When regulation gets in the way

May 2, 2019 (1197 words) :: The traditional gig economy business model (using independent contractors) has just been confirmed to be illegal in California, in a ruling that applies retroactively.
Tags: gig-economy

This post is day 122 of a personal challenge to write every day in 2019. See the other fragments, or sign up for my weekly newsletter.

Today, something special happened in California labour law history. As Bloomberg Law reports, under the headline California Independent Contractor Test Applies Retroactively:

The decision means a legal test created last year by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court—making it harder for companies to classify workers as independent contractors—will be applied to cases going forward, as well as to disputes dating back to before the new test was enacted. Formal “employee” status comes with additional rights and benefits to workers.

The U.S. Court of Appeals for the Ninth Circuit’s opinion has major implications for California employers that rely on independent contractors, including gig economy companies like Uber Technologies and Postmates, and could even compel some businesses to simply reclassify contractors as employees and change pay and benefits. It comes as Uber plans to raise as much as $9 billion in what is expected to be the biggest initial public offering of stock thus far in 2019.

In simple terms, this ruling reinforces what labour activists have known for a while: that the gig economy is a scam, a way to save on labour costs by shifting the employer’s burden of responsibility (for benefits, minimum wage, etc) onto individuals. Individuals who, until now (in California), did not have much protection under the law, and who didn’t have enough marketplace bargaining power to be able to demand better working conditions.

Of course, not everyone agrees. Keith Rabois, a Silicon Valley-based investor who has invested in gig economy companies like Lyft and Postmates, does not seem happy with the ruling, having tweeted that the ruling will effectively force Uber drivers to take worse jobs elsewhere. (It’s hard to take the implied contrast seriously, when Uber has itself noted that one of its main competitors for workers was McDonald’s, with its famously shitty working conditions.)

There’s something kind of bizarre about the way someone like Rabois purports to care about the drivers. You have to wonder if he’s literally never heard from any of the drivers who are unhappy with their pay and working conditions (some of whom are going on strike next week). Or maybe he assumes they’re all Soros-funded paid protestors or something, as in the typical right-wing conspiracy theory (as any labour activist will happily tell you, they wish there was a rich person funding them to go on strike).

My personal guess is that Rabois knows full well that Uber currently represents a shit deal for drivers, and that this ruling is a way to protect them; he just doesn’t care. After all, that’s the rational response, in accordance with his class interests. Why should he care about the welfare of gig economy workers beyond the subsistence level necessary for them to maintain their meagre existence? Why is it his problem if these workers are homeless, overworked, drowning in debt, overworked, miserable, unable to carve out a life beyond the push notifications sent from various gig economy apps?

The fact of the matter is, a company like Uber has no use for its workers other than as a means of carrying out their core service. Workers are not the primary beneficiaries of the system Uber has designed, but rather its instruments, its tools, a way for Uber to grow its customer base in order to sustain its sky-high valuations. It has no reason to care for them as people, by providing them with the material resources needed to live fulfilling lives; instead, it pays them as little as they can get away with, while pouring tons of money into self-driving car research in the hopes of one day dumping the workers entirely. The outcome that Rabois describes - of Uber drivers being unable to work for Uber, and thus being forced to take (potentially worse) jobs elsewhere - is not the intention behind the ruling, but it is precisely the future that Uber is trying to engineer.

But then so what is the reasoning behind the ruling? Are lawmakers also trying to engineer a world where Uber drivers are forced to take shitty jobs in retail or hospitality or elsewhere, simply because they have an anti-tech bias?

There’s a certain anti-regulation strain of thought in Silicon Valley that goes something like this: lawmakers, who are in thrall to special interest groups, also don’t really understand tech, and so sometimes they’ll promote reactionary, anti-tech legislation even when it’s bad for their constituents. The assumption that companies like Uber are actually good for everybody is taken as an a priori, and so if regulation is impeding Uber’s success, then the regulation must be bad.

It’s true that not all regulations are good. But regulation is not a monolithic thing, created with uniform intentions. Some regulation is indeed bad in that it results in inefficiencies or misunderstands the technology it’s trying to regulate; other times, it’s a way to codify protections for a group of people who have not managed to build enough power on their own, through the avenues of marketplace power (favourable supply & demand conditions) and associational power (unions). In this Dynamex ruling, the goal is to enshrine protections for gig workers to ensure they’re legally entitled to the employment protections that older labour activists have fought and died for. This is not a case of a legalised protection racket to prop up a corrupt industry; it’s merely closing a regulatory lophole that gig economy companies have been exploiting from the outset.

Of course, some people don’t see it this way - instead, they see tech-hostile regulation as an affront to progress, a case of lawmakers being incompetent and answering to “special interest groups”. For them, I suppose regulation is a mostly negative thing: when they read headlines about regulators stepping in to clarify ambiguities in work classification, they see it as an attempt to impede the progress of innovative tech companies. In which case, you’re not going to win them over by using regulation as a shorthand for “regulation which is good”; saying that gig economy companies are flouting regulation, is not quite enough of an argument. Your libertarian or at least government-skeptical listener is going to think: so what? Maybe the regulation is bad.

In this case, it’s useful to analyse the goal of different laws on their own terms, in order to identify what they’re trying to prevent. In this case, the Dynamex ruling is trying to prevent corporations from getting away with treating its workers as independent contractors instead of employees when those workers are delivering the corporation’s core service.

What gig economy companies have been doing, then, is more than merely “flouting regulation”: they are actively stealing from workers (without whom, it must be noted, the company would have no business at all) simply because they have the power to get away with it. This ruling, then, is a way to (slightly) shift the balance of power in favour of drivers, so that they at least get minimum wages, overtime pay, and some paltry benefits in exchange for devoting of their waking day to making Uber’s execs into billionaires. It’s not enough, but it’s a start.

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