Politics

The ‘Gig Economy’ That Marco Rubio Loves Is Built On A Major Flaw

CREDIT: AP Photo/Mark Lennihan

Republican presidential candidate, Sen. Marco Rubio, R-Fla., smiles during an interview with CNBC correspondent John Harwood at the New York Stock Exchange in New York, Monday, Oct. 5, 2015.

Republican presidential candidate Marco Rubio on Tuesday delivered a speech at a Manhattan community center for tech innovators, addressing the regulatory challenges facing businesses in the on-demand economy without mentioning the ways in which the companies are snubbing workers.

“This is a revolution happening right before our eyes,” Rubio said about the on-demand economy’s potential to connect professionals directly with consumers. “The on-demand platform is one example of an important truth facing us in this election, which is that the American economy is fundamentally transforming.”

Rubio’s statement — that the economy in 2015 looks very different from how it has in past elections — has been echoed by a number of other presidential candidates, eager to address the changing marketplace for goods and services. But how exactly regulations should change to accommodate the current market is less clear.

“Innovative companies are running up against an antiquated tax code, burdensome regulations, and numerous outdated politicians,” Rubio said before highlighting Handy, a start-up that allows consumers to connect directly with handymen, home cleaners and other home service professionals.

But, our “regulatory structure that’s directly hostile to innovation” stifles companies like Handy, he said. The companies must choose between classifying their employees as full-time or as independent contractors. Handy, like Uber, chose contractors, but its employees are fighting for that to change.

Last year, Handy was hit with a class action lawsuit alleging that it is “violating an impressive amount of labor laws,” according to a Gawker story from November 2014.

“The crux of the suit is that Handy uses independent contractors instead of employees—a popular tactic amongst startups like Uber, Lyft, Homejoy, SpoonRocket, Taskrabbit, and Postmates,” Gawker said. “The freelance model allows startups to drive down labor costs and spend millions on marketing cheap deals while they try to grow, grow, grow. That growth, however, comes at a steep cost for workers.”

Because they are classified as contractors, the employees are denied labor protections, health insurance, worker’s compensation, and other benefits allocated to employees. The Handy lawsuit also claimed the misclassification has driven wages below minimum wage. A study by the Treasury found that an employer can save approximately $3,710 per worker per year by misclassifying them as independent contractors.

The suit was filed in California — the same state that recently ruled that Uber drivers are employees — so Ross Eisenbrey, Vice President of the Economic Policy Institute, told ThinkProgress that Handy is in trouble.

“Many of these companies probably expect to lose in the end,” he said. “But in the meantime, they’re getting rich.”

In his speech, Rubio also lamented that if Handy were to classify its workers as full-time employees, it would eliminate much of the flexibility unique to the industry. But Eisenbrey said, “That’s just money. The flexibility is really just money.”

Rubio made it clear that he recognizes that misclassification is a problem. But he is less sure when it comes to solutions. “Our outdated politicians bash the on-demand economy for not taking better care of workers, yet our outdated government is the exact force preventing it from doing so,” he said.

He called for deregulation — but how that would specifically help companies like Handy, he did not explain. Germany has created a middle ground between full-time employees and independent contractors, but “whether this model is the best option for America or not is something we need to figure out,” he said.

Eisenbrey said that people in the United States have proposed a middle ground, but he is unconvinced that it is necessary or would help workers.

“The first rulings at an administrative level said that Uber employees are employees, and that’s much better for employees than some middle ground that gives them, what, half the rights than they would have if they were full employees?” he said.

Oisin Hanrahan, CEO of Handy, told ThinkProgress in an email that the company is working with Rubio and other lawmakers to “find a bipartisan solution so that the mobile economy can keep growing and innovating while allowing independent professionals to have the opportunities they need and deserve.”

But Eisenbrey said that solution may not be adequate — employees need safety net programs, social security coverage, and other benefits, and companies like Handy and Uber shouldn’t be able to shift those costs to the employees.

“I don’t think we should be looking for something that diminishes the rights of employees and provides them fewer protections,” he continued. “We should be trying to enforce the laws and make sure these companies don’t get around the laws.”

And while Rubio and tech innovators are eager to describe the gig economy as entirely new and distinct from any types of businesses that have existed in the past, Eisenbrey disagreed.

“I don’t credit the notion that they’ve created something that’s new here,” he said. “The passenger for Uber or the person using Handy is not paying the worker as an independent contractor. They’re paying Uber or Handy. The stock valuation for Uber is unbelievable. They’ve got plenty of money. They could be paying the social security taxes of the drivers.”

Other presidential candidates have also weighed into the debate over the gig economy and have tried to align themselves on the side of young, tech innovators. In July, Jeb Bush visited Thumbtack, a start-up in San Francisco to discuss the sharing economy and Hillary Clinton visited Munchery, a food delivery company, for a conversation about tech start-ups. And Democratic Sen. Mark Warner (D-VA) has said he’s working on legislation that would address the problems apparent as the industry grows.

“Any candidate who actually cares about the wages and incomes of working people should be speaking out against these schemes that are really just designed to get around the labor standards and social safety nets that we’ve created to protect working people,” Eisenbrey said.