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I hope everyone had a wonderful Labor Day. In honor of the holiday, I decided to write about the laborious battle between labor unions like Service Employees International Union (“SEIU”) and rideshare/gig-economy apps like Uber, Lyft, Doordash, and Instacart. If you thought this story was over, a Superior Court Judge in Alameda County recently ruled that Prop 22, the quarter-billion dollar successful ballot initiative funded by the aforementioned rideshare companies that codified their business model, was unconstitutional under the California constitution. The purported violations were more about California procedure and separation of powers than anything else. To sum it up - you doin’ too much.
The story is well told and still relatively fresh but Uber and Lyft upended the taxicab industry, ushered in a new era of growth-at-all-costs in venture-backed technology companies, and helped change the fabric of work as we know it. No big deal. A decade later, Uber and Lyft rides may be hilariously expensive compared to where they were a few years ago, but they remain an entrenched part of our society.
These companies, and the “gig economy” writ large, have since their inception relied on “app-based drivers” classified as 1099 independent contractors rather than W-2 employees. Proponents of this system — which purportedly included 71% of Uber and Lyft drivers when last surveyed by the Rideshare Guy — would say that independent contractor status affords drivers flexibility. Set your own hours, location, playlist, iPhone charging policy, whatever. Detractors would say that this setup simply allows these companies to skirt minimum wage laws, provision of benefits, and fear of collective bargaining.
Regardless of where you sit on this issue, its clear that this type of work doesn’t fit neatly into our previous notions of skill-based freelance work vs traditional employment, and the future of work generally is rapidly shifting post-pandemic. If the future of work is independent, led by the creator economy, or fueled by overemployed.com, a service that helps you work two full-time remote jobs, the present is a much murkier - an in-between zone where we don’t quite know if in-office teams will or should even be a thing anymore.
In this post, we’ll eschew discussion about the future and talk about the Present of Work. How companies can navigate a shifting landscape, and stay ahead of the curve, keep employees happy, and not get sued into oblivion in the process.
The pandemic has thrown the nature of how and where we work into a total blender, particularly for folks in what used to be known as office jobs. The remote vs in-person vs hybrid debates and experiments will likely rage on, as interminable as the pandemic that sparked them. But going back to the before-times, the rideshare debates have been the biggest catalyst for the nature of how we legally classify workers, particularly in the United States, with California as the initial battleground. Do you work for yourself? For a tech company? Both? It’s becoming a blur.
Who do you work for!!???
After years of back and forth, the first major public salvo came from the California Supreme Court in April 2018 in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (“Dynamex”). The court in Dynamex instituted a new standard for determining worker classification, instituting a presumption of an employment relationship unless an entity could show that the worker was an independent contractor through an “ABC test.” Under the ABC test, a worker is presumed to be an employee unless the entity can show each of the following requirements:
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Seemingly the goal of this test is to delineate between the type of work we’d generally associate with “freelance” and what app-based drivers do, but its inelegant at best and concepts like what constitutes “control and direction” or the “usual course of business” will probably require years of caselaw to really nail down.
The Dynamex decision combined with the proliferation of gig economy work left a lot of uncertainty for everyone except plaintiff’s labor firms (when in doubt, sue). A little more than a year after the decision, the state legislature codified, clarified and expanded the ABC test with Assembly Bill 5 (“AB5”). With AB5, the legislature applied the ABC test more broadly throughout the state’s employment scheme, but also rattled off a list of exempted occupations for whom the older Borello multi-factor test (mostly based on “employer” control ‘a la prong “A” of the ABC test) still applies.
Not to take this lying down, the rideshare/food delivery companies mobilized, and by mobilized I mean poured hundreds of millions of dollars into Prop 22, a ballot initiative campaign that successfully exempted app-based-drivers from AB5 and provisioned some benefits and reimbursements for drivers. Living by the go big or go home ethos, Prop 22 also prevents any sort of organization/collective bargaining by drivers and requires a 7/8 legislative majority to make any amendments (or a majority vote and subsequent ballot).
It’s those last bits that led to the judicial decision, particularly the idea that preventing collective bargaining was outside the scope for the ballot initiative, which should have a “single-subject” which ostensibly was pertaining to contract work, not organization. The judge also dinged the rideshare companies on the totality of the acts ability to prevent amendments by keying in on a constitutional requirement that the legislature be freely able to dictate worker’s comp regime. By that reading, such a provision would need to be made by constitutional amendment rather than by statute as was Prop 22.
In any case, this will shake out after years of appeals…. somewhere. But as Uber and company fight over their carveout from AB5, here in California the law remains in effect.
Find your closest loved one, or perhaps an early-stage founder in a regulated industry ,and give them the give of sharing IF:Then. If you are that founder, shoot me an email david@ifthen.vc.
Trust (But Verify) the Process
The rideshare / labor battle will continue in other venues, but two lessons from California are fairly clear (1) it’s going to take years for this to all play out; and (2) the rideshare discussion is bringing employment classification to the forefront across the board and will reverberate in nearly all industries. In meantime, here in California we’ve got the ABC test, we may or may not have some aspects of Prop 22, and we absolutely will have misclassification disputes.
Why does this matter for a fintech? Or a B2B SaaS company? Or a social network? While you may not be deploying an independent contractor fleet at scale, businesses have always used contractors for specific tasks, time-boxed projects, or seasonal engagements.
Using influencer marketing?
A part-time social media manager?
How about third-party on-site employee training?
Or maybe an event planner for your quarterly off-site (on-site?).
While none of these are new concepts - the barrage of litigation, lobbying, and legislation, supercharged by a global pandemic, have massively shifted the way we think about employment, and brought these issues to the forefront. Playing fast and loose with your classification process isn’t an option anymore - the gig economy is officially mainstream.
Prong “A” of the ABC test is most universal aspect any employment classification analysis.
that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact
Unlike prongs (B) and (C), which are mostly backward looking concerning the scope of the hiring entities business and the trade the worker is customarily engaged in, prong (A) deals with both the relationship as established (i.e. the contract) and how it actually plays out in practice. The concept is the most similar to the previously used Borello standard, and is fairly generalizable even in states that don’t explicitly use California’s verbiage.
The main takeaway should be that what you put in your contract is not the be-all and end-all. Words matter, but their impact is limited. That said, as the first opportunity to memorialize the understanding of the parties at the time of your relationship, adding as much detail as possible into the contract lays the appropriate groundwork for any engagement. So let’s cut to the chase: some very basics that should be in any work contract
Scope of work - what they are there to do and why they are doing it;
Expected deliverables - what constitutes completed work, and the timeframe on which it should be done;
When and where the work should be performed - i.e. wherever and whenever at the contractor’s own discretion;
Identify the tools, equipment, and access needed, especially if the contractor is using their own;
Attach the experience and resume of the worker to the contract to establish their prior work or general occupation
The contract will help, but that’s the easy part. When you’re mixing contractors with employees, there are times where the responsibilities can blur. Maintaining clear boundaries is key, but this can get tricky when those boundaries create friction. Or where you need to balance them with other concerns like security.
Site access - contractors need to generally be free to choose their hours, but that needs to be balanced with on-site security concerns.
Email and systems access - contractors may need access to certain tools or apps within your system in order to communicate or collaborate with team members. The ability to provision access control is important, and not something all organizations (especially startups) have.
Invoicing and payment - while employees will generally be on payroll contractors should invoice their work. Hiring entities should be clear about the level of details they’re looking for in the invoices.
Detailing deliverables - If possible, encourage contractors to detail in real time when/where/how they worked on something. If a dispute arises later this type of contemporaneous reporting is invaluable.
None of these lists have any groundbreaking information in them, but its important to recognize that the present of work is clearly headed towards a more flexible future. Not all of us will be part of the creator economy (at least until I start charging for this substack, heyo!!), or have the tenacity to work two simultaneous full-time jobs, but the connectivity of the internet is ceaselessly encompassing, and the pandemic has laid bare that many of the constraints we place around how, where, and when we work are artificial or outdated.
While we can be sure more change is coming, we will continue to feel our way through the dark with hybrid experiments. Ballot initiatives outlawing collective bargaining may not be the way they get there, but they’re certainly making the conversation salient. Any business that is not careful and deliberate in how they hire and manage workers going forward is likely to be caught off-guard. But don’t worry, if describes your business, IF:Then is here to help.
Until next time friends - David Ikenna Adams
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