Collaborative Startups Shift from Contractor to Employee Relationships

On-demand startups, which are a subset of the Collaborative Economy, have been under scrutiny on worker treatment. They’re under the magnifying glass more than ever.

This new industry, which was birthed  the 2008 recession, provided rise to the “gig” worker, or independent contractors. These part-time workers were offering their idle time, working multiple jobs, and offering their spare bedrooms to make ends meet. Many of the workers see the benefits of “being their own boss” as they can choose the time, service, and how they work rather than reporting to a salaried job.

In past months, there’s been increasing pressure to shift the relationship from contractors to employees. There have been lawsuits against Uber, where a single driver was able to win business expenses, but also we’re seeing American presidential candidates like Hillary Clinton suggest she’ll be influencing startups to provide fair wages and benefits to workers, while Jeb Bush takes Uber rides in San Francisco, promoting the service and free market capitalism.

Providing worker resources for freelancers isn’t new. For more than a decade, the Freelancers Union, featured here in The NYT, offers centralized healthcare, retirement programs, and other job-related services. Peers, a three-year-old sharing economy advocacy group, is also making signals that they plan to offer resources to these gig workers.

This blog is used to track the trends in this new economy and explain what it means to established businesses. As such, we will track how these contractor relationships are now starting to shift toward full-time and part-time employee relationships.

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Startups are shifting from contractor to employees relationships:
Here’s a running list, mostly in chronological order.

• 2014: Zirtual’s shared virtual assistants are employees (W-2 workers). I’ve used this service for more than two years and have worked with a variety of Zirtual assistants. They have dedicated work hours to respond to their clients, and have tools at their disposal. For as long as I’ve known, they’ve been W-2 workers. This group was savvy to figure this out. Edit: Zirtual had a shocking shift a week after this post published, my thoughts here.
• Jun 17, 2015: A single Uber driver was able to win a lawsuit, awarding her thousands in business expenses. Some anticipate this will lead to a class action lawsuit, but Uber indicates this is non-binding. A simple search on Google yields lawyers are chomping at the bit for a class action lawsuit against this heavily funded company. All drivers are 1099 “partners,” to my knowledge.
• June 22, 2015: After the news broke at Uber, Instacart converted some of its workers, those who assemble the groceries for customers and couriers, to employees.
• Jul 1, 2015: Shyp has converted their contractors into full-time workers, citing this would lead to longer-term relationships with the staff.
• Jul 17, 2015: Homejoy has shuttered due to, in part, misclassification of workers. In my interactions with employees at Homejoy, each home cleaning was operating at a loss, compounding the issues, and scaring off would-be investors.
• Jul 25, 2015: Yesterday, Luxe Valet announced its workers are now W-2 employees. This service offers a valet who meets me in an urban area and parks my car for $15 a day regular parking in San Francisco is $25, and I can specify where to pick up and drop off my car, saving me time. Read about my experience.
• Yesterday, we had food delivered from Munchery, a startup that brings healthy, unique meals to my doorstep. I asked the courier about her employment status, and she was a part-time W-2 employee. They’re known for doing their best to care for employees.
• Aug 3, 2015: Eden, which offers on-demand workers, has converted their workforce from 1099 to W2. Thank you April Rinne for surfacing this.
• Update Aug 3: Some Instacart workers are not happy about the shift to W2 employment, lost hours, less pay, little voice. Thank you Natalie Foster for the link.
• Sept 1, 2015: KitchenSurfing shifts independent contractors to employees. Thank you April Rinne for bringing this to my attention.
• If I missed any examples, please let me know, and I’ll update the post, crediting you.

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This means: Short-term suffering for startups, but long term resilience for the Collaborative Economy.Tech startups, under scrutiny from workers rights advocates and the political election, are shifting workers into employee relationships rather than independent contractor status. This does not mean the space will collapse, as nearly every other established industry from retail, to hospitality, to food, has successfully operated with workers that are employees.

It does mean that these companies will need to provide ample training, resources, and also hold employees accountable based on customer feedback and ratings just as other established companies do. It also means that these startups will need to provide new forms of worker benefits, discounts, and perks under these new relationships.

We already see that these startups, and their workers, are lobbying for a third class of workers dubbed “Dependent Contractors” which could work several services at once while benefiting from 401k, retirement, healthcare benefits, and fair treatment of workers.

Want to learn more? You can check out my full body of work on the Collaborative Economy, which includes reports, graphs, databases, lists, frameworks, info graphics, essays, and points of view.

(Creative Commons, photo from Washington State Dept of Transportation)