Employment and Jobs

State Legislation Aimed at Helping Online Platforms Could Harm Workers

March 27, 2018  • Libby Reder, Natalie Foster & Ethan Pollack

At the heart of the American dream lies a central promise: if you are willing to work hard and play by the rules, you can have the opportunity to succeed and build a better life for yourself and your family.

To deliver on that promise, leaders from business, government, and civil society built a system of supports designed to provide workers with a baseline of economic security and opportunity to get ahead. Employment rules protect workers from discrimination and abuse. Unemployment Insurance, workers compensation, Social Security, health insurance, and other benefits protect workers economic security by providing support when they lose the ability to work. And employers provide training so that their workers can adapt their skills to a changing economy and advance in their career. But many elements of this system only apply to workers that are classified as employees, making the issue of worker classification extremely consequential when it comes to a worker’s ability to access critical workplace protections and benefits.

But over the past few decades, work has become increasingly independent, with more workers in temporary, project-based work arrangements rather than having stable, traditional relationships with employers. Online labor platforms such as Uber, Lyft, and Handy, which serve as intermediaries between workers and consumers, have taken this trend a step further. These businesses promise consumers a better, faster service at a lower price, but many of them also rely on independent contractors who are excluded from the system of benefits and protections that traditional employees are afforded. Some of these platforms have been sued by their workers on the grounds that they should be classified as employees rather than independent contractors because the platform company is exerting control over their work (platforms that operate as pure marketplaces have generally avoided lawsuits).

In the current legislative session, nine states are considering or have already passed similar bills that would change their state classification laws to protect online platform companies from misclassification lawsuits by establishing a new “marketplace contractor” test that would feature a limited set of criteria to determine whether online platform workers should be classified as independent contractors. This would be a noteworthy break from existing federal classification law, which takes a fact-based, case-by-case approach.

These bills provide a clear benefit to a small group of online platforms, providing certainty on the issue of worker classification against a backdrop of contentious litigation. But they miss an important opportunity to promote the promise of work, and could in fact create more economic insecurity for workers by making it easier for businesses to reclassify employees as independent contractors.

There is a better way to resolve some of the challenges associated with worker classification in the gig economy: level the playing field by extending benefits and protections to non-traditional workers, including independent contractors, thus making the classification issue less consequential. We at the Future of Work Initiative have proposed and advocated for a system of portable benefits to support independent workers, which – if coupled with basic labor law protections – would create greater equity between different types of workers. In this context, it is particularly problematic that one of the bills mentioned above, Tennessee HB 1978, actively deters platforms from providing benefits to workers by including the provision of insurance benefits in the “marketplace contractor” test.

A number of states are taking an approach that recognizes the importance of providing benefits to workers in non-traditional work arrangements, without sacrificing other important protections of worker classification law. For example, legislators in Washington State introduced a bill that would create a system of portable benefits in the latest legislative session, in which benefits are provided not by employers but by third-party organizations that gives all workers – whether they have an employer or not – access to and ownership of benefits. This bill addresses company concerns about misclassification with a more elegant solution: it includes a narrow hold harmless provision, which would allow them to provide benefits to workers without that specific provision of benefits being used against them in a misclassification lawsuit. Legislators in New Jersey and other states have also introduced portable benefits legislation.

Policymakers who are contemplating how to strengthen the social contract for workers shouldn’t miss the opportunity to expand access to critical benefits and protections. Doing any less fails to bring the promise of work into the 21st century.