Concept Paper: Employee Re-Classification

Concept Paper: Employee Classification

Overview:

The last 25 years have seen a level of fundamental change in the global economy not seen since the Industrial Revolution. The ongoing switch to an electronic, online marketplace in lieu of traditional bricks and mortar outlets is every bit as profound as our transformation from an agrarian to industrial economy almost 200 years ago. And, as the nature of economic activity has changed, so too has the nature of the drivers of that change - the workers themselves. As farmers ultimately became factory workers, the modern workforce has been under a similar transformation as private employers and governments continue to redefine almost every aspect related to employment and employees. Whether it's traditional norms related to wages and benefits, workplace safety, legal protections for employees, or countless other issues, they are collectively in constant motion today as the nature of work and workers continues to evolve ever faster.

Background:

Nowhere is this transformation more apparent than in the retail marketplace. How consumers purchase goods and services today (e-commerce) looks radically different than it did a generation ago. And how employees deliver those services is similarly different. Among the most fundamental changes in this space is how both employers and employees have evolved their thinking around the nature of employment. Employers, for their part, have increasingly leveraged generous independent contractor and subcontractor laws for a variety of reasons including labor cost management, exemption from numerous benefit regulations and mandates, and liability shields from worker protection laws and litigation. Employees, for their part, have often embraced those same independent contractor laws in numerous industries citing flexibility and greater control over employment decisions affecting themselves.

But for every action there is a reaction and this space has become increasingly politicized. As new ideas, industries, and business models emerge - i.e. innovation - existing legacy businesses can often be counted on to stem the tide of innovation to protect their own self interests. Examples are plentiful: traditional players in the three-tiered alcohol system are threatened by online sales and home delivery; traditional players in transportation are threatened by innovators like Uber & Lyft, and traditional hospitality and lodging players are threatened by home-sharing apps like AirBnB. The employment space is no different and guardians of traditional employment platforms - the labor community - are equally threatened by the evolving nature of employment. And, like the other entities noted above, are using every resource at their disposal - financial, political, and legal - to stem the tide to protect their own self-interest. In the case of the labor community, they are putting renewed energy around traditional “employee-friendly” proposals that have been debated for generations and are higher profile now than at any point in the last 25 years. Issues like minimum wage, paid family and sick leave, mandated scheduling laws, the elimination of tipping, joint employer liability laws, and the list goes on. All in an effort to protect the traditional but quickly-evolving employer/employee relationship. Perhaps parts of it need to be protected and perhaps parts need to evolve - but the employer community has a rare opportunity to lead many of those conversations.

Issue:

The only thing that can consistently be counted on is change. And change will ultimately not be deterred. Just as the retail markets cited earlier will never return to their old model, nor will the labor market. We are never going backwards and as such, the only real questions are how to acknowledge that truth, how to adjust to it, and ultimately how to prosper going forward. We also know that legislation and regulation that hope to govern that change can lag by decades, can be punitive and regressive, and ultimately end up picking winners and losers, none of which are beneficial to employers, employees, consumers, nor citizens. But there is an alternative to waiting for those undesirable outcomes - proactively managing the change process.

Approach:

We know that the independent contractor model is here to stay - there’s no going back. We also know that the traditional employment model is here to stay as well - at least for the foreseeable future. But many traditional employers, especially those employing entry-level workers, are stuck in the middle - bound to the traditional model yet having to compete with a significantly more cost-effective new model. And those employers represent tens of millions of jobs and tens of millions of opportunities for upward mobility. We can’t afford to squeeze out that workforce and foist them into the independent contractor marketplace with limited job security, benefits, and workplace protections. What’s needed is a third worker classification model.

Proposal:

Interested and affected parties work in coalition with Congressional allies and potentially the Labor Department to establish a new worker classification designation that provides much needed stability for both employers and employees. To participate in the program - i.e. qualify their workers, or a given subset of their workers, employers would agree to some basic stipulations that could include but are not limited to:

Model - Qualified employers would agree to commit to the traditional employment model.
Wages - Qualified employers would agree to certain basic starting wage rates ($16/hr) and potentially a wage cap ($22/hr).
Benefits - Qualified employers would agree to a certain minimum health insurance benefit package or could potentially enter a voluntary portable benefits pool.
Scheduling - Qualified employers would agree to certain scheduling requirements (advanced notice and limitations on clopenings and “oncall”).
Training - Qualified employers would agree to certain training regimens or a minimum level of tuition reimbursement programs.
Workplace Grievance Process - Qualified employers could commit to an arbitration /mediation process to resolve workplace disputes.
ESG goals - Qualified employers could commit to certain agreed upon ESG goals.

Essentially, to utilize this new classification, employers would commit to certain levels of wages, benefits, wrap-around services, and CSR goals in exchange for expanded tax deductions and credits regarding workforce training, education, benefits as well as expanded “safe harbor” protections from legal liability, certain aspects of labor law, and joint employer protections to name a few.

Interestingly, in any other context this type of arrangement would likely be characterized as sectoral bargaining. In effect, employers are seeking to negotiate the terms and conditions of employment for a specific segment of the American economy. Workers, for their part, are gravitating toward these types of work relationships, demonstrating an interest in this type of structure. And, the labor community has demonstrated that models like the Freelancers Union can provide value for workers (albeit a very different value proposition than traditional trade unionism). In short, the ecosystem around this type of approach toward employment currently exists in different shapes and forms into today’s economy.

Summary:

At the end of the day, employers large and small need to anticipate change and manage risk. That is the role public affairs professionals play in their organizations. The change part of the equation is already underway. The consumer-driven retail marketplace is changing by the day and employers are constantly adjusting their labor models to respond. And, of course, the political marketplace is evolving perhaps even faster with increasing hostility toward large employers from both sides of the political aisle. The traditional conversation around entry-level business models is going the wrong way and political allies are becoming more and more scarce. And companies traditionally don’t enjoy the prospect of short-term pain for long-term gain. But the reality is that to compete in the modern political marketplace, you have to be “for something” to be considered a serious player and need to be able to “give” on certain issues to demonstrate skin in the game. Additionally, large companies are being forced to create their own political coalitions to advance their interests and this issue provides a solid opportunity to appeal to many factions across the political spectrum. For those and many other reasons, we should pursue a serious dialogue in this space.

Americans for a Modern Economy is committed to ensuring that local, state and federal policies reflect changing technologies that are reshaping the way consumers, businesses and communities operate in the 21st century economy. We work with consumer advocates, businesses, think tanks, economic experts and others to raise awareness and inform discussions about the current and future policy challenges of new technology. We serve as a resource for lawmakers to help them develop modern policy solutions that benefit all Americans by expanding consumer freedom, allowing businesses to best serve their customers and preserving free market competition.