There's a difference between an independent contractor and an employee -- even though the line has gotten blurrier, especially in the wake of the recent Uber settlement.
Or possibly not.
Less than two weeks after Uber Technologies agreed to pay up to $100 million to settle class-action lawsuits in California and Massachusetts where drivers sought to be classified as employees rather than independent contractors, lawyers in Florida and Illinois have filed similar class-action lawsuits on behalf of Uber drivers who say Uber violated the Fair Labor Standard Act, seeking to recover drivers' unpaid overtime wages, work-related expenses, and tips that were "earned but stolen by Uber, or were lost due to [Uber's] communications and policies."
But forget Uber for a second. Have you ever thought about the difference between an employee and an independent contractor? If you're a freelancer or a small-business owner, you should -and for more than just legal reasons.
The following is a guest post from Jared Burden, an attorney who practices general business, commercial real estate and intellectual property law in Virginia. (He also works as outside corporate general counsel to companies through his OPENgc service offering.)
I used to think of the independent contractor as a person with a special skill. If I were hiring one, it would be because that person could do things I couldn't do and do them more quickly and better. I'd vet qualifications, make a deal on the economics, assure we're both on the same page on the intended result, and set them free to do their magic.
In my mind's eye, I see a graphic artist who's handy with a logo, a person with a tool belt and a too-new-looking truck who builds your wall of bookshelves, or an accountant -- someone who knows how to do something I don't know how to do. (Which is a lot.)
I would have been comfortable betting you lunch that if you asked ten independent contractors who were doing contract work by choice what they valued the most, they'd say "freedom." Freedom, pure and simple.
Free agents will tell you that it's a wonderful thing to be really good at what you do and have all the leeway in the world to decide when you do it, how to do it, who to do it with--all of it. It's the excitement of being an entrepreneur.
All of this seems very far away from the driver's seat of an Uber vehicle.
Who sits in the driver's seat of an Uber vehicle?
An independent contractor, according to Uber. And last week Uber agreed to settle lawsuits to avoid what it perceives as a cataclysmic hit to its business model--the recharacterization of its drivers as employees.
Drivers who, yes, can choose when they work and for whom they work, even a direct competitor, but who must pay their own expenses and perform their job in strict conformance to branding-driven standards.
If they had to take its 385,000 drivers into the fold as employees, Uber would have to pay the approximately 30% higher labor costs that come along with the status of employee. Reimbursement of business expenses, federal and state tax withholding, the employer share of Social Security and Medicare , unemployment insurance, workers compensation premiums, the need to adhere to anti-discrimination laws, minimum wage and overtime, liability for the negligent acts of their drivers, health care and other benefits--all of it.
Avoiding this result was a core insight of the mobile platform business model pioneered by Uber way back in 2009 and copied by innumerable "on-demand" companies, such as Instacart, Lyft, Postmates, the defunct Homejoy and SpoonRocket, and many, many others, which have deployed contracted labor to do the things their app-loving, time-crunched, convenience-seeking customers want done (house cleaning, food preparation and delivery, shopping for necessities, picking up dry cleaning, etc.).
Uber hit a bump in their road last summer when a California administrative judge ruled that one of its drivers was, in fact, an employee. The ruling scared the bejeezus out of the entire industry. Articles were written about the death of the on-demand economy. Platform-based app companies that weren't committed to the labor model as deeply as Uber switched all or part of their labor force to employees, albeit in some cases part-time employees (in order to avoid having to pay the full freight of being an employer). Pitches to venture funds and accelerators shifted to include assertions like "We are not Uber."
But now the settlement. It may mean that the on-demand industry model is here to stay for a while. The absolute venture capital funding frenzy that has launched these companies allowed them to hone their deft branding, refine their proprietary algorithms, and, let's face it, project very compelling services deep into the urban marketplace. The hook is deep into the mouth of urban culture. (If the settlement works for Uber, it came fairly cheaply: the settlement averaged out to about $218 per driver, according to simple math.)
What we have now, according to one economist, is a nation (especially the microcosms of larger cities) that is divided in two: on one side are the people with money but no time, and on the other side are the people with time but no money. In the Uber-type company, workers with time but no money are commoditized. They submit to an industry that is built on what one observer called "the efficient allocation of human beings."
This is a far cry from the happy warrior with the toolbox, a truck full of gizmos, and a head full of hard-won knowledge. He was a person you hired because he had mastered his craft. A craft that you couldn't just decide to do one day and enter the marketplace performing at the same level as anyone else.
In many ways, a low barrier to entry to a way to earn a living is a great thing. Upon making an application and, maybe, passing a background check, you can enter an industry that is really onto something. You can seamlessly and effortlessly be in a place where you can deploy a sophisticated brand to a demographic craving solutions for their crunch of time and their desire to simplify.
But what is lost when an entire industry segment that is so shiny and slick is enabled by a business model that demands so little of people?
It may just be as simple as the Great Recession came along at the perfect time for these companies. They were able to take advantage of a possibility that a person with a graduate degree might come to think that cleaning a large home for $25 plus a tip was an expression of freedom.
The CEO of a venture-funded online health care plan clearinghouse, which benefits from a world full of people working as independent contractors and not employees, celebrated this in a recent LinkedIn article:
"Because of the on-demand economy, a new kind of freelancing has become possible that doesn't require you to spend years to acquire skills and reputation. The individual reputation that was built by the sole proprietor in the 1980s has been supplanted by the reputation of a consumer platform."
It may be no big deal that some of the shiniest companies in the world, delivering undisputedly cool services that address very real needs, are dependent on thousands of individual decisions to give up the quest for a personal reputation and special skills.
But when a worker has made that decision in the past, when they've gone to work for a company that tells them how to do their job, it's generally been as an employee.
Maybe all it would take would be for us to pay a bit more to skip having to go to the dry cleaner or avoid having to drive home tipsy. Has anyone thought of that?
Jared Burden practices general business, commercial real estate and intellectual property law in Virginia. He also works as outside corporate general counsel to companies through his OPENgc service offering.