Worker Definitions in the 'New' Economy Are an Old School Trick

The scions of the "new" economy are making an old-school claim.

Businesses and their representatives increasingly say that the "new" business model of calling workers "self-employed" or "independent contractors" instead of "employees" should mean businesses are exempt from core labor standards such as minimum wage and overtime laws. This is particularly true in the on-demand economy. Some employers even claim that the U.S. Department of Labor has changed the law concerning the employment relationship, disrupting and harming their businesses.

It's time to set the record straight: changing a worker's title to "independent contractor" is an age-old way to claim exemption from core labor and tax laws. The federal Fair Labor Standards Act, passed in 1938, includes broad definitions of employment in order to extend the wage floor as broadly as possible to workers of that time. The first U.S. Supreme Court cases interpreting that law, finding that garment workers and slaughterhouse workers were employees, were decided in the 1940s.

The particular claim that compliance with core labor standards will stifle innovation is a distraction from the real issue. While the use of technology to dispatch workers to jobs is new, the underlying business model is a throwback to the 19th and early 20th centuries. The role performed by many on-demand companies -- matching workers with employers -- has been around for a long time (think garment "jobbers," farm labor contractors, and staffing agencies). Because job-matching occurs via a shiny smartphone application or attractive website does not change the relationship between companies like Taskrabbit, Handy, Honor or Wonolo -- who dispatch odd-job workers, delivery workers, home-care workers, shelve-stockers and others to short-term "gigs."

To be sure, defenders of the independent contractor model are right to think that some things have changed. In recent decades, whole segments of industries likejanitorial, as well as most of the on-demand economy, have adopted a strategy of labeling their workers as self-employed. But this pushes many of the capital costs off of businesses' shoulders and onto the shoulders of the workers who do their bidding. Companies in the same industries that want to treat their workers lawfully find it hard to compete with the rest, who pay no Social Security, Medicare, workers' compensation or unemployment insurance taxes. It's a great get-rich scheme for those at the top, but a stay-poor scheme for the workers at the bottom, and a lose-your-business scheme for honest competitors.

Some say that the on-demand economy isn't much of a factor in our economy, and it is difficult to measure the numbers of workers who are classified --especially illegally -- as self-employed or independent contractors. Would a Taskrabbit worker call her or himself "employed," "self-employed," or an "independent contractor"? The categories used on government forms are ambiguous. And at least one major company resists requests for data that would help policymakers figure out just how big they are and how their workers are treated.

But what we do know is this: the home cleaning and repair company Handy grew from $3 million per year in bookings to $52 million a year over the course of two years, according to its chief operating officer. The delivery service Postmates grew from 500,000 to 1.5 million deliveries in a span of 30 weeks in 2014-2015. The number of new Uber drivers has more than doubled every six months for the last two years. And some experts estimate that the "sharing economy" as a whole will continue to grow and grow. Such rapid development means it is critical we address how these workers are treated.

Another change is that the U.S. Department of Labor is taking subcontracting and misclassification of workers seriously. DOL has just issued guidance for workers and business, to aid in interpretation of the law. It has pursued companies that misclassify their workers in court, and it has won significant victories. Private litigation has had success as well; the recent $228 million settlement by FedEx of its drivers' misclassification claims is just one strong example. And agencies such as the California DLSE are ruling that port truck drivers and at least one Uber driver, are employees.

By increasing litigation over employee status, some in the business community are calling for a third category of worker that fits in between employee and independent contractor status. At this juncture, that seems neither necessary nor desirable. While several countries in Europe have tried various versions of this approach, "dependent contractors" are among the lowest-paid workers in their countries, and suffer from unstable income and an insecure retirement. Shouldn't we be focused on greater opportunity and security for our workers?

There has been one other positive change. Companies are beginning to see a competitive advantage in classifying their workers as employees. Recently, the delivery service Shyp switched to an employee model. The trucking companyShippers' Transport Express has done the same. Companies such as the food preparation and delivery service Munchery, the personal assistant company Alfred, and the office-cleaning service Managed by Q, reportedly all hire their workers as employees and not as independent contractors. In doing so, they are finding that they can better manage their business and stabilize their workforce. They are proving the new economy doesn't need to rely on outdated machinations designed to bypass labor protections. Other companies should follow their lead.

CORRECTION: An earlier version listed the company Zirtual as one that hires workers as employees. That is no longer the case, however, following a reported loss of investor funding and subsequent acquisition and restructuring.