Grilling the Government about the On-Demand Economy

An exclusive interview with the head of the DOL and his chief of employment matters

The on-demand economy has plunked labor rights into the zeitgeist this summer: Homejoy (of homeless housecleaner infamy) went belly up, with the CEO saying the deciding factor was its multiple lawsuits over classifying its cleaners as contractors — not employees. Homejoy was far from alone in its troubles, with lawsuits, bad press, and political pressure circling the contractor-dependent companies in the industry. In recent weeks, Instacart, Sprig, Luxe Valet, and Shyp changed at least some of their independent contractors into old-fashioned employees. (Many of those claim the shift was in the name of good business practices.) Meanwhile, Uber and Lyft continued battling class action lawsuits about their drivers, contractors who receive no wages or benefits. Perhaps not since Foxconn has there been more chatter of the frontline workers that power Silicon Valley.

The labor debate has even hit the presidential campaign trail, with Hillary Clinton saying the gig economy raises “hard questions” about good jobs. Republican candidates blasted back that she wants to stifle innovation, and Clinton decided to hobnob with industry titans to hear them out on the issue.

Amid the controversy, one of the nation’s top labor authorities loosed a bombshell: a new paper declaring that a vast amount of U.S. toilers are misclassified as contractors, when “most workers are employees.” Business interests went batty. Pundits rushed to question how the guidance might apply to the on-demand economy.

To sort through the morass, Backchannel sat down for an old-school D.C. conference call with the bureaucrats themselves, top U.S. Department of Labor guys, whose jobs have arguably just gotten sexier and much more relevant to Silicon Valley as of late. First up was Obama-appointed U.S. Secretary of Labor Tom Perez. He was followed by the administrator of the department’s wage and hour division who issued the new guidance on contractors, Dr. David Weil. We talked contractors, Uber, and the gathering storm of industry folks calling for a third category of worker.

Perhaps most surprisingly, it turns out that Perez actually peruses the past articles you send before the interview — even the one entitled “What Strippers Can Teach Uber,” which clearly piqued his interest. The interview is edited for length and clarity.

[Secretary Perez]: I can honestly say I have never read a piece in my job here, or frankly, in any job, that educated me about strippers. So I wanted to thank you at the outset for that.

[Backchannel]: Yeah, well, it turned out the dancers’ business arrangement with the strip clubs had a lot in common with Uber. [Both claim in lawsuits that they provide the platform on which the worker can ply her trade.]

I’m not touching that one, okay? [He chuckles.]

Do you think that these hundreds of millions of U.S. gigs created by on-demand apps are a good source of post-recession jobs, or do you see them as problematic?

What I’ve observed many times [is that people] make false choices. I see some Republican presidential candidates saying with this new economy, as long as we innovate and don’t regulate, everybody does great. That’s a false choice and an incorrect understanding of what the new economy is or can be about. We have to resist the temptation to conclude this is an either/or economy. We have to resist the temptation to say the only way you can innovate is if you have no protections for workers, or you tell a person with a disability who uses a guide dog that protections they thought they had under the ADA (American Disabilities Act) [don’t apply]. There’s no room for that in the modern economy. I don’t think that’s what innovation is about and I don’t think innovation so dictates.

Silicon Valley holds that it’s disrupting work. Marc Andreessen talks about a utopian ideal of work at the press of a button. Do you actually see the on-demand economy as providing a new type of work?

When I hear about “the gig economy,” implicit in that for some is a sense that this is the first time people work from gig to gig. That’s just not right. You look at homecare workers and domestic workers and so many other low wage workers who have been surviving, oftentimes barely….people have been working from gig to gig for quite some time. We need to make sure people working gig to gig can make a living. In the new economy and beyond, we see many examples of employers realizing their workers are their most precious resource, that you have to think longterm if you want to be successful. When you think longterm, you invest in workers and meaningfully engage your workers.

Is there anything about the on-demand economy that you see as a new labor development, or is all the disruption talk a ruse?

I don’t know if I’d call it new. But certainly technology has always been at the forefront of change, whether it was the cotton gin or the Internet or the app economy. There will be a technology 20 years from now, two years from now, that creates new nouns and verbs you and I can’t imagine.

Do you use any of these services — Uber, Instacart?

I’m the wrong guy to ask on Uber because I have a security detail. [He laughs.]

Instacart for groceries, the laundry services?

I have not personally tried any of them. It’s interesting you mention Instacart, because it’s my understanding the owner of Instacart has made a judgment that the people doing the shopping should have the option of being called employees.

Yep, Instacart and others in the on-demand industry have changed from contractors to employees in the past couple months. Do you applaud that shift?

What I applaud in the Instacart context is the recognition that workers aren’t fungible. This is skilled labor. If you want [to] build a sustainable business model, you want to have folks that actually know what they’re doing. When you invest in your workers, you’re going to get a return on investment. The conclusion that the only way you can build an on-demand economy is by having no rules and no protection, that’s just wrong.

That brings up the guidance the department issued last month on what the Fair Labor Standards Act has to say about the employee versus contractor question. Considering its declaration that “most workers are employees,” does the department think on-demand workers are employees?

No. That would be an incorrect assumption. The guidance is not a dissemination of new policy. It’s a statement of existing policy and a response to feedback we’d gotten from both employers and workers alike that we’d like to have a clear statement of what the rules of engagement are in this context. That’s what that was. Every case is fact specific. The most frequently asked question I’m getting now is, “Are the Uber folks workers or independent contractors?: The answer is: if we get a complaint, we would conduct a very fact-specific determination that would be no different of when you ask me if construction workers are workers or independent contractors. The analysis would be identical.

[At this point, as previously arranged, the Secretary bowed out of the conversation. He turned the conversation over to Adminstrator David Weil, the author of the aforementioned report.]

Dr. Weil, what do you make of the argument that the old labor buckets of contractor or employee don’t encompass workers signing into an app at will? Are you in favor of legislators creating a third category of worker?

[David Weil]: I’m the administrator of my agency, and so I think about work within the structure of the existing laws and what they allow us to do. That’s a not a dodge [of the question], but I do have to think about the ability and mission given the statutes as they exist. This is something we talked about in the guidance. Of any federal statute, the Fair Labor Standards Act has one of the broadest definitions— in fact the Supreme Court decisions says [it is] the broadest definition — of what it means to employ. It gives us a way to think about the old economy, the newer old economy, and the digital economy.

We don’t want to be either overly dazzled by the platform [workers] may have come from, or overly skeptical of it. I think we want to get to the basics of the relationship. [The point] really is about trying to protect people who might not have a lot of options in that [employee] relationship, and making sure they do. Sometimes in the discussion of the new economy, there’s the assumption that everyone on these platforms has equal leverage and options. I don’t think that’s any more true in a digital platform than in a more traditional labor market.

You mean options to get other work?

That’s right — to get other employment or to ask that their employment provides them certain outcomes or benefits. There are millions of people that don’t have that kind of outside option, regardless of the employment platform. We have the responsibility as a society to provide them with the protections provided in our basic labor standards.

In that vein, on Medium, we had a story from a college grad, an ex-Googler who took a glorified butler job off TaskRabbit, then realized he was probably taking that job from someone who actually needed it. Does the potential of that happening worry you — that working class jobs are being encroached upon by folks with other options trying to earn low-commitment, extra bucks?

There’s parts of this gig economy that are emerging that we just need to understand more about — that applies equally to those of us in the labor department. Who has these jobs now may not be the same as who has these jobs 10 years from now. We have to be careful about the anecdotes. It might be true that the college grad wants a lot of flexibility and wants to be able to travel and pick up a little money on one of the digital platforms for driving folks around. But I don’t think you make laws or enforce laws on the basis of anecdotes. You base it on what we’re seeing emerge over time.

I want to make sure — on any platform, digital or brick and mortar — people are making those decisions freely or with lots of options, or with no other option. Do they do it because I need to feed my family? Or do they afford me to get extra money and I’m doing quite fine anyways? We have to go always back to first principles of who are we trying to protect and how the people emerging in these new jobs fall on that spectrum.

Do you welcome the class action lawsuits — like the ones against numerous on-demand companies — as an important part of enforcing labor law?

The statute provides for both private rights of action and for us to do investigation. While we have no control over any of that [the lawsuits], it’s certainly part of a larger environment that pushes towards compliance with our basic labor standards. One thing I’m delighted about in the guidance is the incredible amount of public interest its engendered. It goes beyond the gig economy. Most misclassification we find is in the old economy — in what we sometimes call the fissured workplace. [Editor’s note: Weil is being modest — he is credited for the term.] It’s about 29 million workers that are potentially subjected to misclassification in just our core economy.

And with 1,000 investigators in the wage and hour division, it’s probably difficult to monitor every last industry.

We have 7.3 million workplaces falling under our statutes and about 135 million workers in them. So, on one hand, the president has helped our ability to obtain our mission tremendously: we have roughly 300 more investigations than we did at the beginning of the administration. [But] we have to be incredibly focused on where we put those resources. So we prioritize industries: we’re a data driven agency, we look at both the prevalence of the problem and where workers don’t step forward to exercise their own rights. We also want to have efficacy, so we think not only how the recovered wages affects those workers, but the behavior of other employers. That means we always have to think pretty hard about if it moves the needle on compliance generally.

There’s a cottage industry springing up in Silicon Valley around providing benefits to on-demand contractors, benefits that used to be provided by employers. What do you think about decoupling benefits from jobs?

A lot of those innovative ideas are great. A lot are about extending benefits beyond what the law requires, or giving greater portability opportunities to them. My agency is all about making sure bedrock standards are achieved and complied with, but that doesn’t mean we can’t go beyond that. Workers are having more and more jobs in the course of their career than ever before. We have to make sure fundamental standards are protected.

So I have to ask: do you Uber?

I do not Uber. I am a taxi user, by and large. Even more so, I’m a commuter, I live in Washington during the week but my family’s up in Boston. So I use the metro. I love the subway.

Photograph via Getty Images

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