Magazine December 22, 2019, Issue

What to Do about the Gig Economy

Uber’s logo on a mobile phone (Hannah Mckay/Reuters)
California is imposing onerous new regulations, but there is another way

Next year, a California law cracking down on “gig economy” companies such as Uber will go into effect. These companies have typically classified their workers as independent contractors rather than full employees, which has profound implications under modern labor law: no collective-bargaining rights, fewer antidiscrimination protections, less regulation of working conditions and benefits. But under the new statute, passed to codify and clarify a recent decision by the state’s supreme court, it will become a lot harder to treat workers as contractors for the purpose of the state’s wage-and-hour policies, which pertain to matters such as minimum wage, breaks, overtime, and the like.

The “ABC test” that the new law prescribes seems simple enough. To qualify as a contractor, a worker must (a) be “free from the control and direction of the hiring entity in connection with the performance of the work,” (b) do work that’s “outside the usual course of the hiring entity’s business,” and (c) be “customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” But there’s a big problem here, even for those thirsting for Uber blood: Lots of people, in a wide range of industries, fail the ABC test — people who have been happily working as independent contractors for decades and don’t want to stop.

These include freelance journalists, who let loose a torrent of complaints online as it became clear how the law would affect them, and many others, from translators to “owner-operator” truckers. Applying the ABC test to these workers could cost them their independence, their flexibility, and, if employers don’t find it worthwhile to hire them on more onerous terms, possibly their livelihoods. And the drafters of the law knew full well that the ABC test was not a good way to draw the line between full employment and contracting, as evidenced by the numerous exceptions they wrote in.

Doctors, insurance brokers, lawyers, architects, accountants, and numerous other worker categories were effectively exempted. Freelance journalists got a more limited exception; they can write 35 articles for a given employer per year before they must be treated as employees. The Los Angeles Times reports that the list of exemptions could grow as “businesses in dozens of sectors” look to figure out “whether they can persuade lawmakers next year to add them to a score of carved-out occupations.” The truckers have already taken their case to federal court. Amusingly enough, Uber and Lyft, the most prominent targets of the law, are pushing a referendum that would exempt them too. Some app drivers, of course, have the same complaints about the situation as freelance journalists and all the others do.

This is a mess of a policy. For all their dissatisfaction with the status quo, California lawmakers have proved utterly incapable of articulating principles that separate employees from contractors in a workable fashion, instead resorting to a patchwork of different rules for different jobs.

Conservatives can laugh at the disaster created by judges and legislators in one of the country’s most liberal states. But as laws like this sweep the country — New York governor Andrew Cuomo has said California’s move got his “competitive juices flowing,” and Seattle gave gig-economy workers the right to unionize in 2015 (though court battles over that law continue) — the Right should think through its own response to the Uber dilemma. Enormous new companies have built their entire business models on the concept of matching hundreds of thousands of low-paid contract workers with customers. Is the best approach simply to keep the status quo and allow this less regulated type of work to grow? Or does the rise of the “sharing economy” require a new set of laws?

The status quo has a lot for a free marketeer to love. Federal laws, such as the Fair Labor Standards Act and the National Labor Relations Act — at least as they’re currently enforced — make it fairly easy for workers to be classified as contractors. The precise tests that federal agencies and courts apply vary depending on the circumstances, but, generally speaking, if workers set their own hours, supply their own capital (such as cars), do their work without direct supervision, are paid by the job, etc., they can be treated as contractors. That’s why Uber operates the way it does, and why online publications that rely heavily on cheap freelance writers have been operating that way for even longer.

This system offers a lot of flexibility to workers and businesses alike and limits the reach of onerous labor regulations. Contract work certainly isn’t for everyone, but it provides a great deal of freedom: An independent contractor can’t be forced to accept union representation just because his co-workers voted for it, can’t be denied extra work thanks to government overtime and minimum-wage regulations that require higher pay than the work would be worth to the employer, can accept and reject projects as he pleases, can choose his own benefits at his own expense, and so on. Such arrangements have worked out reasonably well for contractors until now, so if Internet platforms such as Uber make it easier for Americans to work as contractors and for businesses to employ contractors on a larger scale, conservatives can just celebrate that fact. And if these workers have a strong demand for better benefits, the market will provide them. The Right shouldn’t fret over the rise of less-regulated employment; leave that to places like California, New York, and Seattle. 

Regarding that “rise,” it’s also important to note that the so-called gig economy has been overhyped. There’s no doubt that Uber and similar cutting-edge phone-app companies employ lots of Americans, but only about a quarter of workers do gig work at all — including older forms of it, such as temp jobs and freelancing — and only a tenth of workers rely on it as their primary source of income, a proportion that hasn’t changed much in the past decade or so. For the time being, gig work doesn’t pose too much of a threat to traditional employment and the protections that come with it.

Perhaps all we need, then, are some clarifications of federal statutes to settle the assorted technical issues percolating in the courts: If states want to make their own rules regarding wage-and-hour protections and unionization, exactly how far are they allowed to go before federal law preempts their efforts? And should courts and executive appointees in the future have discretion to redraw the lines, or should the statutes explicitly say that gig-economy workers can be considered contractors as far as federal law is concerned?

State and federal lawmakers should also, however, consider the benefits of going a different route: creating a voluntary “third status” in between employee and contractor that would address some of liberals’ concerns about these new jobs without destroying what conservatives love about them, while keeping the other two statuses available as well. Eli Lehrer of the R Street Institute offered a detailed proposal along these lines a few years back in National Affairs. Those who balk at interfering with a trend toward less regulation can take Lehrer’s proposal as a possible compromise in case conservatives are eventually forced to accept a more active role for the government.

In Lehrer’s framework, laborers could choose to work as “flexible workers,” and some employers could be considered “job platforms.” Flexible workers would have basic antidiscrimination protections, could set their own hours, and would be guaranteed the right to work for multiple platforms at once, but would not be able to bargain collectively or be guaranteed vacation time or unemployment insurance. Flexible workers would also gain new “benefits exchanges”: Companies that chose to employ workers in this new category would provide money to fund a basic safety net, and the workers could use that money to purchase benefits.

That’s a lot more sensible than trying to force these workers into the traditional-employee category and harming or exempting a chaotic mélange of other workers in the process. If the government must get involved, it should do so in a way that respects the value these jobs bring to workers, consumers, and businesses, and that gives employees and employers a new option rather than taking one away.

This article appears as “What to Do with the Gig Worker” in the December 22, 2019, print edition of National Review.

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