Earlier this week, Hillary Clinton fanned the flames surrounding the 1099 contract worker debate. She offered a veiled threat to companies like Uber and Lyft, noting that despite the exciting opportunities and innovation, there are real questions around workplace protections and what a good job in the future might look like.
Separately, the California Labor Commission ruled that Barbara Anne Berwick was AN EMPLOYEE of Uber in the two months that she worked for the company, NOT A CONTRACTOR. The ruling only affects California but potentially sets a path for other states to follow. This is not the first time this issue has been brought up, both Uber's New York and San Francisco drivers have protested in recent months.
So what's really going on?
The history of the United States has been marked by labor struggles (I highly recommend reading Zinn's 'People's History of the United States' for those interested in the topic). It's no surprise that we would run into issues with 1099 workers in the sharing economy. In fact, this has been going on for a while - FedEx has faced its drivers in court over the past decade for a similar issue.
As it turns out, the IRS actually has a 20-question test to determine whether workers are being treated like contractors or employees. I'll spare you the details, but basically most of the questions have to do with the degree of control a company has over its employees. Courts are finding that many on-demand workers aren't really contractors. The reality is that there are good points on both sides of the debate:
Case Against 1099 On-Demand Workers
The real question is around workplace protection. Is the on-demand economy devaluing the middle class or sustaining it? These are important issues and it's no wonder why people have concerns. Below are a few of the qualms:
- Lack of job security and benefits - 1099 workers today, many of whom are working full time hours, do not get workers comp, social security, unemployment insurance and disability. They can lose their job instantly such as when an Uber driver's rating drops below 4.6 stars.
- Variable wages - Most on-demand jobs pay quite well. It can be highly variable, but it's not uncommon to see people making upwards of $30/hr. Still, Uber drivers back in the day made FAR more than they do today, and these fluctuations are concerning.
- Career instability due to finicky tech platforms - The on-demand companies that are hot today may not be hot tomorrow. Are workers taking a short-term view and focusing on a quick buck rather than building towards a long-term career path?
Case for 1099 On-Demand Workers
While the above concerns are valid, there are some obvious positives as well:
- More efficient businesses - On-demand marketplaces enable more efficient business models where everyone can benefit. Companies earn more profit and build big businesses quickly, consumers pay lower prices and get a better service, and on-demand workers can get a high paying flexible job.
- Flexibility / Modern work - I've had fascinating conversations with countless on-demand workers who are students, artists, freelancers, retirees and artisans. They love the flexibility of their on-demand "gigs" and feel empowered by it. This entrepreneurial and creative spirit is an incredibly valuable thing in our workforce.
- Transparent marketplaces - On-demand marketplaces are efficient in determining the best service providers and delivering the best value to consumers. The switching cost between platforms is low and workers can easily move around. If one company mistreats contractors then they will just flock to a different platform. As many on-demand start-ups know, it is very hard to retain contractors and so treating them poorly is opening the floodgates for disaster.
So 1099 or W-2?
The situation is complicated and so is not just black and white - WE NEED A NEW FRAMEWORK. I borrow from this excellent analysis done by Simon Rothman @ Greylock. He highlights that safety nets are eroding FOR EVERYONE. Gone are the days when you can count on lifetime employment and a guaranteed pension. Healthcare, traditionally sponsored by employers, is being unbundled, and Social Security is running dry. This is not the first workplace paradigm shift we've seen in the U.S. and it won't be the last. We need to ensure employee protections while still fostering business growth and innovation. The future of work is going to look very different and so we need a new paradigm - let's not get stuck in old classifications. Now that the debate has gone mainstream, we have a rare window of opportunity to affect positive change, so let's make sure we make the right decisions!