Is There A ‘Third Way’ For Uber and Other Gig-Economy Firms To Classify Workers?

For gig-economy companies, is it time to make way for the third way?

As reported Monday, Uber CEO Dara Khosrowshahi wrote in a New York Times op/ed that gig-economy companies like his should set up funds to help pay benefits to workers, ranging from health insurance to paid time off.

“There has to be a ‘third way’ for gig workers, but we need to get specific, because we need more than new ideas — we need new laws,” Khosrowshahi wrote.

The piece appeared as a California judge ruled that Uber and ride-hailing peer Lyft can’t classify drivers as “independent contractors” in the Golden State. At issue are benefits and protections that gig-economy workers get if companies classify them as “employees” instead of independent contractors — and the costs that firms would have to incur in extending those benefits.

Khosrowshahi’s third way — neither classifying workers as employees nor independent workers — would let gig workers receive some benefits, but not become full employees. If enacted in states in which gig-economy firms do business, such laws would require companies to pay into benefits funds as gig workers work.

Benefits would be transferable between various companies/apps. In addition to health insurance or paid time off, perks could include things like disability of workers who get hurt on the job. (Gig-economy firms such as Uber can’t currently offer that without risking their employees’ independent-contractor status).

Khosrowshahi estimated Uber would have contributed $655 million to benefit funds across all 50 states last year had the concept been in place. He said an Uber worker getting about $1,350 paid into the fund in a given year would be able to get two weeks of time off (on a 35 hour work week) or cover a year’s worth of subsidized healthcare premiums. However, he noted that Uber’s polls of its drivers have found that healthcare doesn’t rank within the top five benefits they most desire.

Khosrowshahi contended that as it stands now, classifying gig-economy workers as either employees or independent contractors is a “false” choice that dictates firms assume “more uncertainty and risk” when it comes to providing benefits to workers.

An Injunction In California 

The Uber CEO’s editorial came as a California judge ruled (Aug. 10) against Uber and Lyft on how their drivers should be classified.

Earlier this year, California Attorney Gen. Xavier Becerra, joined by the cities of San Francisco and San Diego, asked Superior Court Judge Ethan Schulman to issue a preliminary injunction that would require Uber and competitor Lyft to comply with state legislation known as Assembly Bill 5. The law mandates that the firms classify drivers as employees and not contractors.

Schulman granted such a preliminary injunction Monday (Aug. 10) at a time when ridership continues to decline for ride-hailing firms amid the pandemic. For example, Uber recently reported that rides were down 73 percent year over year in its latest quarter.

The judge wrote that “now, when defendants’ ridership is at an all-time low, may be the best time (or the least worst time) for defendants to change their business practices to conform to California law without causing widespread adverse effects on their drivers.”

Uber and Lyft can appeal the injunction, and enforcement of the order will not begin for 10 days. Uber itself estimated in May that shifting the employment classification would spur prices to rise by as much as 120 percent and throw a majority of its California drivers out of work.

The Uber CEO’s suggestion of a “third way” might take on added urgency in the face of Monday’s ruling. But the judge’s decision is just the latest salvo in the legal front over the status of Uber and Lyft — with ripple effects for other gig-economy companies.

At the end of last month, as reported in this space, a New York judge ruled ride-share drivers must receive state unemployment benefits within 45 days. The companies themselves had ruled that their independent contractors weren’t entitled to unemployment benefits. But if further rulings deem that the gig-platform companies (which argue they simply match supply and demand) have violated state law, they could be on the hook for penalties.

Schulman wrote in his ruling Monday that drivers are “central” to the ride-hailing firms, and that the idea that Uber and Lyft aren’t transportation companies “flies in the face of economic reality and common sense.” He also noted in the ruling that the plaintiffs “have amply demonstrated a reasonable probability of their claim that defendants are misclassifying their drivers.”