We need a 'third class of worker' for people like Lyft and Uber drivers, says investor
There's a war brewing over what to call the Uber and Lyft drivers in this world, and "employee" might not be the answer.
"I think it's not 1099 versus W-2. I think the right answer is a third class of worker," said Simon Rothman, a partner at Greylock and an investor in Sprig, which uses 1099 employees. "People are now becoming one-person companies, and they're not even working for one entity."
The new economic model championed by the on-demand economy relies on a steady stream of 1099 contract workers. They are called 1099 workers because of the IRS tax form "1099 MISC" that they fill out when hired, compared to the traditional W2 that full-time employees complete.
It's a business model that's being contested in court after Boston labor rights attorney Shannon Liss-Riordan sued Uber and Lyft.
While Rothman acknowledged that it is likely going to be the W-2 that wins out, it is still "fundamentally wrong," he said on a panel at the grand opening of Shift's new offices.
Rothman's argument centered around the fact that many of the 1099 contractors don't have loyalty to a singular company and are instead becoming one-person companies by working for several platforms.
The 2015 1099 Economy Workforce Report found that 38 percent of the on-demand workers are signed on to multiple companies at once while 13 percent said they switched companies to try to leverage the sign-up bonuses.
If you unbundle benefits from companies or substitute them on a pro-rata basis, that's when you can create a new flexible labor class that matches how the delivery drivers or house cleaners of the on-demand economy see their jobs, Rothman said. He would love to see companies start personalized healthcare that travels with you and not dependent on your employer.
"I think this new class of worker has to reflect this new type of work that's being done," Rothman said. "If you decouple the benefits, if you decouple the pension so it's not tied with you, think about the control you can have, going out of the networks as you wish, controlling the what and when of your job."
Rothman is not the only person thinking about the third labor class either. In Germany, as Shift's founder George Arison noted on the panel, there is already a third class of "dependent contractors".
Even in the Lyft case, U.S. District Judge Vince Chhabria said in a March decision that he's not sure if Lyft drivers fit in either category of California's "outdated" employment codes.
"The jury in this case will be handed a square peg and asked to choose between two round holes," he wrote. "The test the California courts have developed over the 20th Century for classifying workers isn't very helpful in addressing this 21st Century problem."
Rothman also saw it as an evolution of the labor system.
"What's happened over the last generation is that you no longer have one career with one employer, but you expect to have one employer at a time," Rothman said. "Why can't you work for 5 platforms, or 50 platforms at a time?"
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