I’ve been following with interest the development and passage of AB 5, California’s attempt to end the misclassification of employees, especially at app-based and platform companies including household names like Uber and Lyft.
What I found is that there’s a high degree of confusion surrounding the need for the bill, whom it will affect and how, and why the implicated companies have been so strongly opposed to it.
The key to understanding the issue is that it’s not about wages or unions; it’s about benefits.
Uber isn’t afraid of a union
One common idea people have about the employee classification debate is that it has “something to do with unions.” And indeed, it does have something to do with unions! Union leaders in California have spearheaded the drive to end misclassification of platform employees, and the final passage of AB 5 will be a triumphant display of their ability to turn out activists and corral legislators.
But it doesn’t have anything to do with forming unions. The reason is simple: it’s virtually impossible to form a union in the United States, and the distributed nature of platform employees is guaranteed to make it impossible in fact.
That’s because US labor law is based on the organization of similar workers in specific workplaces. In the mid-20th century that might be all the assembly line workers in a particular GM plant (but not the bookkeepers at the same plant), or all the electricians on a particular construction site (but not the plumbers).
The recognition of workers as employees of platform companies will give them the theoretical right to collectively bargain — but only after their bargaining unit has been recognized, and Uber has unlimited tools at its disposal to make that process as onerous as possible:
- First, it will certainly insist that employees who provide rides belong in a different bargaining unit than employees who deliver food, who are different from the employees who repair scooters, who are different from the employees who charge scooters.
- Second, it will certainly insist that the relevant “workplace” is a single city, at the very largest. If you’ve ever taken a look at a map of “the San Francisco Bay Area” you quickly realize it’s not one city, but dozens. Uber will insist its employees organize separately in each city.
- Next, they’ll insist that workers will only be included in a bargaining unit if they work at least 20, or perhaps more, hours per week in that workplace, and they’ll almost certainly insist that the only hours that count “in the workplace” are hours spent picking up in the relevant workplace. If you drive a passenger from San Francisco to Oakland, and another passenger back, only the outbound ride will count towards your membership in the bargaining unit.
Note that I came up with these obstacles in 10 minutes. Uber will employ the best union-busting law firms in the country to come up with many, many, many more obstacles.
It is, of course, possible that there are cities where particularly industrious union organizers will meet all these tests. Unified metropolitan areas (without multiple divisions into separate municipalities) like Detroit would be good candidates.
But I want to be very clear: there is no chance more than a trifling number of Uber drivers will ever belong to a collective bargaining unit, and I’d be extremely surprised if the number is ever more than 0, if for no other reason that if a union is ever formed, Uber always has the option to simply leave the market, which is entirely legal under our labor laws (there are a few trivial exceptions but, obviously, Uber will get around them).
Uber isn’t afraid of higher wages
Another thing people are understandably bewildered by is that, where Uber drivers have been able to organize into local advocacy groups, Uber has not hesitated to meet with them and has made all sorts of concessions. In August Uber and Lyft even offered drivers in California a $21-per-hour minimum just-don’t-call-it-a-wage, far above California’s state $12 minimum wage, if they would oppose AB 5.
If you thought AB 5 was primarily about wages, this would be extremely confusing behavior. Why would a company offer its workers a wage higher than the minimum wage in order to prevent them from being subject to the minimum wage?
It’s all about the benefits
It shouldn’t be much of a surprise at this point, since it’s right there in the headline, but the reason these so-called “platform” companies oppose properly classifying their employees is that US labor law, for all its shortcomings compared to the rest of the developed world, does offer one nearly-airtight protection: non-discrimination in the provision of tax-deductible employee benefits.
In short, this means that with a few exceptions, for an employee benefit to be tax-deductible, it has to be provided on more-or-less equal terms to more-or-less all full-time employees. And the problem with running a hot startup tech company is that if you want to attract talent, you need to offer pretty generous benefits, among the most important of which is health insurance.
Under their current “fissured workplace” model, platform companies are able to provide tax-deductible health insurance exclusively to their white collar workforce. Let us very delicately and preliminarily guess that workforce is, on average, younger, healthier, and more educated than their driver and delivery employees.
Of course, their driver and delivery employees mostly don’t go uninsured. Thanks to the Affordable Care Act, in California the uninsured rate was just 7.2% in 2018. How did California achieve this? Through massive federal expenditures, of course: to expand Medicaid to cover those below 135% of the federal poverty line, and through refundable federal tax credits to cover the cost of insurance purchased through California’s ACA exchange.
So you can see, it’s irrelevant whether Uber does or doesn’t “care” whether its driver employees have health insurance or not: rather, it’s that Uber wants to offer a generous employer-based health insurance plan to attract the white-collar employees it believes it needs to succeed, while federally-financed ACA exchange plans are “good enough” for its drivers.
The misclassification of employees as independent contractors, in other words, is targeted directly at the only real legal protection American workers have: the principle of non-discrimination. You don’t have to offer generous health insurance or retirement benefits, but if you do, you have to offer them to all your employees on equal terms — and Uber doesn’t want to.
Conclusion: who is flexibility for?
There’s a final point I want to make that’s somewhat abstracted away from the nitty-gritty of labor and employment law. In all these debates over misclassification the platform company lobbyists and PR goons are always quick to point out that “drivers have the flexibility of deciding when to work.” And of course, in a hyper-literal sense this is factually true. Uber cannot force drivers to open their phones and log into the app, so drivers have a choice of whether and when to do so.
But while drivers may have control over selecting the hours they’re logged into the app, they don’t have any control over user demand for rides, or the process of pricing and assigning those rides, and so they don’t have any control over the amount they’re paid. In this way, they resemble nothing so much as an Applebee’s waitress told to clock out and wait in her car outside when business is slow, then clock back in for the dinner rush.
Platform companies rely on “flexibility” in order to spin up the availability of workers during periods of high demand. If they couldn’t do so, wait times would stretch out of control and users would migrate to other services (or, God forbid, traditional taxis and delivery services). In other words, companies get paid for their worker’s flexibility; they rely on it for their very survival, such as it is.
But worker’s don’t get a symmetrical payoff. If a driver’s “flexibility” doesn’t match up with the company’s needs, the driver just doesn’t get paid. Again, this isn’t unusual across the employment landscape: if you’re only available to work at a grocery store between midnight and 5 am, and the grocery store closes at 10 pm and opens at 8 am, you’re not going to get hired. Your availability doesn’t match up with the store’s hours!
The platform companies, on the other hand, would appreciate it if you stood outside the grocery store anyway, on the off chance that today is the day they decide to open at midnight instead. There’s nothing wrong with asking people to show up even when they’re not needed and there’s nothing for them to do. But we already have a perfectly good word for those people: employees. And unlike independent contractors, employees still have a few rights left.
No wonder Uber is scared.