When the debate over how on-demand workers should be classified — whether as employees or independent contractors — first erupted, the folks at TaskRabbit thought it was none of their business. The problem, COO Stacy Brown-Philpot told BuzzFeed News, seemed to be Uber’s — that company was the one attracting attention, and the one being sued. “We really felt like, our marketplace is different, and this is a battle that they are fighting,” she said.
But the question of whether gig workers should be provided the same benefits and protections as employees didn’t stay Uber’s problem for long. Fast-forward a few months, and TaskRabbit executives, like so many other on-demand economy leaders, were taking trips to Washington and meetings with senators in the hopes of having their agenda incorporated into the rapidly advancing national conversation on labor regulation. “What we’re trying to do,” Brown-Philpot said this December, “is educate the federal government about how our Taskers are working.”
In 2015, a lot of people had the same realization. Uber, TaskRabbit, and many of their peers in the on-demand economy have been predicated on cheap contract labor since their inception — and have been insisting that the law needs to catch up to the technology they’ve invented, rather than vice versa, for nearly as long. As any legal expert will tell you, plenty of companies that existed years before the term “sharing economy” even existed have wrestled with the choice between expensive, trainable employees and cheap, independent contractors. “If you think about FedEx drivers and Microsoft workers, these questions have been with us for a long time,” Harvard Law School professor Benjamin Sachs told BuzzFeed News. “Uber has gotten everyone’s attention, and so has focused us on a question that courts and academics have been thinking about for a long time.”
But this was the year that the widespread popularity of apps like Uber and the massive amounts of cash in Silicon Valley made worker classification a major topic of national interest. The conversation has largely been driven by the class-action lawsuit brought against Uber in late 2014 by Boston-based labor attorney Shannon Liss-Riordan, who has made the on-demand economy something of a personal speciality. By January, federal Judge Edward M. Chen weighed in on the issue during a court hearing, saying that “the idea that Uber is simply a software platform” is not a “very persuasive argument.” Former Labor Secretary Robert Reich took up the cause in February, penning a number of articles about how tech companies like Uber will lead to a rise of misclassification.
But it wasn’t until March when momentum took hold. That’s when Judge Chen decided to try the case by a jury, saying that the drivers may indeed be employees. A week later, a very similar case was brought against Instacart, which, at the time, hired independent contractors both to shop in grocery stores and to deliver groceries to customers’ homes. Handy, Homejoy, Postmates, Try Caviar, and others were also sued by workers.
Once June rolled around, the issue started to reach a fever pitch. In California, a judge found a single Uber driver — separate from the larger class-action suit — to have been misclassified as a contractor, ruling that she was owed around $4,000 in expenses. In Silicon Valley, venture capitalists started promoting the idea of creating a new class of worker, a middle road between contractor and employee, an idea that had actually been floated back in January in the Wall Street Journal. As BuzzFeed News wrote in June, that new contractor classification would solve a major problem for the on-demand economy, potentially allowing companies to train workers and tell them what to do and where to be without having to pay for the benefits that employees get.
The idea took off.
What followed was a hectic summer. There were more lawsuits, this time against Washio, Postmates, and Shyp. Shyp reacted in a novel way — by changing the business model. Following the example Instacart had set just a few weeks prior, Shyp announced that it would begin transitioning its contractor-based workforce to full employees. Other companies would soon do the same, including Shift, which decided in October to make the workers who handle buying and selling used cars on the platform employees of the company. CEO George Arison said it’s a choice the company could not have made before the lawsuits. “If I had walked into that room in July of 2013, they would have said, 'You should under no circumstance go W-2 and definitely keep 1099.'"
Meanwhile, the issue of worker classification was making its way to the national stage. The Department of Labor weighed in, softly reminding the nation that the 1099 classification is only used in rare cases and that the vast majority of Americans should be classified as employees. But the cannonball-sized splash came when presidential candidate Jeb Bush made a point in July of coming out as pro-Uber; the former governor of Florida gave a talk on the benefits of the gig economy at Thumbtack’s headquarters, before getting picked up in an Uber and driving off. When Hillary Clinton suggested that there might be some problems with the innovations of the gig economy, she was roundly attacked for being anti-tech. Later that summer, Clinton held “secret meetings” in San Francisco, in which she talked with executives from on-demand companies about the needs of the industry.
By fall, the showboating was over, and things started to get serious. In October, President Obama hosted a summit on “worker voice” at the White House during which he expressed concern that a third worker classification might be, in practice, no more than “a watered-down version” of existing employee protections. After that, real policy proposals started to surface. In November, a coalition of tech companies and labor organizers announced their mutual support for portable benefits — a plan to build a system that will allow workers to collect prorated benefits from multiple companies simultaneously, potentially a serious step toward reimagining the social safety net. In December, a formal proposal was put forth by the Hamilton Project laying out what a third worker classification could actually look like. And finally, app-based drivers in Seattle won the right to organize and collectively bargain.
So what’s next?
2016 is a presidential election year, a fact that has already begun to impact discussions of national policy. There’s a chance that campaign season will serve as a distraction, as topics like immigration and ISIS bowl over the issue of worker classification. But there’s also a chance, says TaskRabbit’s Brown-Philpot, that gig economy regulation will again become a part of the electoral debates in the same way it did this summer. “Hillary had a 12-person meeting on the sharing economy. Jeb orchestrated an Uber ride. Rubio has been spending time with Handy,” she said. “I don’t think they’re gathering that information for their health.”
After all, the worker classification question gets at one of the deciding issues for American voters: jobs. Because the issue at hand is partially about the benefits employees receive, it’s also connected to health care, which is guaranteed to play a part in the election.
If the gig economy does become an issue in the presidential contest, Democrats and Republicans will find a way to divide themselves on either side of it — a near eventuality that Sen. Mark Warner alluded to it an essay on Medium he co-wrote with Gov. Mitch Daniels, in which he declared his support for coming up with federal policy that defines, among other things, a new class of worker. “Thankfully,” it reads, “on these issues, battle lines have yet to harden and shared progress is still possible.”
In addition to potentially facing regulation in Washington next year, on-demand companies will also face challenges in the motherland. Venture capital is simply no longer as readily available to entrepreneurs as it was six months ago. It's a problem that will hit on-demand companies especially hard, given that many of them have relied on the artificial injection of venture cash rather than charging customers full price for services in order to scale their platforms. Charles Moldow of Foundation Capital has written about the economics of on-demand startups in the past; he says luxury services startups like Luxe and Zirx, both on-demand valet apps, aren’t long for this world. “People may love your service, but if you're unable to raise prices and charge rates that make you a legitimate business, you're not going to be able to raise money, and you're going to be in trouble,” he said.
In fact, six months ago, venture capitalists were already questioning whether the on-demand space wasn’t growing overcrowded. In the beginning, “it was land grab mode,” said Semil Shah, a venture capitalist who backs DoorDash and Instacart, among others. “We’re starting to see only a few will really kind of survive into something.” As less available funding contributes to the demise of some companies and the acquisition of others, those with ongoing legal problems and costly labor issues are more likely to be gone for good.
Sarah Horowitz of the Freelancers Union said that throughout labor history, new industries arise, and the nature of American capitalism is that government tries to serve and encourage them. But as industry becomes more powerful, workers will begin to question what they’re getting in return for their labor, and protections will have to be put in place. Phase one was the hiring of Washington, D.C., big guns like David Plouffe and Chris Lehane to run policy teams for these companies, drastically inflating their lobbying budgets. The second phase, in which laborers return fire, began this year with the Uber lawsuit, and will continue to unfold in 2016.
Class-action lawsuits, especially ones with a class as large as Uber’s (more than 100,000 drivers as of early December) are a major cost no company wants. Further, pending litigation can make a company significantly less attractive to a potential acquirer. There’s no doubt that the situation we now find ourselves in — in which there is a congressional Sharing Economy Caucus falling over itself to regulate a relatively small, nascent industry — has been driven by lawsuits. As Sen. Warner has repeatedly said, the multibillion-dollar valuations some of these companies tout also draws attention.
But beyond size and scale, these cases have captured national attention because there was always something a little too good to be true about the idea that merely owning a cell phone afforded everyone the ability to have clean underwear or ice cream or weed brought to them instantaneously. Revealing the underclass of drivers who power each app as potentially maltreated is satisfying because it seems to confirm with fact what was formerly just a feeling — that we’ve become too lazy, too indulgent, too carried away by convenience.