California has passed a law forcing ride-sharing groups to give their staff the rights to which they are entitled © 2017 Getty Images

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California, the spiritual home of the gig economy, has delivered a blow to the business models of platform companies. The state’s supreme court ruled on Monday that Uber and Lyft, two of the largest ride-sharing companies, have to treat their drivers as employees rather than as independent contractors. Although the companies can appeal, if the ruling stands they will now have to pay sick pay, unemployment insurance and holiday pay.

The judgment is the right one: the gig economy has long existed in a legal grey area, allowing businesses to avoid their obligations to workers. The companies argue that the drivers really work for themselves and that businesses operate as an algorithmic matchmaker to find them customers.

Critics say, however, that the high valuations of these lossmaking Silicon Valley companies owe as much to exploitation as to innovation. Uber and Lyft are really ordinary minicab booking services that have found a way to sidestep the normal protections enjoyed by workers. Drivers may get to set their own hours but as long they have the app on they must do what the companies say and can only take clients they are assigned. According to this argument, those who work full-time on the platforms ought to be considered workers like any others.

Monday’s judgment means that California law sides with the critics. The passage of Assembly Bill 5 by the California state legislature last year aimed to make it harder for companies to prove that workers were independent contractors. To count as self-employed, workers have to be “free from direction and control”, and perform a service that is “outside the usual course of business of the employer”. The court case was brought by the state’s attorney-general who sought to enforce the new law against the tech companies. The judge said that the companies’ argument that they merely connect contractors with customers “flies in the face of economic reality and common sense”.

The companies argue that being forced to pay the minimum wage and sick pay would devastate their businesses at a time when sources of employment, even insecure ones, are desperately needed. This argument is pernicious. Worker protections are needed most when people are desperate; if the alternative is poverty many can be all too keen to sign their rights away. Coronavirus, too, has only made this more urgent. Sick pay is not only essential to protect workers’ own health but also that of their colleagues and clients; if drivers continue to work despite having symptoms it could help spread the disease. 

Self-employed and gig economy workers have often fallen through the gaps in countries’ attempts to protect incomes during the pandemic, including those who work literal gigs in the creative industries. Closing down legal loopholes is one means of ensuring they get the protection they need. In the long term, the solution is to make welfare states and regulation more appropriate for the modern workplace. That means more portable benefits and ensuring workers are treated equally as they move between different jobs; the Nordic “flexicurity” model is worth learning from. 

Ride-hailing apps are facing pressures in multiple jurisdictions to recognise their workers are more than contractors; a similar case is currently being considered by the UK supreme court. Rather than continuing to insist on their own interpretation of the facts and the law, it is time for Uber and Lyft to be truly innovative — and find a way to operate while giving their staff the rights to which they are entitled.

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