New forms of work challenge existing labor law

A driver for Uber loads a customer's groceries into his car at a Whole Foods store in New York, Oct. 30, 2015. In the so-called gig economy, ambiguity in the status of workers at on-demand companies like Munchery, Uber and Lyft has led to calls for the creation of a new kind of employment status.
A driver for Uber loads a customer's groceries into his car at a Whole Foods store in New York, Oct. 30, 2015. In the so-called gig economy, ambiguity in the status of workers at on-demand companies like Munchery, Uber and Lyft has led to calls for the creation of a new kind of employment status. NYT

For roughly the first two years of its existence, Munchery, an on-demand food preparation and delivery service, classified its drivers as independent contractors. They were not covered by minimum wage and overtime laws, and were not eligible for unemployment insurance or workers’ compensation.

Then, in 2013, it reversed course and made its drivers full-blown employees. In addition to those various protections, they received health benefits if they worked at least 30 hours per week.

The about-face suggests an ambiguity in the status of workers at Munchery and other on-demand companies like the car-hailing services Uber and Lyft. These workers have some characteristics typically associated with contractors (like working as few or as many hours as they want), and some associated with regular employees (the companies often give some form of instructions about how to perform tasks).

This ambiguity has, in turn, led to pleas by technology executives and policy advocates for the creation of a new kind of worker status that would effectively split the difference between the two categories.

Alan B. Krueger, a former chief economist to President Barack Obama, and Seth D. Harris, a former deputy labor secretary, argued in a paper released this week that many workers in the so-called online gig economy should have more rights and protections than most do now. At the same time, they wrote, “forcing these new forms of work into a traditional employment relationship could be an existential threat to the emergence of online-intermediated work.”

Munchery’s experience, however, suggests that the traditional employee-contractor dichotomy in the laws governing work may still hold up reasonably well when it comes to this new world. The true source of ambiguity may be confusion on the part of the companies themselves over which model best suits their business needs.

Gray areas

After Instacart, the on-demand grocery delivery service, was started in 2012, it became known as the “Uber for groceries.” A worker would fire up the Instacart app on a smartphone, accept an order, drive to the desired supermarket to buy the goods, then drop them off at the customer’s home.

But turnover was higher than the company preferred, and service quality was lower: There were too many missed items and too much bruised produce. It was also highly inefficient to pay drivers to make the trip from their homes to the store to the customer.

This year, Instacart reimagined its model. Thanks to partnerships with leading supermarkets, teams of designated shoppers now embed in each store and respond quickly to orders. Instacart has made them bona fide employees, who receive training and will be judged on how well they do their jobs.

The shoppers then pass the order along to drivers, who remain independent contractors. The only requirement for drivers, who receive no training or instructions, is that they have a license and a clean record, and can navigate their way around town.

While the company is still refining the business model, said Nikhil Shanbhag, an Instacart vice president, “we’ve seen a cadre of workers who are better, have fewer issues than we used to see before in terms of missed items, bad produce. They are getting more and more efficient.”

There are certainly legitimate gray areas in the laws governing the online gig economy. In a comment that has since been widely circulated, a federal judge in California hearing a case brought by Lyft drivers brooded earlier this year that, “the jury in this case will be handed a square peg and asked to choose between two round holes.”

More fundamentally, Uber and Lyft face the same basic questions that Munchery and Instacart do: Do they want control over their workers or not?

Companies that do – and there are some indications that these ride-hailing platforms are among them, with practices like deactivating drivers who do not maintain certain quality ratings – are frequently considered employers in the eyes of the law.

“What I know about the nature of the control exercised by Uber and Lyft over the way the work is performed, and the fact that the drivers perform a service integral to the business model itself, provide a strong indication of an employment relationship,” said Wilma B. Liebman, a former chairwoman of the U.S. National Labor Relations Board.

Both Uber and Lyft maintain the contrary.

Krueger and Harris are concerned that what they see as the overly crude nature of labor law means that independent contractors are not provided enough protections.

But creating an entirely new category of worker would be not only politically and logistically tortuous, it would also risk depriving workers who would otherwise be classified as employees of the benefits they might enjoy.

That has been the experience with intermediate categories both in Britain and Italy, according to an analysis by Valerio De Stefano and Janine Berg of the International Labor Office, which is based in Geneva.

“We could do something that is unduly hasty and ends up doing more harm than good,” said Labor Secretary Thomas E. Perez, whose department is actively exploring the implications of the gig economy for the laws it enforces, but who declined to comment on the Krueger-Harris paper specifically. “I am undeniably fearful that the on-demand conversation is used as an excuse to further roll back the safety net.”