Thursday, February 19, 2015

The Gig Economy Won't Last Because It's Being Sued to Death

When Vilma and Greta Zenelaj came across a Craigslist job ad that promised they could make as much as $22 an hour and get paid fast, it seemed like a good deal. The Albanian sisters had moved to Santa Monica to get a foothold in the film industry, and though they had produced a few independent features, they had run out of savings before they could also make a living. Now they were desperate to pay their bills.

Handy (then Handybook), the company that posted the Craigslist ad, is best known as a cleaning service. But unlike Merry Maids or your local cleaning franchise, it doesn’t actually employ any cleaners. Instead, it relies on an army of independent contractors to complete jobs, taking a 15% to 20% commission of every hour worked. It’s part of the "gig economy," a much-hyped new class of the service industry where workers are expected to operate like mini-businesses. The influence of these companies is growing: according to an analysis by Greylock Partners, the value of transactions over platforms such as car services Lyft and Uber, grocery delivery service Instacart, courier service Postmates, and others could grow as large as $10 billion this year.

But the Zenelajs had never heard of the gig economy, and it wasn’t until orientation that they realized they would not be employees of Handy.

Soon they were booking up to four cleanings a day through the platform. Handy promised to turn them into entrepreneurs, and it was true that when things went wrong, they were responsible: They didn’t get paid to wait for a client who was running up to 30 minutes late, though they drove to his house (Handy does reimburse cleaners for one hour if the client doesn't show up); they didn’t get paid if they stayed home sick; they didn’t get paid when they got stuck in traffic between jobs. There was no overtime pay or benefits, and they had to buy their own supplies and gas.

But the sisters allege that other kinds of work independence were a farce. When they couldn’t finish a job in the allotted time slot, they had to call customer service if they wanted to stay longer for more pay. First-time clients could not book cleanings with them specifically, which made leveraging relationships for recommendations difficult. They say there were suggestions, which they interpreted as rules, about how to listen to music (only with headphones, with permission from the customer) and go to the bathroom (discreetly). After about two months, both of them were banned from the platform: Handy says one sister performed poorly and the other sister funneled jobs to her after she was banned. (Vilma and Greta say they had just teamed up to complete jobs, which is also against Handy's terms of service, and that's why both of them were fired.)

"It is not fair, because there are laws here," says Vilma. "They are claiming to be just giving us contracts, and they’re not. They’re acting like an employer. But they’re not paying for it."

She and Greta filed a class action lawsuit against Handy in October, alleging that the company misclassified them as independent contractors. They are seeking compensation for missed lunch breaks, minimum wage compensation, reimbursement for business expenses, and overtime, in addition to other penalties. According to Handy’s math, this compensation would cost $291,000, not including attorney’s fees. Not only that, if Vilma and Greta prevailed, the lawsuit would also apply to all its current and former workers in California over the last four years. As of this past fall, that was about 2,000 people. That’s a potential penalty of almost $600 million—a lot of money for a company that has only raised about $42 million in venture capital.

Lawsuits like the one being brought against Handy are just the most threatening cloud in a brewing storm. Uber drivers have protested in San Francisco and Los Angeles and gone on strike in New York. Anecdotes in high-profile stories about Homejoy, a cleaning service similar to Handy, detail grueling hours and so little pay that in one instance, the worker was homeless. Workers on Amazon’s Mechanical Turk, an online platform that pays independent contractors cents per task, recently orchestrated a letter-writing campaign to Jeff Bezos asking for him "to see that Turkers are not only actual human beings, but people who deserve respect, fair treatment, and open communication." Legally, Uber and Lyft are also facing charges of misclassifying workers, and a case against an online work platform called Crowdflower that uses independent contractors to complete tasks is in the process of being settled.

This rising legal retribution is a huge threat to the gig economy. Not being responsible for employees’ taxes and benefits allows companies like Handy to operate with 20% to 30% less in labor costs than the incumbent competition, leading to eye-popping numbers like Uber’s $40 billion valuation or Instacart’s latest $220 million round of funding. Lose this workforce structure—either by a wave of class-action lawsuits, intervention by regulators, or through the collective action of disgruntled workers—and you lose the gig economy. (...)

What’s at stake with these lawsuits and protests? The very definition of "employee" in a tech-enabled, service-driven 21st century American economy. Gig economy companies do not own cars, hotels, or even their workers’ cleaning supplies. What they own is a marketplace with two sides. On one side are people who need a job done—a ride to the airport, a clean house, a lunchtime delivery. On the other are people who are willing to do that job. If Uber and other companies are going to be as big as some claim, a new deal has to be brokered, one that squares the legal rules governing work with new products and services. What benefits can you expect from a quasi-employer? What does it mean to be both independent and tethered to an app-based company? The social contract between gig economy workers and employers is broken. Who will fix it, and how, will determine the fate of thousands of workers and hundreds of millions of dollars.

by Sarah Kessler, Fast Company |  Read more:
Image: Henrik Sorensen, Getty Images