Should Uber drivers, Handy cleaners, and other “gig economy” workers be considered employees? Conference panels, think tanks, newspaper op-ed sections, and the courts have debated the question for years, and now it has quietly landed in the laps of state lawmakers.
Within the last six months, legislators in at least eight states have introduced bills that declare workers for “online digital marketplaces” to be freelancers, or independent contractors. In three states, those bills have already been signed into law.
The bills in most cases were drafted and lobbied for by building services company Handy.
How workers in the gig economy are defined is extremely important to the companies they work for: Handy’s business model—like that of Uber and Lyft—depends on workers being independent contractors, which are typically 20% to 30% less expensive to hire than employees. Workers, meanwhile, are only subject to most labor protections if they are classified as employees.
Handy, which has raised more than $100 million in venture capital, says that the new will bills provide clarity, and will allow the company to provide training and benefits for workers without fear of lawsuits. The company has already been the target of lawsuits arguing its workers are employees (some have been settled out of court, others have resulted in mixed rulings). It is also currently facing a complaint from the National Labor Relations Board that argues its workers are employees, saying Handy has more control over their work than it would a freelancer’s work.
The bills’ opponents argue that that they could easily be abused by employers who want to call their workers freelancers in order to avoid payroll taxes and other benefits to which employees are entitled—leaving more workers without social security, health insurance, and the protection of labor laws as a result.
The gig economy’s gray employment area
A recent McKinsey report estimated that between 20% and 30% of people in the U.S. and E.U. have engaged some form of independent work, and around 15% have used a digital platform to find it. But the boundary between digital job boards and digital employers is still being drawn, and some US state legislators’ struggle to navigate the difference is apparent in the language they use.
Tennessee state senator Bo Watson has described online marketplaces as the “want ads of the internet era.” Utah state senator Scott Bramble told Quartz that “[platforms like Handy] are just a mechanism to communicate, kind of like a yellow pages on steroids.” Both of these descriptions would accurately describe sites like Craigslist, where the clients and workers directly interact, set rates, and exchange payments. But not all online marketplaces are the same.
Unlike Uber, Handy, and other platforms, newspaper help wanted ads and the yellow pages do not typically take a percentage of every payment paid to a worker. Companies that use an app to manage work in some cases have more control over workers than is typical in an offline contracting relationship or job board—Uber sets its drivers’ pay rate and Handy charges workers a fee if they don’t show up for a job, for instance. They also have less control than does a typical employer, because workers choose when to work.
The relationship that gig economy companies like Uber have with their workers is widely considered to be a gray area, and court rulings on the question have been consistently inconsistent. In the debate outside of state legislatures, some have proposed addressing the relationship by creating a new category of workers that would have more rights than a freelancer, but less than an employee. Others have sought new types of benefits for this on-demand worker, which when classified as an independent contractor is left out of social safety net programs.
In an earlier attempt to settle the employment status of its workers, Handy last year circulated legislation that sought both reassurance that its workers would be considered independent contractors—which would provide the company some legal protection—as well as a mandate to create a small “benefits fund” for its workers. Labor leaders called it a bad deal for workers, saying that the commitment Handy was willing to make to workers’ benefits was too small.
So Handy turned its attention to states where it would face less opposition from unions and other labor leaders, pushing bills that made no mention of the benefits funds. ”Since we have been unable to come to a resolution that addresses both issues—providing benefits and clarifying classification—we are supporting legislation that focuses solely on creating a clear test for worker classification in the on-demand sector,” Handy General Counsel Brian Miller said in a statement to Quartz.
Bills with nearly identical language around online marketplaces have been introduced in seven states where Handy paid lobbyists within the last six months. They have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah, and Indiana. A similar bill was also introduced in Alabama.
Most of these bills propose a law that, once in effect, would clarify that workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control their schedules, prohibit them from working elsewhere, and meets other criteria (at least two specifically exclude transportation network companies like Uber).
Why does a NYC-based tech company lobby lawmakers in Tennessee?
There is no single test to determine whether a worker is an employee, and therefore entitled to the protection of labor laws and other benefits. The answer for the same worker may be different when considering who should get access to unemployment insurance, who can form a union, and who is entitled to health insurance.
A Tennessee or Indiana state law doesn’t directly help Handy when it comes to determining the status of workers in the context of federal laws that, which require employers to pay a minimum wage or provide health insurance. But the proposed laws may impact which workers have access to state-run workers compensation insurance, unemployment insurance, or a state minimum wage—and help companies avoid paying into those public benefit programs.
In Colorado, for instance, a legislative council staff fiscal note estimated that 5% of private employees in the state who are currently eligible for unemployment insurance would likely be reclassified as independent contractors, and lose their eligibility for unemployment insurance, if the bill became law. Companies like Handy would be exempt from paying into the unemployment insurance program.
Successfully lobbying for a law in one state may also make it easier for a similar law to pass in another state. “Every time you show up in the state and have an idea, the state will ask you, what other states will do it that way?” says David Rolf, the president of the Seattle-based Local 775 of the Service Employees International Union. Similarly, Rolf says that state laws make it easier to pass similar federal laws: “Domestic policy is innovated in states and cities,” he says. “There are few examples of federal legislation passing that have not been prototyped in a state.”
Uber has embraced a similar state-by-state strategy as it faces the question of whether its drivers should be considered employees. According to a report from the Partnership for Working Families and the National Employment Law Project (NELP) that details these lobbying efforts, about half of US states have passed laws that “declare variously that drivers are not TNC employees, state that the TNCs do not ‘control’ or ‘manage’ their drivers, and/or impose entirely new tests of ’employee’ status, written only for the TNCs.”
Emails between legislators and Handy’s lobbyists demonstrate a process that is somewhat common in pushing for legislation to be introduced. In one email exchange obtained by Quartz, a lobbyist Handy hired in Utah shares a drafted bill (provided by Handy’s New York-based political affairs firm) with Utah State Representative Timothy Hawkes, who somewhat cryptically responds, “The ‘price of admission’ on this is your help with the other piece of this. I need both pieces to move together.”
The “second piece” he never names, but writes it “involves fending off possible attacks from some segments of the business community.” Rep. Hawkes wrote in an email to Quartz that he considered the legislation, found nobody who opposed it, and asked the lobbyist to help with the more controversial piece of the legislation it would be attached to, if he supported it (Update: Hawkes adds: “I was saying to the lobbyist, ‘I get that your bit may not be controversial, but this other piece is, and if you want your piece to get through, you may need to help me on that piece so that the entire bill will pass.”)
Utah’s governor signed a version of the “Service Marketplace Platforms Act,” sponsored by Rep. Hawkes, on March 21. It had been added to another bill he had already been working on.
“I can’t recall even one question in committee on the service platform part of the legislation,” Hawkes wrote.
Clarifying the rules of an online labor market
In Quartz’s conversations with four state senators who sponsored versions of a bill addressing classification for online marketplaces in the last year, all expressed a need to clarify the relationship between online marketplace platforms and workers.
Even some of those who do not support the recent bills agree that clarification would be helpful. “The basic idea that platforms would look for partners around benefits in exchange for clarity was not a bad thing,” Rolf says, referring to drafted legislation Handy circulated last year. In a statement, Handy’s Miller said the company is actively exploring pilot programs around benefits in states that have passed online marketplace bills.
However, Rolf and others also say that the state legislation Handy is lobbying for lacks important case-by-case nuance that could prevent employers from using it as a loophole to avoid payroll taxes and other costs of employment—that it doesn’t stop someone who has more traditional employees from putting up a website, renaming them independent contractors, and robbing them of protections and benefits.
“[The bills] are written so broadly,” says Rebecca Smith, a director at the National Employment Law Project, “that really any business that dispatches workers could make a couple of changes, dispatch workers through a website, and voila, not be an employer anymore.”