The issue of classifying workers as independent contractors holds a lot of relevance to today’s businesses as more workers taking up work as independent contractors and businesses coming to rely on them for much needed skills. The American Action Forum’s research estimates the growth in the number of independent contractors to be between 8.8 and 14.4% from 2002 to 2014. Juxtapose this with the growth in overall employment measured at 7.2% during the same period to get an insight into the trends in this segment. Thus, the so-called ‘gig’ economy is poised to replace regular jobs with fixed pay and paid holidays. The number of independent contractors is increasing by the day. The question is – are these entrepreneurs or just exploited individuals who live on the edge on uncertainty. The truth, as is the case with most issues, definitely lies somewhere in the middle.
The issue has seen so much interest and debate that the avant-garde leaders in the upcoming Presidential race felt called upon to take a stand in the matter. Jeb Bush took an Uber ride to show his solidarity with the concept of an economy which believes in the unfettered proliferation of on-demand services; and Hilary Clinton expressed reservations about the on-demand industry start-ups as committing wage theft and questioned the future of jobs and workplace protections.
On-demand Service Platforms:
Technology has proved a great enabler for many of these innovative entrepreneurial ventures. They took off, and achieved success by aggregating the contributions (in the form of services or products) of multiple players; by simply providing them with a platform to connect them to their customers. But the problem lies with their involvement in the pricing or delivery of these products and services, and the classification of the drivers or hosts associated with them as independent contractors. These drivers and hosts are entrepreneurial spirits who find the platform to be an amazing opportunity to advertise their services and products, with little or no investment in capital expenses. The regulatory authorities are not so pleased, for obvious reasons.
Even as investors are flocking to invest billions into companies like Uber, the regulatory authorities are working overtime to ensure that workers’ rights are protected. The determination of independent contractor status applies 13 factors based on the relationship between employer-employee, and the financial controls and behavioral controls put in place. Apart from these factors, there may be more tests applicable at the state level as well as the economic realities test as per the fair Labor Standards Act.
Class Action Suit:
A new caution is now added to all these concerns, with the latest decision passed in a case against Uber being a setback not only for Uber but all companies which use independent contractor classification for most of their workers. Uber drivers in California filed suit saying they are employees and therefore should be reimbursed for expenditures or losses incurred during the discharge of their duties. A previous ruling allowed only California Uber drivers to implead into the case. But the U.S. District Court’s ruling dated 9th December 2015 says all Uber drivers including those who signed contracts which required them to agree to mandatory arbitration could be a part of the suit and can join the case as a class action suit.
With this ruling, the suit against Uber will:
As Uber appeals against this decision, other businesses may exercise caution with continuing along the path of 1099 classification. If the lawsuit gets the drivers classified as employees, we may find that they will be losing the personal flexibility and freedom to choose assignments using ride-sharing apps other than Uber’s and find themselves having to refuse them! Will that spawn a whole new business model? Can the platforms become consultants and service providers, who train their associates to provide consistent services and charged them a fee per customer?
What do you think? Please do write in with your views.
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