Uber's third way

The company is quietly overhauling gig worker classification, one portable benefits bill at a time

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We talked recently about legislative efforts in Seattle and Washington State to rebuild the social safety net for Uber drivers—without reclassifying them as employees.

What happened in the Pacific Northwest is also happening across the country. Bill by bill, cities and states are finding ways to restore hallmark labor protections like a minimum wage, paid sick leave, and unemployment insurance to gig workers while also cementing their status as independent contractors. After more than a decade of legal battles over employment classification, these patchwork efforts to create a third way mark an important next phase in the gig economy.

Gig workers regain some dignity in Washington State

Bills to recreate benefits for gig workers have popped up in Alabama, California, Connecticut, Georgia, Massachusetts, Minnesota, New Jersey, Pennsylvania, Utah, Vermont, Washington, and Wisconsin. They tend to refer to “app-based workers” and “portable benefits.” They’re often crafted with support from gig companies, and include provisions to write the independent-contractor status of these workers into state law. Because that’s the trade the Ubers of the world are offering here: worker benefits, in exchange for putting the employment classification debate to bed once and for all.

The ‘independent worker’

The idea to create a separate system of portable benefits for gig workers in the U.S. dates to a 2015 publication by The Hamilton Project, an economics-focused offshoot of the neoliberal Brookings Institution.

At the time “A Proposal for Modernizing Labor Laws for Twenty-First-Century Work: The ‘Independent Worker’” (pdf) appeared, Uber was valued at $51 billion, running on popular appeal, venture-capital dreams, and the bravado of co-founder and then-CEO Travis Kalanick. It was also building out a separate asset: an economics, policy, and lobbying team that could work in parallel with coders and product managers to clear legal, political, and regulatory obstacles from the company’s path.

In 2014, Uber made two big hires toward this policy agenda. The first was David Plouffe, a former Obama advisor who joined Uber to lead its “campaign” against the taxi industry. The second was Jonathan Hall, a young Harvard-trained economist who joined as Uber’s first staff economist and would go on to head the company’s in-house think tank. Led by Plouffe, Uber waged a systematic, state-by-state campaign to get its ride-hail business model legalized, over the objections of taxi companies. Led by Hall, Uber began building out Ubernomics, an in-house team that drew on the company’s massive real-time data on rider and driver behavior to produce compelling and high-profile research papers that enhanced Uber’s policy agenda.

One of Hall’s first moves was to reach out to Alan Krueger, a Princeton labor economist who served presidents Bill Clinton and Barack Obama, about a research collaboration. In January 2015, Uber’s first economics paper, “An Analysis of the Labor Market for Uber’s Driver-Partners in the United States” (pdf), appeared in Princeton’s Industrial Relations Section, co-authored by Hall and Krueger. The paper used Uber data to lay out the company’s thesis that Uber created great American jobs. Uber disclosed paying Krueger but not how much; it later emerged in leaked documents that Krueger earned about $100,000 for his work on the study, with internal Uber emails noting he was “helpful with the press.” Krueger died by suicide in March 2019, age 58.

The same year that Hall and Krueger produced their analysis, Krueger and Seth Harris, an employment law professor and deputy U.S. labor secretary under Obama, published their proposal on a third category of worker at the Hamilton Project. The paper argued workers in the online gig economy didn’t fit neatly into the existing U.S. legal statuses of employees or independent contractors, and as such were “at risk of being excluded” from the “social compact between employees and employers.”

Harris and Krueger proposed Congress amend federal labor law to create their new category of ‘independent worker’. Highlights of their proposal included:

• Allowing independent workers to bargain collectively, overriding Sherman Act concerns over contractors colluding to fix prices and harm competition

• Having gig platforms ‘pool’ their workers to purchase insurance and other benefits at scale, without that conferring an employment relationship

• Extending civil rights and anti-discrimination protections to independent workers

• Having gig platforms withhold taxes from their workers’ earnings, without that conferring an employment relationship

• Letting gig platforms opt into providing workers compensation, while limiting their legal liability and without that conferring an employment relationship

• Requiring gig platforms to contribute 5% of a worker’s earnings to their health insurance costs

What Harris and Krueger were proposing was essentially that gig companies like Uber be allowed to provide a smattering of benefits to their workers without taking on the accompanying liability as a formal employer. The proposal dovetailed with a popular Uber talking point at the time, which was that while the company really wanted to support workers and offer them benefits, it wasn’t able to because, you know, those pesky labor laws would interpret Uber’s good-faith efforts to improve conditions for its workers as as evidence of an employment relationship.

Mission ‘Impossible’

Much of the Hamilton Project proposal hinged on what Harris and Krueger described as the “immeasurability of work hours” in the gig economy (emphasis added):

The boundary between work and nonwork for independent workers is largely indeterminable. A worker in the online gig economy could be primarily engaged in personal tasks while one or more intermediaries’ apps are turned on. It would stretch any reasonable definition of “work” to count this time as work hours… This fact of the online gig economy creates an immediate problem for implementing the social compact. Many benefits included in that compact, such as the minimum wage, overtime pay, and ACA eligibility, are tied to hours worked—and, even more specifically, hours worked for a particular employer. Determining whether and for whom an independent worker is “working” is impossible or deeply problematic in too many circumstances for the concept of work hours to translate into these emerging relationships.

“Immeasurability of work hours” is why Harris and Krueger said independent workers should be entitled to some labor protections, like collective bargaining and anti-discrimination, and not others, like a minimum wage or unemployment insurance. They repeatedly asserted that “measuring the working hours of independent workers in the same manner as the hours of employees is impossible,” and as such “certain rules that depend on the measurement of working hours—particularly a minimum wage for each hour worked and overtime” were “impossible to properly administer for independent workers.”

There are things in this world that are impossible or immeasurable. Sunny days in the UK. Grains of sand on the beach. The work hours of gig workers is not one of them, and to dismiss it as such was a shocking intellectual punt by Harris and Krueger. By 2015, Uber and its peers in the gig economy had unparalleled data on their workers. They used this data to recruit researchers like Krueger, to price discriminate to customers, to offer jobs and incentive pay to workers, and generally to manage their workers at arm’s-length. The notion that these companies couldn’t possibly figure out how to measure worker hours, and therefore couldn’t be expected to adhere to a minimum wage or other hour-based labor rules, was laughable.

Wiser or at least savvier parties have, in the years since, proven the hours of gig workers to be eminently measurable. The 2018 wage floor for New York City ride-hail drivers that I talk about all the time begins by explaining the method the authors devised for measuring the “actual working time” of app-based drivers. It’s complicated, and the taxi regulator has since tweaked parts of the formula, but it is very much measurable and not at all impossible.

Uber’s third way

The third way on the table today is no longer a new category of work; it’s an old one, retooled for the digital era. Like the Harris-Krueger proposal, the bills making their way through state legislatures are broadly interested in extending pooled benefits and assorted other labor protections to gig workers without reclassifying them as employees. Unlike Harris and Krueger, the phrase ‘independent worker’ is nowhere to be found. Instead, these bills often make explicit that extending benefits to gig workers is conditioned on the state formally recognizing them as independent contractors.

Take Miscellaneous Provision B from a state senate bill introduced in Pennsylvania in November 2021: “Notwithstanding any other provision of law… an app-based worker shall be deemed an independent contractor and not an employee or agent, whether actual, apparent or otherwise, with respect to the app-based worker’s relationship with a network company.”

Or consider this portable benefits bill, signed into law by Utah governor Spencer Cox late last month, which states that private companies may offer portable benefits but that those benefits “are not evidence of an employment relationship or employer liability; and may not be used as criteria in determining employment classifications.”

A lesson of David Plouffe’s Uber was that it was easier to change the law in your favor one state at a time than to change it at the federal level. Easier certainly doesn’t mean easy—there are a lot of states, after all—but it is generally simpler to convince a state-level legislature to introduce and pass your bill than to rally the disparate and chronically warring factions of U.S. Congress. State-by-state was how Uber got ride-hail approved in the beginning, and it’s how the company has set its sights on resolving the worker classification debate now.

If the 2010s brought the Uberization of work, what we are seeing this decade is the Uberization of labor law. After insisting for the better part of a decade that flexibility and worker benefits were fundamentally incompatible, Uber is now offering some of those benefits and protections back on its own terms. The result is less a revolution in U.S. labor law than a careful carving out of Uber drivers and other gig workers as their own specific employment category, with their own specific slate of benefits.

What Harris and Krueger never said was that a third way, while possible, is extremely difficult in a country like the U.S., where fundamental human rights like health care are tied to your employment status. A third way makes more sense when things like health care and paid leave are guaranteed by the state; when your right to be a human exists regardless of whether you have a job. While the pseudo-third-category companies are offering now has clearly been influenced by Harris and Krueger, it’s notably dropped their most radical proposal—that independent workers be allowed to bargain collectively. Gig companies might be ready to extend workers some benefits, but solidarity and power is still a bridge too far.