{"id":130601,"date":"2019-04-08T12:00:29","date_gmt":"2019-04-08T11:00:29","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=130601"},"modified":"2019-04-02T14:24:10","modified_gmt":"2019-04-02T13:24:10","slug":"lyft-and-other-gig-economy-giants-cash-in-with-ipos-before-labor-laws-catch-up-with-them","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2019\/04\/lyft-and-other-gig-economy-giants-cash-in-with-ipos-before-labor-laws-catch-up-with-them\/","title":{"rendered":"Lyft and Other Gig-Economy Giants Cash In with IPOs Before Labor Laws Catch Up with Them"},"content":{"rendered":"
\"\"<\/a>

Members and supporters of the Independent Drivers Guild protest against Lyft’s minimum wage for drivers at a hearing outside of the New York state Supreme Court on March 18, 2019.
Photo: Drew Angerer\/Getty Images<\/p><\/div>\n

1 Apr 2019 – <\/em>Gig-economy companies\u00a0Lyft, Uber, and Postmates are racing to file IPOs this year, a mad dash replete with\u00a0ever-increasing<\/a>\u00a0multibillion-dollar valuations. But is the rush to start trading on the public markets also a sprint to evade compliance with current labor law?<\/p>\n

Recent financial and lobbyist filings suggest that the gig-economy giants are hoping to get ahead of a wave of enforcement actions, new legislation, regulatory requirements, and lawsuits that could force these companies to finally and formally classify full-time workers as employees.<\/p>\n

Virtually every major gig-economy company \u2014 whether its focus is ride-sharing or grocery delivery \u2014 has fought to treat on-demand workers as independent contractors regardless of the amount of time they work. The independent contractor classification generally prevents on-demand workers from engaging in collective bargaining and unionization, and it allows the gig-economy industry to avoid paying health-care benefits and unemployment, complying with standard workplace rules\u00a0guarding against harassment, or ensuring mandatory breaks.<\/p>\n

Despite promises of high pay with flexible hours, ride-share workers have found that they often earn less than $10 an hour after vehicle expenses. Earlier this year, Lyft and Uber drivers faced new pay cuts, fueling unprecedented protests<\/a>\u00a0across California.<\/p>\n

\u201cThese companies either flout labor standards and hope they get away with it, or legally carve themselves out of those standards so they can exploit workers with impunity.\u201d<\/em><\/strong><\/p><\/blockquote>\n

\u201cFor a lot of platform companies, profits are predicated in large part on exploiting workers, and people need to understand that,\u201d said Maya Pinto, a senior researcher and policy analyst with the National Employment Law Project. \u201cThese companies either flout labor standards and hope they get away with it, or legally carve themselves out of those standards so they can exploit workers with impunity.\u201d<\/p>\n

According to some estimates, compliance with standard labor practices for full-time employees, such as paying for health-care benefits, could pose a 20 to 30 percent of cost increase for gig-economy companies, which currently are not accounted for in their business models. Requiring compliance would radically reshape and negatively impact gig-economy companies\u2019 public valuations, and have been acknowledged by the companies as potential existential threats.<\/p>\n

Avoiding Labor Compliance<\/strong><\/p>\n

In filings made to the Securities and Exchange Commission, many gig-economy firms concede that their business models rely on misclassifying their entire on-demand workforce as independent contractors.<\/p>\n

In a lengthy\u00a0disclosure<\/a>, Lyft told regulators that classifying drivers as employees would open the company up to claims for discrimination and harassment, collective bargaining, and requirements that they meet wage and hour laws. The ride-share company wrote that such a classification could lead to an \u201cinjunction prohibiting continuance of existing business practices\u201d and that the firm would need to revisit its \u201cexisting business model.\u201d<\/p>\n

Upwork, a digital platform for finding contract labor, which filed for an IPO late last year,\u00a0told<\/a>\u00a0the SEC that an adverse worker classification determination could be costly to both the company and its clients,\u00a0and could unleash lawsuits, unionization, and a requirement for the firm to pay benefits to its network of freelancers.<\/p>\n

Grubhub, a gig-economy firm that provides food delivery services, told the SEC that classifying its drivers as employees would not only add legal liabilities and other costs, but would also make it \u201ccost prohibitive<\/a>\u201d to deliver orders in many areas. Square, which owns food-delivery platform Caviar, has made similar\u00a0disclosures<\/a>.<\/p>\n

These companies\u2019 rush\u00a0to file IPOs coincides with a flood of lawsuits from workers who say they have worked full-time jobs without the benefits afforded to full-time employees.<\/p>\n

Just last year, the California Supreme Court\u00a0handed down an unexpected\u00a0ruling in a case involving the courier service Dynamex that\u00a0limited<\/a>\u00a0the scope\u00a0of\u00a0companies\u2019 abilities to classify workers as independent contractors. In the case,\u00a0Dynamex had reclassified its entire workforce of drivers\u00a0as independent contractors to avoid paying benefits as a cost-cutting\u00a0measure<\/a>.<\/p>\n

\u201cThe legal positioning of these companies\u2019 business practices are incredibly precarious.\u201d<\/em><\/strong><\/p><\/blockquote>\n

The ruling opened the door to new legal challenges for\u00a0companies such as Lyft, Uber, and Postmates, among other gig-economy giants. Lyft, in its filing to the SEC, also lists nearly a dozen punitive class-action lawsuits over worker misclassification, including\u00a0four class-action cases working their way through California state courts.<\/p>\n

\u201cThe legal positioning of these companies\u2019 business practices are incredibly precarious,\u201d said Veena Dubal, an associate law professor at University of California-Hastings. \u201cIn fact, I would characterize the treatment and classification of workers as independent contractors as illegal.\u201d<\/p>\n

Litigation Tactics<\/strong><\/p>\n

These gig-economy companies, however, are trying to get ahead of potential legal compliance with labor standards as they exist today. \u201cThe reason that \u2014 up until now \u2014 no court in the U.S. has made this determination is based largely on the legal maneuvering of these companies,\u201d Dubal said.<\/p>\n

Despite the setback in California, gig-economy firms won a major victory in the U.S. Supreme Court last year.\u00a0In\u00a0Epic Systems Corp. v. Lewis, the court decided that workers\u00a0can waive their rights to class-action lawsuits when they sign arbitration agreements,\u00a0contract stipulations\u00a0that have\u00a0become standard for gig-economy workers. Uber, for instance, swiftly\u00a0cited<\/a>\u00a0the ruling in one of its major class-action lawsuits over misclassification of drivers last year. In October, a federal court\u00a0decertified<\/a>\u00a0one of the class-actions brought against Uber, ruling that each of the 240,000 drivers in the\u00a0suit must submit to arbitration for claims one at a time.<\/p>\n

\u201cThey have hid behind arbitration agreements, used their significant capital to pay lobbyists, and settled cases where they are worried about getting an adverse judgment,\u201d said Dubal.<\/p>\n

In an apparent attempt to shed legal some liability ahead of its IPO, Uber this month paid\u00a0$20 million<\/a>\u00a0to settle another major worker classification class-action case.<\/p>\n

Despite their legal maneuvering, however, pressure is mounting.\u00a0One arena where there has been a response to the\u00a0precarious conditions faced by gig-economy workers is in state legislatures. Lawmakers in Oregon and Washington state have proposed legislation that codifies a test to determine worker classification that follows the same lines as California\u2019s Dynamex decision.\u00a0In December, New York City passed the first minimum-wage law for gig-economy\u00a0drivers.<\/p>\n

And there is renewed interest in worker classification among resurgent left-leaning national politicians. Democratic presidential\u00a0contenders Sens. Kirsten Gillibrand, D-N.Y.; Kamala Harris, D-Calif.; Bernie Sanders, I-Vt.; and Elizabeth Warren, D-Mass., have\u00a0sponsored legislation<\/a>\u00a0to narrow the terms under which workers can be classified as independent contractors.<\/p>\n

Gig-economy companies, however, have worked hard to stay ahead of this legislative curve with an onslaught of aggressive lobbying. In a report\u00a0released<\/a>\u00a0this week and authored by Pinto, the National Employment Law Project detailed\u00a0how\u00a0the gig industry financed a coast-to-coast lobbying campaign \u201cto rewrite the rules of worker classification to carve themselves out of labor standards and to codify misclassification.\u201d The National Employment Law Project estimated that Uber and Lyft lobbyists outnumbered lobbyists hired by Amazon, Microsoft, and Walmart combined.<\/p>\n

In largely Republican-controlled states, gig companies have worked to get laws passed that completely carve their workforce out of consideration for employee classification. In states ruled by Democrats, they have opted for a carrot approach, offering legislation that\u00a0shifts 2.5 percent of every business transaction into a general benefits fund for workers in exchange for the carve-out for drivers or delivery people to remain independent contractors.<\/p>\n

\u201cWhat is ultimately a better business decision? To try to change the law in a way that you think works for your platform, or to make sure your platform fits into the existing law?\u201d Bradley Tusk, a political strategist guiding Uber and Handy, an online platform for contract labor,\u00a0told<\/a>\u00a0CNNMoney.<\/p>\n

While\u00a0armies of gig-economy lobbyists have delayed action on worker classification, the future remains unclear.<\/p>\n

Amid this uncertainty, early investors will have a chance to reap a massive\u00a0windfall when these companies file their IPOs. On Friday, Lyft was finally listed<\/a> as a public company, instantly enriching a small set of early investors. Once other gig firms\u00a0are also listed on the stock markets, however, the public market will be left to deal with the legal uncertainty of worker classification. Public investors will have to\u00a0address the aftermath of any decision on how to classify workers, while early private investors will have already reaped their rewards from the IPOs.<\/p>\n

\u201cTo be moving forward without clarity on the issue of the status of drivers is incredibly irresponsible,\u201d said Dubal, the law professor. The IPOs stand to enrich the early investors,\u00a0such as venture capitalists, by transferring risk to retail investors. Pressure to produce profits could also translate into more wage cuts for workers.<\/p>\n

\u201cMany of us will be investing in the companies without even knowing it \u2014 through our pension or retirement plans,\u201dDubal added. \u201cAnd we \u2014 very much like the workers \u2014 are going to be at significant risk.\u201d<\/p>\n

________________________________________________<\/p>\n

Related:<\/em><\/p>\n