Fighting the epidemic of illegal misclassification is an important battlefront for gig workers, and in some older occupations like trucking, construction, and home health care as well. The term misclassification applies when the status of independent contractor is fraudulently and involuntarily foisted on workers by unscrupulous employers who want to evade taxes and workplace laws, reduce workers’ wages and nullify their rights.
Determined worker advocates have achieved important victories in recent years despite a ceaseless offensive waged by employers. Last March, for example, the New York Court of Appeals ruled that workers for Postmates are employees with eligibility for unemployment insurance. (The court observed that Postmates dictates significant aspects of its couriers’ work, including all aspects of pricing and payment.) Now the Biden administration pledges to “drive an aggressive, all-hands-on-deck enforcement effort that will dramatically reduce worker misclassification.” Labor groups are helping draft legislation to ensure that gig workers are brought under the umbrella of workplace laws covering all employees.
The ongoing efforts to convert bogus “contractors” into legal employees are crucial in securing for gig workers the protections that are rightfully theirs, including minimum wage and overtime pay, state disability and unemployment insurance, and union rights. But there are wolves waiting in the woods nearby. The deceitful temp staffing industry offers trendy “gig economy” employers a crafty solution to their predicament that allows them to retain their workers at substandard wages, and without any rights or benefits, even as these employers continue to skirt the legal obligations that ordinarily come with employer status—such as complying with collective bargaining, family leave, and anti-discrimination laws. This is accomplished quite simply, almost magically, when employers transfer their former “independent contractors” onto the payrolls of temp staffing agencies, their new legal “employers of record.”
The temp staffing industry has always been eager to take advantage of crackdowns on misclassification. Whether the initiative comes from progressive reform groups or the Internal Revenue Service, pushing workers out of 1099 (self-employed) status and into W-2 (employee) status is often a “bonanza” for the staffing industry, as one business publication put it. Ordinarily, when it doesn’t harm its political allies, the IRS prefers W-2s over 1099s because W-2s facilitate greater efficiency and volume of tax collection. For this reason, the IRS has always gladly provided an important underpinning for temp agencies’ shaky claim of employer status, and the temp industry has lobbied persistently to maintain friendly relations with the IRS.
In fact, one of the temp industry’s oldest marketing ploys is selling its services to corporate employers as a means of avoiding the “compliance risks” they face when using independent contractors with dubious legality. Not unexpectedly, then, we now see the temp industry placing ads signaling to employers the industry’s readiness to take in groups of gig workers that courts say must be converted to legal employees. “AB5 makes it harder for companies to label workers as independent contractors,” one recent ad reads, referring to California’s pathbreaking law mandating that gig companies treat their workers as legal employees: “Working with a staffing company, such as PeopleReady / JobStack, will eliminate the risk of misclassifying your workers” (my emphasis).
One prime example of this pattern – the mass conversion of independent contractors to “temps” – goes back to the late 1980s, when the IRS cracked down on Microsoft and other major tech firms for allegedly misclassifying tens of thousands of skilled programmers, testers, translators, content creators, technical writers and editors. One might naturally assume that, when the IT firms were forced to cease misclassifying them, the workers would be made direct employees and properly placed on the payrolls of these big companies. If that had happened, the workers would have in short order gained higher salaries, benefits packages, and the rights and privileges of regular employees, all of which those major companies could easily have afforded.
But that was not the result of the IRS enforcement action. Instead, the giant tech firms began transferring thousands of workers, newly enfranchised as employees, to the payrolls of staffing agencies like Volt, Adecco, Randstad, and Kelly. Thus, the workers were kept in a degraded employment status, merely shuffled into a different compartment within the cosmos of contingent work. They now became involuntary captives of the temp agencies that negotiate the secret contracts they work under, without taking their voices into account. While the workers had presumably become solely the employees of the temp staffing agencies, they remain “non-employees” of the big tech firms, like Google, for which they actually work and create value, even though they work on brand-name products, and under the control of the parent corporations, for years on end.
Since that time, the temp industry’s Tech, Engineering and Scientific sector has boomed. It now represents 13% of temp employees, but 26% of industry revenues, reflecting the lucrative nature of the sector and the super-exploitive terms of the employment. In a test survey conducted by Temp Worker Justice, three-quarters of temps in the tech sector say they were deceived by their staffing agency about the likelihood they would be converted from “temp” to “permanent” status. Many also feel they were misled about their pay rate (33%) and the availability of benefits (21%). These realities have in recent years spawned uprisings and unionization efforts among tech sector temps and “contractors,” despite past decisions of the National Labor Relations Board that have for decades silenced temps and quashed their union rights.
We now find Uber and Lyft making a stand, furiously seeking to reverse the movement that threatens to extend employee rights to their workforce. Last year, along with Postmates, Instacart, Grubhub and Doordash, the two big ride-sharing companies spent $200 million on passage of California’s Proposition 22, successfully preserving, for now, the status of their drivers and delivery workers as independent contractors. Across the country, Republican-controlled state legislatures have passed (or are considering) bills exempting all app-based businesses from liability toward their workers. Backing this legislative drive, Uber alone had 370 lobbyists active in 44 states, according to the National Employment Law Project.
If, however, despite their determined efforts, the corporate employers of “gig workers” should lose the political fight to legalize their fraudulent use of independent contractors, a Plan B is to send those workers to temp agencies, just as the big IT firms did in the 1990s. In selected cities, Uber is already partnering with established temp agencies to offer its workforce alternative kinds of assignments – making deliveries, or doing restaurant, warehousing or construction work – when the ride sharing business is slow. During the pandemic, Uber has made more money delivering food than it has from ride sharing.
Last year, the company also launched its own temp agency, Uber Works. The new venture experienced difficulties when employment collapsed during the pandemic, and its current status is unclear. Ultimately, in this scenario, Uber’s hope is that putting its entire workforce on temp agency payrolls will enable the company to continue to disclaim any legal accountability to their workers, and to point to an assemblage of local temp agencies as their real employers. Alternatively, Uber could make its drivers franchisees, or contract them out in each city to existing fleets licensed to use the company’s brand and technology.
Under the nation’s current policy, assigning a company’s gig workforce to a multitude of local dummy “employers” scattered around the country would effectively block union formation, and prevent workers from asserting their just claims to a greater share of the massive capital that gig companies accumulate. These workers would then join the growing ranks of permatemps in the battle for a realistic joint employer rule that places appropriate responsibility for compliance with labor laws, including good faith bargaining, back on the corporate employers that directly benefit from their labor. A revised joint employer rule reflecting the true facts of employment in the U.S. is needed immediately to bring fairness to uncounted millions of American temps and “contract” workers, and to slow the ceaseless expansion of inequality. After decades encouraging the growth of a shadow workforce without rights, we must finally shut the door on the employers’ mass escape from accountability.
George Gonos is professor emeritus at the State University of New York at Potsdam and currently adjunct instructor at FIU’s Center for Labor Research and Studies. He is a longtime advocate for temps and contract workers and a founding Board member at Temp Work Justice.