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Gigging With Benefits Proposed as Answer to Existential Threat

March 9, 2020, 10:00 AM

Gig-economy companies fighting to keep their contractor-based labor model from being legislated away are trying to sell a compromise: let us keep our independent workforce in exchange for a pledge to invest more in a safety net for workers.

Companies including Uber Technologies Inc., Lyft Inc., Postmates Inc. and Instacart Inc. are lobbying to establish a portable benefits system like New York City’s Black Car Fund for their drivers and other contract workers, in an effort to keep other states from passing laws similar to California’s Assembly Bill 5.

That legislation, which makes it harder to categorize workers as contractors, poses an existential threat to the gig-based business models, those platforms say. Uber says reclassifying workers would add 20% to 40% in labor costs for on-demand companies.

“Right now the gig economy is having very important conversations about elevating worker standards,” said Vikrum Aiyer, vice president of global public policy and strategic communication at Postmates. “We firmly believe that a part of that conversation should be how we create benefits programs that move along with workers across platforms and that they can draw down from” no matter the job they have.

Businesses are already offering a taste of what types of benefits they may be willing to offer in the future. Uber pays for accident protection and university tuition. DoorDash covers both accident and occupational protections. Workers generally have to pay for programs offered by third-party providers like healthcare savings accounts and student loan repayment assistance; the companies only provide access to them.

Palatable Alternatives

The gig companies say they’ll pay for more packages themselves—if they are legally freed from being considered those workers’ employers.

Uber, Lyft, Postmates, Instacart and DoorDash Inc. have pledged $110 million for a ballot measure in California to change A.B. 5. It would provide new benefits and protections for drivers, including minimum wages and some portable benefits, while maintaining an independent contractor system of employment.

Treating workers as employees is fundamentally incompatible with the flexible work opportunities gig platforms like DoorDash provide workers, a representative for the on-demand food delivery service said. That’s because “Dashers” set their own hours and can surf multiple platforms for jobs at the same time.

Uber and Lyft, in an op-ed published in the San Francisco Chronicle last June, said employment laws “do not allow companies like ours to offer certain benefits without blurring the boundaries of employment and triggering a wave of litigation in which nobody wins.”

In New York, sharing-economy drivers statewide have access to free and discounted benefits through the Black Car Fund, which collects a 2.5% passenger fee on every Uber and Lyft trip, to provide drivers with medical, vision, dental, accident support and workers compensation. Postmates is looking to find an opportunity to extend Black Car Fund-like benefits for delivery drivers, which Uber says has a “successful track record.”

In New Jersey, State Sen. Troy Singleton’s bill, S.943, would require companies to create a portable benefits structure while explicitly stating that offering of those benefits won’t be used to determine a worker’s employment status. Singleton is advancing the legislation as the New Jersey Department of Labor and Workforce Development has hit Uber with a $650 million bill for employment taxes it says the ride-hailing platform owes for misclassifying its drivers as contractors.

In the absence of any action by Congress to create a uniform portable benefits policy, “it’s incumbent on us as state legislators to put guardrails around this issue,” Singleton said.

The bill advanced in the Senate Labor Committee earlier this month and now heads to the Senate Budget and Appropriations Committee for consideration. To become law, it still must be approved by the full Senate and Assembly and then signed by Gov. Phil Murphy. Singleton proposed this bill in 2017 and 2018, but it was overshadowed by a proposal to crack down on businesses that misclassify workers as contractors, which also didn’t advance.

Critics of his idea, like the New Jersey Civil Justice Institute, say the bill as written creates a disincentive for companies to hire employees.

Maneuvering the Legal Framework

Nothing in the current legal structure governing employee benefits, the Employee Retirement Income Security Act of 1974, prevents these companies from offering more benefits than they currently do, said Michael C. Duff, law professor at the University of Wyoming.

“You can’t have it both ways,” he said. “You can’t claim these are independent business entrepreneurs and that they are responsible for doing everything on their own. Then on the other hand be giving them benefits. I think the whole exercise is evasion and subterfuge.”

Still, Duff acknowledged that businesses using a contractor-based model may not, under ERISA and the Internal Revenue Code, be able to take tax write-offs or costs of providing benefits. He also agreed with multiple company representatives that the potential for litigation from a contractor claiming an employer-employee relationship is deterring gig companies from offering more benefits.

“We’d like to help address the skills gap by connecting Wonoloers with better opportunities to obtain the skills needed to progress in the job market,” Yong Kim, co-founder and CEO of the on-demand staffing platform Wonolo, said. “Unfortunately, there is some risk in providing on-the-ground training outside of traditional employment. We believe this is wrong, and we are eager to work with policy-makers to find a way to help front line workers to get ahead.”

A Modern Solution?

Acting apart from Uber and the other major gig companies, worker groups like the National Domestic Workers Alliance and the Freelancers Union argue a portable system of benefits would improve workers’ lives in an economy transformed by technology, especially for those left out of current federal labor laws.

The National Domestic Workers Alliance developed a pilot, digital system for housekeepers and nannies, who aren’t covered under the Fair Labor Standards Act, that would allow paid time off or insurance contributions to be made by their employer.

The NDWA’s Alia system allows multiple clients of a domestic worker, who sign up with Alia, to contribute a set amount per cleaning into a benefits fund for that worker. That monthly collection of those contributions can be used to fund an insurance plan of the worker’s choosing or can fund a paid day off. Those credits build up month to month and comes at no cost to the worker.

The Freelancers Union first created its own portable benefits platform under the leadership of Sara Horowitz in 2008 with the Freelancers Insurance Company. She recently founded Trupo, an organization that bundles benefit packages for freelancers.

“Workers in America need a much more decentralized system of benefits the reflects how people are living their lives today,” Horowitz said. She noted some of the gig companies may well be misclassifying workers as contractors when they should be employees and should be liable if that’s the case.

Experimentation over portable benefits—whether at the state level or via private enterprises—should continue to work within the contractor system of employment, she and NDWA’s Palak Shah said.

Shah said the key question regarding portable benefits is who pays.

“Is it the employer? The government? We need to answer it in a really honest and fair way,” Shah said. “Everyone is working, cobbling together pieces of jobs, but they still deserve to have the baseline level of protections. Our current system has been allowing robust protections but only under certain situations or not at all. That is it’s fundamental flaw.”

To contact the reporter on this story: Jaclyn Diaz in Washington at jdiaz@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com; Bernie Kohn at bkohn@bloomberglaw.com

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