During the past several days, we have seen headlines about two companies that employ drivers and, according to the courts or regulators, violated laws on contingent workers and the definition of technical platforms. FedEx disclosed a $228 million settlement for not classifying its 2,300 delivery drivers in California as employees, after losing in a federal appeals court in Oakland, CA. The court ruled that FedEx drivers aren’t independent contractors because FedEx controls how drivers do their jobs, including schedules, appearance and equipment requirements.[i]
Last week, the California Labor Commission ruled that an Uber driver in San Francisco is an employee of the ride-hauling app company and not an independent contractor, as Uber claimed. The ruling requires Uber to pay the driver $4,152 to cover reimbursable business expenses. Uber claimed it is a neutral technology platform (more on that later), enabling drivers and passengers to transact business. But the commission found that Uber was “involved in every aspect of the operation.”[ii] Uber is appealing the ruling in court.
You will soon see similar claims!
There is long standing guidance regarding what defines independent contractors versus employees. Independent contractors perform services for companies under an express or implied agreement. Being an independent contractor means not being subject to an employer’s financial, behavioral or type of relationship controls regarding the method and means by which services are performed. If a company provides all or most of the tools required for the job, gives detailed work-direction, determines schedules, an independent contractor begins to look like an employee.
The contingent workforce is on the rise!
The use of contingent workers is not new and it is on the rise in the United States and around the world. A recently released report by the General Accounting Office finds that 31% of the U.S. workforce is made up of contingent workers. The definition includes: independent contractors and self-employed workers, agency temps, direct-hire temps, on-call workers, day laborers, contract company workers, and part-time workers.[iii]
Many companies use contingent workers for a host of strategies. Some companies add surge workers during temporary upswings in customer demand. Others prefer to outsource certain specialties to experts rather than incur the long term costs of having that expertise in-house.
Independent contractors and self- employed workers are happy with their contingent employment. 85% say they are content with their employment type; and 57% of independent contractors report being “very satisfied” with their jobs, compared with only 45% of regular full time workers. In sharp contrast, 50% of agency temps and on-call contingent workers want a different employment type.[iv]
Technical platforms can be a great source of talent.
Technical platforms organize free agents, matching them with clients, and offer new ways to get work done. They allow companies to access key talent for less cost than traditional firms in engineering, marketing, legal and other highly skilled professions. Technical platforms are growing and can pose a real threat to established companies.
For example, the advertising platform Tongal does not employ any of the creative talent it uses to make ads. Instead, Tongal’s technical talent platform connects advertisers to free agents who make ads at low prices that blue chip advertising firms can’t match. Tongal also provides a system for organizing work. It crowd sources ideas and videos via a contest where the top few ideas win the initial contest and get paid. After a series of other contests, an ultimate winner is selected to produce the ad for the client. Tongal has clients rate freelancers for quality and reliability.[v]
“Compared to traditional employment, platforms like Tongal can learn fast,” writes David Creelman in the November 2014 issue of the Harvard Business Review. “As talent platforms become more highly organized systems focused on specific niches, creating new structures and processes without the burden of traditional employees, the competitive calculus changes.”[vi]
As companies plot their talent management strategies, they should carefully plan for the use of contingent workers and talent platforms as a way to complement their regular workforce. This strategy gives them access to additional talent that may provide a competitive advantage. Companies need to be mindful, however, of protecting their competitive value and intellectual property. They also need to be careful not to violate current employment laws. Doing so can cost them dearly and tarnish their reputation.
Does your company use contingent workers and technical platforms? What trends do you see?
Victor Assad is a strategic human resources consultant and executive coach who works with key decision makers and human resources leaders on talent management, accelerating change, leadership development, and other strategic initiatives, such as mergers and acquisitions, strategy implementation, and flexible workplace.
[i] Patrick Chu (June 16, 2015, 7:26 AM PDT) “Why FedEx’s $228 million settlement may dent Uber, Lyft and Postmates, Homejoy and Caviar. The San Francisco Business Times.
[ii] Patrick Chu (June 17, 2015, 5:50 PM PDT) “Meet the ex-Uber driver in San Francisco who won a labor case against the ride-app giant,” The San Francisco Business Times.
[iii] Richard J. Reibstein. (May 26, 2015) “New GAO Report on Contingent Workforce Shows 85% of Independent Contractors Are “Contingent with Their Employment Type,” JDSUPRA Business Advisor. Retrieved from http://www.jdsupra.com/legalnews/new-gao-report-on-contingent-workforce-10541/
[v] David Creelman, John Boudreau, and Ravin Jesuthasan (November 7, 2014) “Tongal, eLance, and Topcoder Will Change How You Compete,” The Harvard Business Review.