Uber and Lyft report earnings this week, and the biggest long-term threat to profits for both of their businesses is the people who drive the cars. Currently, of course, drivers aren’t classified as employees with benefits, overtime or workplace protections. They’re technically independent contractors with none of that. 

The California Supreme Court has already made it harder for companies to call their workers contractors, and now the state’s Legislature is considering a law that would classify most gig economy workers as employees. But is that too simple of a solution for what’s really a whole new labor economy?

Host Molly Wood spoke with Meghan McCarty Carino, who reports about workplace culture for Marketplace. She said that if the California law passes, the impact will be massive. The following is an edited transcript of their conversation.

Meghan McCarty Carino: It would have a huge impact on the way these businesses operate. Pretty much overnight, hundreds of thousands of gig workers in California would become employees and would [have] all these benefits. The estimate cost to Uber would be $500 million every year. It would cost Lyft $290 million every year. So there have been other efforts to litigate this, but this would have a very immediate and very definite impact.

Molly Wood: Uber and Lyft are the most well known, but there are lots of companies that are basically staking their business model on this idea, and a lot of people who like the opportunity. What are the downsides?

McCarty Carino: Every day, I think, we get pitched things on like, “It’s the Uber of dog walkers.” There’s a whole class of these companies that have followed the model of Uber and say, “We’re a tech platform that just connects these independent contractors.” And it would totally upend these so-called disruptive businesses to have to redo their entire business model around an employer-employee relationship. Uber and Lyft have said that this is an existential threat to their business. They’ve come out strongly against it — all these companies: TaskRabbit, Postmates and all of the delivery apps. It even would apply to beauty salon workers and some workers that you wouldn’t even think would fall under this, so it’s wide ranging.

Wood: What about this idea of a third classification, saying that these workers aren’t independent contractors, but they’re not exactly employees either?

McCarty Carino: It’s not really a slam-dunk argument on either side. There are some aspects of gig work that fall very clearly under independent. There are some aspects that fall under the employer relationship. Uber and Lyft have come out in an op-ed in the San Francisco Chronicle suggesting that they could classify workers in this third way as a solution for the threat posed by this law. They’ve said, “OK, don’t classify them as employees, but we could put them in this middle area, offer them some portable benefits package that they could get paid into from these various companies. They could get paid time off; they could have retirement planning.” It would be this kind of in-between thing,

Wood: When you put it in that context, it sounds like maybe this bill also hasn’t exactly caught up with the gig economy. Like the old-fashioned idea of employees that, frankly, not every gig economy worker would be on board with.

McCarty Carino: No, and there have been high-quality surveys that have shown that many gig workers, they really do like the flexibility that it offers them, and they consider themselves to be independent. Whether or not they would want to have benefits through a company that they’re working for I think is a different question. There is a lot of confusion over what the path forward could be for these businesses to continue to operate and for these workers to continue to operate in a way that they want to operate while keeping the businesses afloat, and also offering some benefits and protections that a great number of workers in our economy are lacking.

Wood: So if it passes roughly intact or even with changes, what might a bill like this — considering California economic impact — mean for the rest of the country and gig workers everywhere else?

There is the thought that if this change were to occur in California … that it would have a big effect.

Meghan McCarty Carino

McCarty Carino: This would affect hundreds of thousands of gig workers in California. California is obviously a hugely popular state, and it’s also the state where many of these companies are based, were founded. There is the thought that if this change were to occur in California, whether the bill passes or whether it results in some major concessions from these companies offering some benefits and recategorizing how they relate to these workers, that it would have a big effect. It would have a big effect on the way these companies do business everywhere. And it could provide a road map for other states to make these changes themselves.

Related links: more insight from Molly Wood

A new report from Deloitte on 2019 labor trends said that self-employment gig work is expected to triple in the United States by 2020. Considering the number of companies that are building a business model that relies on this kind of work, some solution is going to have to emerge. But the Deloitte report also said that the option for more independent work is changing the way that workers approach companies, even if they do work full time. They may want more mobility, more flexibility in terms of hours or location. And Deloitte pointed out that only 6% of companies surveyed said “they are excellent at moving people into new roles to give them new opportunities.”

There’s also an interesting piece in the Harvard Business Review saying that this thing Meghan McCarty Carino called bifurcated debate — whether gig workers are independent contractors or employees with no other options on the table — is totally missing the point about how much work, and the idea of work, is changing. It said we needed to create workplace rules that apply to workers, something that included portable benefits, or recourse for harassment, or discrimination that isn’t company-specific and worker-friendly, guaranteeing minimum hourly rates.

It also cautioned that there were a lot of reasons someone becomes a gig worker. For some, it’s to make a living, and for others it might be to supplement a low-paying full-time job; still, for others, it might be beer money. So classifying these workers in a way that puts them in the same old employee bucket is too rigid of a standard.

If you really want a side hustle, or you’re a working parent who needs flexible hours, having to become an employee and deal with all that bureaucracy might just make it not worthwhile, which is also not great for the economy that’s built on this kind of labor.

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