You write on behalf of your client,1 a virtual marketplace company that operates in the so-called “on-demand” or “sharing” economy. Generally, a VMC is an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services. VMCs help consumers to obtain these services with greater efficiency—days, weeks, or months faster than they would outside the virtual marketplace. VMCs accomplish this through a software platform called an analytic hierarchy process—a technological structure for organizing data that uses objective criteria to match consumers to service providers.
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This is another way the world is being changed by information technology and the venture capital culture fostered by the rise of Silicon Valley. The VMC uses information technology to match “end-market consumers” to “service providers” and makes it’s money by charging for the service. Notice that nowhere in the above description is there a reference to actual humans being involved in the process.
There’s nothing inherently evil about this; people need stuff and other people make a living providing it to them. A service that matches them up IS a service — the question is for whom? Customers want acceptable service at the best price; suppliers want to get the highest compensation they can obtain. The VMC wants to get the most it can charge for connecting the the two — so where does their profit come from?
In practice, it comes from the VMC keeping prices as low as it can manage to attract customers AND keeping compensation provided to service providers as low as possible. Minus the costs of keeping their information systems running, the rest is profit for the VMC. The problem is leverage.
Customers may have a a choice of several VMCs — or not. Service providers may have a choice of several VMCs — or not. Its position as a gatekeeper between the two gives it leverage over both, but it’s the service providers who are most vulnerable in this relationship. The money coming in is from the customers, and it has to come through the VMC which has every incentive to take as much as it can get away with. This ruling means they can get away with more now.
As Gallagher reports:
“We now know the Department of Labor’s current position on the factors related to independent contractor status, which gives us some guidance in terms of the enforcement activities that the agency will undertake,” Kathleen Anderson, a partner at the law firm Barnes & Thornburg, told FreightWaves. “If you’re an employer in the gig economy and have a Department of Labor audit, I’d feel more comfortable knowing that this has been issued.”
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Translation: if you are an “independent contractor” you’re on your own. To put it another way, if you’re an employee in the gig economy and your employer has a Department of Labor audit, I wouldn’t get my hopes up.
This has big implications for Uber, between its worker disputes and its plans for world domination. Gallagher reports:
...Uber warned potential investors that the company “would incur significant additional expense” if it had to compensate drivers as a result of legal decisions that could require the company to reclassify its workers as employees. It would also “require us to fundamentally change our business model, and consequently have an adverse effect on our business and financial condition.”
It has huge implications for the rest of us as well. The incentives to move employer-employee relationships to the contractor model just got bigger with this opinion letter.
The key word is independent contractor. Workers need to organize and unite so they have bargaining power when dealing with the VMCs out there, and the rest of the companies moving to a gig model. Theoretically, workers could develop their own VMCs using a non-profit model, and legitimately underprice the for-profit VMCs. Unfortunately, union organizing is not exactly the kind of thing likely to draw venture capital.
It’s going to come down to dollars versus votes to fight this on the political side, and money has never had more power over politics than it has these days.
Solidarity isn’t just a slogan — it’s a survival strategy. We need it.
Update: On thinking further about this, an additional complication is that the VMC is also a VW — Virtual Workplace. Unlike a brick and mortar business, employees may never go to a headquarters, work place, etc. other than to sign a contract — and even that may be totally digital these days. No bulletin boards in the lunch room; no group meetings in the conference room; no union rep on the shop floor...
That means they never get to see their co-workers, and may not even know who they are. That makes organizing far more difficult. The VMC controls communications with its employees — excuse me, contractors — so it’s totally hierarchal. You can’t organize if you are isolated. This isn’t a bug — it’s a feature for companies. You might try social media — which is why some companies are demanding access to your accounts and/or monitoring employee posts. The legal situation is still evolving...