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You gotta wonder about Republicans.

July 16, 2015

No wonder Republican voters are confused. The GOP seems to be having a policy identity crisis, also known as a severe case of foot-in-mouth-disease.

In a campaign season where the opposition is all about touting higher wages, more regulation and income equality, well-intentioned Republicans might be supporting a bad employment model.

Jeb Bush is touting the fact that he will be taking an Uber ride when he goes to San Francisco next week.  Reince Priebus is asking people to sign a petition in support of the ride sharing service.

Yeah, that Uber.  The one that just lost a California court case for claiming its drivers are independent contractors so it wouldn’t have to pay overtime and other normal working stiff perks.

As noted in a Time article, it didn’t take Democrats long to pounce on that angle. Can you say “worker exploitation?”

For those still punching a time clock, here’s a birds-eye view of what all the fuss is about.

The internet is rife with ads from web-based businesses touting the availability of $3.00-an-hour “independent contractors” while they take 10% or more of that $3.00 as a fee for providing so-called “client leads” and “guaranteed payment safety”.  (Uber takes as much as 30%.)

All of these enterprises offering cheap labor are centered on buyer satisfaction with a political nod to “independent contractors finally achieving worker freedom”.

Balderdash.

These so-called “new world of work” or “on-demand services” global business models are no more about furthering the lot of workers than a mountain lion is about being a nanny to a baby deer.

What is this new world of work?

Check out any of these company business models, and what you may find that they stretch the definition of independent contractor” to and past the breaking point, performing far more like traditional temporary employment agencies, without absorbing any of the costs and responsibilities.

They often subtly control how much you are allowed to make, either directly, as in Uber’s model of controlling the cost of a fare and what percentage of it drivers get, or by virtue of marketing workers on the Dutch auction principle of selling to the lowest bidder on so-called freelancer bidding sites.

After The Economist ran a piece or two  highlighting the on-demand labor economy, Forbes ran an article in May, 2015 detailing Uber’s redesigned payment structure.

Supposedly, this is all about giving people the chance to become independent contractors, or what are now called solopreneurs or on-demand workers. Ultimate freedom with maximum income potential is the drawing card.

Did Republicans actually read up on this?

What is an “Independent Contractor?”

Up to about 2001, it meant someone who ran their own business, offering services or goods to customers without the inconvenience of dealing with large company infrastructures or middlemen.

Typically an independent contractor (IC)  was a one or two person operation that might employ the services of either other subcontracted IC’s or actual employees for larger jobs. Itinerant house painters, come-to-you accountants and almost every occupation under the sun has its share of solopreneurs.

The IC was free to set the price for services at whatever the market would bear. Although many eventually morphed into traditional small businesses, others liked the freedom of being able to decide who they would work with, or even to not work at all whenever they wished. These people formed the nucleus of today’s on-demand workforce, but they largely remained in specific, fairly local markets.

Then along came the internet and the global workplace.

Suddenly the traditional customer base expanded beyond anyone’s wildest dreams.  Those solopreneurs with specialized skills saw a brief window where the world was literally their oyster.

Need a website built?  There was a competent coder, graphic artist or programmer right there on the internet, willing to do the job not for tens of thousands of dollars, but for a few hundred bucks.

When the U.S. recession occurred, suddenly a lot of people had to become “flexible workers” i.e. they were on-demand part-timers.

Companies no longer worried about employee retention. Heck, if one bookkeeper, coder or freight handler left there were hundreds waiting to take the opening.

The disposable labor market had arrived. Marketing the people as commodities wasn’t far behind.

Independent? Really?

Even a superficial dive into the terms of service for most of these companies shows just how far from independent today’s labor-for-hire workers are really separated from the independent contractor of yesterday.

Many of the job openings, termed Requests for Proposals (RFPs) on these sites are actually configured as traditional jobs. They break every differentiating rule of independent contracting by defining exactly how and when a job is to be performed. Some specifically say they “…will give specific instruction on how to perform the job” ignoring the IRS rules that prohibit that level of control for ICs.

Many of the on-demand companies have what are essentially non-compete clauses that prohibit the worker (IC) from contracting with a client (buyer) outside of the given platform for a period of say, two years. Many also require the IC (seller) to utilize the company’s own arbitration process in the event of a dispute between buyer and seller.

For instance, here is part of a clause from the terms of service from one popular site:

“Therefore, in consideration our making the Site available to you, for 24 months from the time you identify or are identified by any party through the Site (the “Exclusivity Period”), you must use the Site as your exclusive method to request, make and receive all payments for work directly or indirectly with that party or arising out of your relationship with that party…You may opt-out of this obligation only if Client or prospective Client pays (the company)an “Opt-Out Fee” computed to be the greater of the following amounts:

  1. $2500.00
  2. 15% of the cost to the Client of the services to be performed in the (Company) Relationship during the Exclusivity Period, as estimated in good faith by the prospective Client; or
  3. All Service Fees that would be earned by (Company)from the (Company) Relationship during the Exclusivity Period, computed based on the annualized amount earned by Freelancer from Client during the most recent normalized 8 week period, or during such shorter period as data is available to (Company);

and, in any case, plus interest at the rate of 18% per annum or the maximum rate permitted by applicable law, whichever is less, calculated from the date Client first makes payment to the subject Freelancer until the date the Opt-Out fee is paid.”

Under current U.S. law, there is absolutely nothing illegal in this agreement, which is why the company is not identified. If you read it and you accept the terms, that’s your problem.

In fact, in many ways the terms reflect similar language employed by traditional temporary staffing agencies.

And that’s the rub.

Does anyone smell fish?

There is considerable benefit to both the intermediary agency and the buyer in classifying these workers as independent contractors.

From work-for-hire compensation floors that are not often not close to a minimum wage even in countries other than the U.S., the contractor must pay whatever the applicable employment taxes are; in the U.S. that’s a minimum of 15.3% for FICA as well as a user fee to the company.

Neither the end user or the company maintaining the bidding site has to pay things like workman’s compensation or liability insurance and of course there is no such thing as benefits.

In addition, other restrictions are often imposed by the so-called freelance bidding sites.

Practices such as requiring the so-called freelancer to maintain an adequate revenue amount,  or the intermediary requiring significant and substantial background checks on the freelancers, but not even identifying the so-called clients, to the company allowing and even encouraging the client-buyers to provide secret feedback on a contractor that can result in account suspension without any option for the contractor (seller) to defend or dispute the actions are commonplace.

Because of the extremely competitive goes-to-the-lowest-bidder landscape, these companies also tend to attract a lot of offshore workers, further restricting the market for U.S. workers.

That’s when this whole labor-and-services-on-demand economy becomes slightly less sweet-smelling.

On the flip side of all the negatives, many workers in this new on-demand economy are fine with it. Having seen what overregulation and taxation has done to the traditional labor market, they are terrified that someone will take even the pittance they now earn away from them.

Some even  report earning six-figure incomes on these sites. Still, the overall feeling among users of these on-demand labor services is often not very positive.

Which leads us back to the image problem.

It’s true that the Republican Party isn’t particularly known for cozying up to organized labor. And it’s equally true that the on-demand economy continues to prosper because it broadens the workplace choices for workers and relieves businesses of many of the costs imposed upon them by overregulation.

Still, as a plank in the party platform, this might be taking the every man (and woman) for themselves philosophy a step too far in a Presidential election year.

From → op-ed

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