The coronavirus response could forever change the way Amazon, Uber and others use contract workers
In some ways, it’s a little premature to talk about what life will be like after the coronavirus outbreak is over. After all, it continues to grow globally. First of all.
The reality of the matter is, however, that it’s not too early to think about these things. The market tends to be predictive rather than reactive, meaning the stocks of companies that will emerge from the COVID-19 funk before others can begin their rebounds before the contagion is fully in the rearview mirror.
The global business landscape will emerge at least a little different, of course. At least employees and employers will take sanitation a little more seriously. But, perhaps the biggest disruption resulting from the coronavirus wake-up call is the use of contract workers that companies love. Amazon (AMZN -1.44%) and Uber (UBER 1.20%) have come to rely on. The federal government’s recent $2 trillion stimulus package also bailed them out, but legally and technically they shouldn’t have needed it. These contract or “gig” workers have taken a break.
They or the government are unlikely to want to recover in the same place.
It’s a lot of people
This is not a new debate. But it’s a debate that has come to a head in the past year alone. Are Uber drivers actually employees, even if they are contractors on paper? The more than 100,000 subcontractors and temporary workers used by Alphabet be considered employees if they are expected to perform the same type of work in the same place as the employees? Historically, the answer has been no. Historically, however, one-third of the workforce in the United States has not been considered gig workers.
Take that number with a big grain of salt, though. Nobody seems to know the exact proportion of the working population considered to be entrepreneurs. Aggregate figures from Gig Economy Data put the number between 25% and 30%, although the Government Accountability Office’s analysis of the General Social Survey suggests the number is closer to 40% when counting concerts at part-time. At the other end of the spectrum, the Bureau of Labor Statistics reports that only about 1/10th of U.S. entrepreneurs rely on contract labor as their primary source of income.
Be that as it may, it is still millions of people who are subject to the whims of their actual employer, working without the safety net of unemployment insurance benefits.
Companies generally explain how the use of contractors reflects the ever-changing working environment. Such arrangements give them the flexibility they need. And, there may be some truth to the idea. A company certainly has an incentive to promote these working relationships, however, when such an arrangement relieves the worker of costs such as payroll taxes, health benefits and vacation pay.
Accounting service Pilot estimates that retaining an actual employee can cost around a third more than a contractor paid at the same base rate of pay – a difference ultimately offset at the expense of the worker. For drivers of ride-sharing services like Uber and Lyft (LYFT 1.98%)expenses like gas and car maintenance make the working relationship even less rewarding.
The fallout grand finale
The fallout from those business dealings was looming even before the spread of COVID-19 threatened gig workers’ paychecks. Amazon, for example, has been named in several lawsuits related to the case. In one, the e-commerce giant is accused of knowingly and deliberately pressuring a contracted driver to exceed his allotted driving hours for a given day, resulting in an accident. Another claims a contracted delivery van driver failed to give in, as driving laws would require, putting a motorcyclist in hospital. Although Amazon hired the company to make the deliveries, the large blue Amazon logo on the side of the delivery van could make it difficult for a judge and jury to distinguish a significant difference.
And it’s not just Amazon in the crosshairs. California recently enacted legislation that severely restricts what constitutes a true contractor, requiring such workers to “perform tasks that are not the core business of the company.” It’s a move that hits companies like Uber and GrubHub (WORM) where it hurts the most.
Separately, last week, the New York State Court of Appeals effectively ruled that workers assigned to assignments through an app are indeed employees and should therefore be offered traditional benefits. The company in question was courier service Postmates, but again tech names like Uber, Lyft and GrubHub are involved.
It was also around the same time that the federal government felt compelled enough to explicitly make contract and gig workers eligible to receive their share of the $2 trillion set aside as stimulus in the CARES Act that will reduce (hopefully) some of the economic damage inflicted by the coronavirus shutdown. Before gig work became relatively common, arguably such a provision would not have been added.
Where to go from here?
It’s this latest nugget of data that could be the proverbial nail in the coffin of contract labor as we know it.
If the federal government has to throw the financial lifeline to these workers because their “employer” can’t when the economy is struggling, then these organizations should probably contribute to unemployment insurance programs before black swan events like the COVID-19 contagion do not materialize. . Don’t be surprised to see the tide turn in this direction in the future, buoyed by newly sympathetic lawmakers, workers and consumers.
Like many global economic disasters, including the collapse of subprime mortgages, when they absolutely have to, regulators and lawmakers will do their best to avoid a repeat of a particular mistake.
What the landscape of the gig economy will look like a year from now is still unclear, of course. But given the legal wheels that were turning even before the coronavirus outbreak changed everything, expect these companies’ labor costs to rise and prices to rise accordingly.
Also, don’t be surprised if this means that fewer of those jobs remain available, although more of those remaining (true) employees will get at least the basic benefits.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. James Brumley owns shares of Alphabet (A shares). The Motley Fool owns shares and recommends Alphabet (A shares), Alphabet (C shares) and Amazon. The Motley Fool recommends Uber Technologies and recommends the following options: January 2022 short calls at $1,940 on Amazon and January 2022 long calls at $1,920 on Amazon. The Motley Fool has a disclosure policy.