other words, the effort to provide collective bargaining rights to independent contractors is akin to permitting all of the merchants operating shops on Main Street to form together and agree on prices, hours of service, and profit margins when the labor laws simply do not extend to such business activities.

There is a related concern: if contractors were to form bargaining units, they will likely violate federal and state antitrust laws. Those antitrust laws prevent independent business people from agreeing and conspiring to fix output prices, or prices to be paid for inputs such as labor and other acts that restrain trade. It seems clear that a scheme that permits independent contractors to form a group that will agree on wages, benefits, hours of work, and other essentials of the working relationship violates state and federal antitrust law unless it is exempt. There is a narrow exemption from the antitrust laws for labor union activities (but that includes actions taken by employees, not independent contractors) and for state actions that advance some significant state purpose or objective. Neither of those exemptions from the antitrust laws appears applicable to the Seattle ordinance or the California legislation.

The California bill contains a statement simply decreeing that the "group activity by independent contractors shall not be subject to any statutory or common law prohibition or limitation on combinations in restraint of trade." This sweeping declaration would not alone exempt either the contractors or their bargaining agents from antitrust liability.

The road to find the proper accommodation between gig economy or sharing platform service providers and their workers is uncertain at this time, but the tremendous consumer interest in the flexibility, price and responsiveness of there emerging transportation services demands a coherent, and legal, resolution. Piecemeal efforts to address these issues, such as litigation or local or state legislation, do not appear likely to create a satisfactory answer to the difficult policy questions presented by this emerging economy. Only coherent national legislation that balances the providers' rights in advancing their novel business plan, the consumer interest of having a greater range of service providers, and the workers' economic success will truly resolve these questions. That coherent national legislation will be discussed in a subsequent posting.