Should UberX drivers, Instacart shoppers be independent contractors?

July 25, 2015 at 5:15 PM EDT
Unlike traditional employees, the country's many independent contractors, such as UberX drivers and TaskRabbit assistants who pick up work when they want it, have no guarantee of hourly wages or other benefits. But recent class-action lawsuits have alleged that many of the companies who employ these contractors are breaking the rules by misclassifying them as independent. Hari Sreenivasan reports.

HARI SREENIVASAN: Kaitlin Harris’s job is to shop.

KATLIN HARRIS: Usually you start with produce….

HARI SREENIVASAN: She hand-picks items, often at this “Whole Foods” outside Boston. Food that other people order on-line.

KAITLIN HARRIS: I couldn’t find the cheese that the customer asked for, so I’m going to get a replacement for them.

HARI SREENIVASAN: Harris works for “Instacart,” which guarantees grocery deliveries to your home in as little as an hour. The three-year-old company offers its service in 16 cities and partners with local stores, including big chain retailers like Costco and Whole Foods.

Instacart used to consider its shoppers, like Harris, independent contractors, not employees. Workers didn’t earn any benefits, but the job was flexible. They could choose to work as much or as little as they wanted and got paid by the task.

But last month Instacart announced a big change: shoppers in some markets, including Boston, would have the option to become employees.

KAITLIN HARRIS: I was happy to hear that I was brought on as an employee….

HARI SREENIVASAN: For Harris, a college student who works 20 hours a week, being an employee means a guaranteed paycheck, not having to worry about setting aside money to pay her own taxes, and a stable schedule.

KAITLIN HARRIS: I like to have a set shift for the week and be able to go off of that for how my week is gonna go. I like that type of thing, as opposed to picking up a shift here and there.

HARI SREENIVASAN: I spoke to Andrea Saul, Instacart’s head of communications, via google hangout at the company’s San Francisco headquarters and asked why Instacart decided to allow their shoppers be employees.

ANDREA SAUL: When you look at shopping, and grocery shopping in particular, it can be really difficult. For instance, picking fresh produce, or items that are prone to breaking, like eggs. There are a lot of different decisions that that go into that, minute-by-minute when you’re fulfilling an order as a shopper. With the shoppers, we really saw that the supervision, oversight and training could really improve their jobs.

HARI SREENIVASAN: The company says it could only provide this layer of management only with employees.

HARI SREENIVASAN: So this has to be more expensive. You have to pay Social Security Tax, Medicare, Worker’s Compensation, right? I mean, does it make economic sense for the company?

ANDREA SAUL: We are incurring additional costs. But we decided was that the additional costs that we were incurring on the front end to employ these additional people is worth it for the customer service in the long end, in the long-run.

HARI SREENIVASAN: Instacart says shoppers who become employees will be part-timers, working about 20 to 30 hours a week for up to 15 dollars an hour.

But not all Instacart workers will have the option to become employees. Drivers who deliver the groceries that Harris and other shoppers gather, will remain independent contractors, Saul says, because driving doesn’t require the same decision-making as shopping.

ANDREA SAUL: Right now, this is a model that we’re experimenting with, and it could change in the future.

HARI SREENIVASAN: Heather Squire has worked for Instacart — shopping and delivering groceries, in Philadelphia. But after taking a close look at her earnings and her expenses, including gas, wear and tear on her car, and parking, the job didn’t make sense.

HEATHER SQUIRE: I discovered that I was getting screwed, is what I felt. I felt angry. I didn’t think– I didn’t think it was that bad. I did not think it would, you know, be, you know, below minimum wage.

HARI SREENIVASAN: After a few weeks with Instacart, squire calculated, she had earned about six dollars an hour, after taxes, and decided to quit. Squire says a set hourly wage would outweigh the freedom of being a contractor.

HEATHER SQUIRE: So it’s a little bit misleading to say that, “Oh, the flexibility.” It’s like, that’s good, but why do we have to be flexible? I’m trying to be flexible around a part-time job and another gig and another gig, because there’s not enough, you know, good paying full-time jobs out there.

HARI SREENIVASAN: While Instacart is now classifying some workers as employees…no company has been more at the center of the debate than ‘on-demand’ car service Uber. Available in hundreds of cities around the world, Uber says it is simply a technology company that matches riders with drivers, and its drivers are independent contractors.

SHANNON LISS-RIORDAN: Companies engage in all kinds of linguistic gymnastics to try to deny the obvious and try to claim that they’re not in the business that they’re obviously in.

HARI SREENIVASAN: Boston attorney Shannon Liss-Riordan says Uber — the company that calls itself “everyone’s private driver” — is clearly a car-service.

SHANNON LISS-RIORDAN: I’ve seen in a number of industries companies passing off their expenses to their workers, saving on labor costs, doing really the same thing that these so-called new economy companies are doing. In the cleaning industry, in the construction industry, the trucking industry, the adult entertainment industry, the call center industry. You know, one company, one big company will do it, and all the other companies think that it’s okay and they’ll go along with it.

HARI SREENIVASAN: Liss-Riordan has filed class-action lawsuit against Uber, in California alleging its drivers “have been misclassified as independent contractors…” who should be reimbursed for all expenses, including “gas… and maintenance.” As employees, drivers would also be subjected to minimum wage and overtime laws.

The legal standard to determine whether a worker is a contractor or an employee is not simple. The Internal Revenue Service has a 20-point test. The Department of Labor lists six general factors for consideration. Many states have their own criteria.

HARI SREENIVASAN: Liss-Riordan says a key issue in the Uber case is how much control the company maintains over its drivers.

SHANNON LISS-RIORDAN: The evidence that we have is that while Uber drivers are driving for Uber, they are subject to Uber’s rules. They can be de-activated if they don’t follow them. They can be de-activated if Uber management is unhappy with them. If their customer ratings dip a little bit. They’re subject to, they’re subject to termination.

HARI SREENIVASAN: Uber declined an interview but told us in a statement, “how drivers control their time and their use of the app… make clear that drivers are independent contractors under today’s standards.”

RICHARD KRENTCIL: See, I have the App on now, see where the surge pricing is…

HARI SREENIVASAN: Richard Krentcil drove for Uber in New Jersey for a year and a half…a career change after losing his job in the financial industry. Krentcil had issues with Uber – the app doesn’t allow customers to tip drivers — but he liked being in charge.

RICHARD KRENTCIL: It’s great — the flexibility’s tremendous. I mean, I love it. If you wanna go visit relatives. Whatever. You wanna go on a trip for a day. There’s no one saying you can’t do it. You’re your own person, and you could work when you want.

HARI SREENIVASAN: That’s a common sentiment. 87% of Uber drivers say they work for Uber “to be my own boss and set my own schedule,” according to a survey the company commissioned this year. The company also points out that Uber drivers are permitted to also work for rivals like “Lyft” and “Sidecar.”

Still, attorney Shannon Liss-Riordan says that flexibility provided by sharing economy companies doesn’t mean true independence. She’s also sued “Lyft,” the cleaning company “Homejoy, and courier services “Postmates” and “Caviar.”

SHANNON LISS-RIORDAN: Here you have entire companies that are building their business model off having the services that they provide be provided by a mass of workers who they want to label as running their own independent businesses. And it’s just not true because these so-called independent contractors are completely dependent on the company for that work.

HARI SREENIVASAN: In June, a California Labor Commissioner decided one Uber driver should be classified as an employee, a ruling the company is appealing.

In Liss-Riordan’s class action lawsuit, the judge has allowed the case to proceed, writing “whether Uber’s drivers are employees or independent contractors is an issue to be decided by a jury,” setting the stage for a lengthy court battle.

The fight is not just in courts; it’s also on the campaign trail. Without naming any company, Democrat Hillary Clinton has said she would “crack down on bosses” that “misclassify” employees as contractors.

Republican Presidential Candidate Jeb Bush has made a point to ride with Uber drivers… And fellow Republican Rand Paul tweeted “services like Uber, AirBNB, and Lyft stimulate our economy and work towards lower prices. How is this bad, Hillary Clinton?”

How its drivers are classified is not the only battle Uber is fighting. The ride-sharing app has been in been in conflict with existing taxi fleets and regulators around the world.

Just as ‘sharing economy’ companies upend entire industries, New York University Business School Professor Arun Sundararajan argues: worker classifications need to be rethought altogether.

ARUN SUNDARARAJAN: We’re sort of in a phase where– the model of providing a few hours at a time, or providing to multiple platforms may, in fact, be the most economically efficient one.

HARI SREENIVASAN: Sundararajan believes traditional workplace benefits, like insurance and paid vacation, should be separated from one’s employer.

ARUN SUNDARARAJAN: To me, sort of the humane thing isn’t to make everybody a full-time employee, but to extend the safety net to cover people who have alternative forms of work.

HARI SREENIVASAN: Instacart’s Andrea Saul agrees that laws may need to be updated.

ANDREA SAUL: I do think a lot of the time that people are trying to fit a round peg in a square hole in regards to what the employment situation looks like these days.

HARI SREENIVASAN: In the meantime, Instacart has expanded where its shoppers will have the option to become employees to seven cities – nearly half its locations