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Gig Economy Companies Reclassify Workers as Employees

There are new developments in an ongoing legal battle over how to classify “gig economy” workers. Instacart, the on-demand grocery delivery company, is rolling out an option for their shoppers, who have been deemed independent contractors, to become part-time employees. On top of that, Shyp, a San Francisco service that picks up, packs, and delivers items, is also converting their couriers from independent contractors to to full-fledged employees. Both moves signal potentially positive developments for an industry struggling to find its way.

What are the differences for workers? They will now be entitled to various protections that independent contractors are not, such as workers’ compensation and unemployment benefits.

Major gig economy companies like Uber and Lyft are fighting large class action lawsuits that allege they have misclassified their workers as independent contractors rather than part time employees. The companies are resisting because they have to pay some tax and insurance costs for employees, but not for contractors.

In principle, contractors are either required or permitted to pay many of the same costs for themselves that the companies pay for employees, which might bring the two arrangements close to being financially equivalent. But in practice, if workers don’t know about their tax obligations (or choose to evade taxes by not declaring the income), then the same amount of payment by a gig economy company can seem like more money available to the worker. A similar effect may happen if contractors assume more risk by not paying for insurance: when the gig economy company becomes an employer who is mandated to purchase insurance for its newly classified employees, the company will end up putting fewer dollars directly into its workers’ pockets. As long as the workers remain contractors, some costs may be shifted away from gig economy companies and their current workers, and on to the shoulders of other taxpayers, or of those former workers who become disabled or unemployed. And, more importantly, workers may lose worker’s compensation and other benefits that public policy aims to guarantee for them.

Just last week, Homejoy, an on-demand home cleaning service startup, announced that it was shutting its doors: According to Re/code’s Carmel DeAmicis, Homejoy’s CEO “said the ‘deciding factor’ [in shutting down the business] was the four lawsuits it was fighting over whether its workers should be classified as employees or contractors. None of them were class actions yet, but they made fundraising that much harder.”

Instacart and Shyp aren’t eager to be tied up in court over their worker classifications, but the CEOs of both companies articulated other rationales for the switch. After experimenting with the policy switch in Boston, Instacart CEO Apoorva Mehta noted that “the data from our pilot showed that this change improved the quality and efficiency of order picking and made for a better customer experience.” Shyp’s CEO Kevin Gibbon was even more direct, arguing that the company’s switch in employee classification “is not in response to recent lawsuits against other technology companies,” but instead was “an investment in a longer-term relationship with our couriers, which we believe will ultimately create the best experience for our customers.”

The move to reclassify gig economy workers from contractors to employees is not a cure-all solution for the industry. As we wrote last week, frequent switches among gig economy platforms might make it hard for workers to accumulate benefits, which might ultimately mean that workers would be best served by a new regime of “micro-benefits.” In fact, just this Monday, presidential candidate Hillary Clinton suggested that benefits for gig economy workers should be portable. “On the issue of benefits, the experience of the Affordable Care act shows that we need to make sure people have access to benefits and that they are portable as they move from job to job,” Clinton said.

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