Tuesday, December 3, 2019

Tesla, Uber & Amazon: The Gig Economy meets the Gilded Age

What do Tesla, Uber, Amazon, Lyft, Instacart, and DoorDash have in common? They’re great to buy from, but you probably wouldn’t want to work for them as an independent contractor or employee.

We love the perks — Tesla’s fun-to-drive electric cars, belonging to Amazon Prime, cheap fare Uber and Lyft rides, having the annoyances of grocery shopping taken away by Instacart, and tapping into other efficient, affordable gig economy services. But we usually don’t like working for them — just ask around and search the internet.

Case in point:  An engineer working for Elon Musk’s SpaceX intergalactic travel company told me about the intensely demanding, stressful long hours he has to work. While Musk is still an icon for him as a pioneer in space flights and electric cars, he doesn’t see himself able to live that way for very long. As we’ve heard about from executives leaving Tesla, Musk expects employees to give their lives to the cause.

Another one:  A woman working for Amazon told me about attempting to be reclassified from a part-time employee to full-time employee with benefits. She and her Amazon co-workers are expected to work extra hours and take on extra duties. But she’d received a company letter detailing, once again, why she didn’t make it to full-time status with medical coverage and other benefits. Like working for other prominent, well publicized tech employers, what at first seemed like a wonderful career opportunity can go upside down.

For independent contractors working for Uber and the big wave of mobile app-based startups since then, the initial motivating factors behind doing this kind of work have been waning for the past two years.

A few key developments have been taking shape..…..
—For those employed, it can mean unrelenting demand, excessive hours, and a lifestyle not worth what they’re being paid. It might look good on their resumes, and perk up ears during socials, but the cost can be very high.
—Many are stuck working under 30 hours a week and are given other limitations that keep them out of the class of employees who can receive medical coverage, retirement, training, and other employee benefits.
—Pay has been going down from the mobile-app companies, after initially having been strong through attractive incentives and good pay for joining up with them; and bringing in a few other drivers/shoppers/delivery drivers as referrals.
—California’s labor law enacted in September, AB 5, is being carefully watched by affected companies, labor lawyers, unions, and workers. So far, only one company — Deliv, a Menlo Park, Calif-based, same-day delivery service — has enacted a new system transitioning over from independent contractors to employees only. All the others seem to be ignoring it when it comes to communications with their independent contractors even though the law takes effect in less than a month; and it looks as though they’re preparing to fight.

Companies like Uber initially looked like a new, hip, innovative business model that gained wows in recent years from Silicon Valley, Wall Street, and media coverage. Except for Amazon and its soaring stock prices and power in the marketplace, the P&L statements haven’t looked so good for these gig economy leaders. These companies and many other startups, tracked by TechCrunch and a few competitor media sources, are still finding angel and institutional investors and IPOs, even though profits are eluding most all of them.

What we see is what might be called the New Economy, Gig Economy, or Tech Revolution — it does look like an historic, seismic movement that will alter the future. But it’s also an old classic — a lot like the Gilded Age, when tycoons in railroads, steel companies, oil giants, coal mining, banking, and electric utilities, mistreated workers and carried out quite a lot of cutthroat tactics to take their competitors out of the market. That movement would continue into the first few decades of the auto industry, led by Henry Ford.

Ford and other icons of what Mark Twain labelled the “Gilded Age,” such as John D. Rockefeller, Andrew Carnegie, and J.P.. Morgan, have been credited with leading the American economy to a new phase — whether they be labelled captains of industry or robber barons.

What's the Gilded Age?
Historians differ on defining when the Gilded Age took place, with the widest swath being the end of the Civil War to the beginning of World War I. These were the days when the American economy took off, and where inventors like Thomas Edison, Alexander Graham Bell, Nikola Tesla, and Samuel Morse created much of the technology that would thrust the economy and culture forward. Yet business titans became legendary symbols of the age — inspiring immigrants to come here for jobs and a better life, finding the needed capital and government support, and innovation and drive to move new technologies forward.

It’s becoming easier to find a comparison made to the Gilded Age to what we’re living in now. Tesla and SpaceX CEO Elon Musk and his adventures; Amazon’s Jeff Bezos and his divorce and net worth; Uber co-founder Travis Kalnick and his downfall and boiler room practices. But these men have been among the new leaders of the fast-changing economy — driven by technology innovation, globalization, and a drive to find the needed capital and mass-market customer support to continue growing and make board members, the general public, and governments, happy to have them.

Bill Gates is considered to have played a role in the current state of affairs. By the 1990s, Microsoft became known as the the tech giant where some employees were given millions of dollars in payouts to retire at age 35; but then for all the managers, engineers, and software designers who followed — it’s been a steep hill to climb. On the competitive front, Gates was known for the old style of buying out startups and driving other companies out of the market. And like many of the magnates from the Gilded Age, giving millions in donations to good causes though the Bill and Melinda Gates Foundation is reminiscent of the Carnegie and Rockefeller foundations.

I’ve been asked quite a few times about my experiences working as an independent contractor for Uber, Lyft, Instacart, and other mobile app, on-demand employers. The person making the inquiry usually has much fascination and enthusiasm about the subject matter. The story has changed over time. Those of us doing gig work — giving rides in our cars to individuals and to two-or-more customers sharing trips, delivering meals, picking up electronics and other products for delivery, and grocery shopping and dropping the bags off — usually see the following scenario. You’ll start out going a few months doing great in customer ratings, learning how to use the company’s mobile app efficiently, and seeing some decent-to-very-good pay in your weekly electronic funds transfer.

Then it starts to change, with expectations rising and pay diminishing. You’re told that the company needs to change the pay structure so that customers aren’t feeling overcharged; that the company needs to see a reasonable return as it pushes forward toward profit; and that drivers/deliverers/shoppers are being carefully listened to by management.

It’s a sad story. Customers can be fickle, hard to please, and can quickly go elsewhere; the company is far from making any real profit; and nearly all independent contractors are far away from making a living at it.

These employers make up a limited share of the US economy. Most employers still follow the traditional model for full-time employees — hourly pay or salary, medical benefits, insurance, vacation and sick pay, and retirement funds; sometimes there’s more including coverage for professional training. Benefits have been cut back since the 1980s, and occasionally something tragic occurs when a retirement fund pool vanishes; but most Americans work in decent jobs. The problem is that the part-time job trend continues to grow, and more industries are looking at independent contractors to increase their profits.

I’ve heard good things about working for some of the automakers, car rental companies, fleet management companies, battery makers, charging and fueling infrastructure suppliers, auto parts makers, and electronics companies. Good things have been said  and written about working for UPS, Cisco, Intuit, USAA, CarMax, Farmers Insurance, Fedex, Patagonia, and many other companies; and most people I’ve spoken to have liked working in government and nonprofit jobs. However, for most of us, ending up in good paying, stable, satisfying, and rewarding jobs is harder to come by today than it was a quarter century ago.

Legal struggles on the horizon
The legal and regulatory structure is expected to determine some of the outcome of these workplace developments, though it’s still in an early phase. California’s AB 5 limits the use of classifying workers as independent contractors rather than employees for employer in the state. Employees are entitled to greater labor protections, such as minimum wage laws, sick leave, and unemployment and workers' compensation benefits, which do not apply to independent contractors. Along with the law that went into effect in September, there were previously signifiant court rulings on the matter — with the Dynamex Operations v. Superior Court ruling by the California Supreme Court in 2018 setting much of the legal structure for AB 5.

Attorney Shannon Liss-Riordan has filed quite a few class-action lawsuits to increase benefits for gig-economy workers with many of them aimed at Uber, one of which ended with a settlement earlier this year. She’s also taken on Fedex and Starbucks in similar labor trials. Even before Gov. Gavin Newsom signed the bill into law, Liss-Riordan filed McCray v. Uber Technologies Inc., 19-cv-5723, U.S. District Court, Northern District of California (San Francisco), which has yet to be set for a trial date. It uses AB 5 as the legal foundation for the arguments made in the court filing.

She’ll be heading for Washington the fight the cause, running for US Senator in Massachusetts for the 2020 election. “This is why I’m running for the U.S. Senate,” Liss-Riordan said. “People are sleeping in their car. Corporations are trampling on rights and working people need a voice. That’s why I’m running. This needs to be nationwide.”

Uber’s chief legal officer, Tony West, responded to the court filing by saying that his company would carry on the legal fight in defense of its position that drivers are contractors. Uber will continue to argue that its core business is technology, not transportation, meaning that its drivers won’t qualify as employees under the law’s new criteria. Uber and many other ride-hailing and mobile app companies are remaining quiet with their independent contractors and the public on what exactly they’re going to do. As reported earlier in GAM, they are putting a lot of money into funding a counter measure as a ballot proposition they hope will get on California’s 2020 election ballot.

The California Trucking Association filed suit in November in the San Diego federal court. The new California law violates federal law and would deprive more than 70,000 independent truckers of their ability to work, the association said. Many would have to abandon $150,000 investments in clean trucks and the right to set their own schedules in order for companies to comply with a law it says illegally infringes on interstate commerce. The trucking industry has depended heavily on independent contractor truckers over the past decade or so.

What will Jeff Bezos’ Amazon do about the new California law — and the prospect of other states adopting it? The company has kept mum about it, though it will be affected. One Amazon employee told me that the company seems to follow an 80/20 rule — 80 percent employees versus 20 percent independent contractors. The independent contractors would come mainly from its Amazon Flex subsidiary, where they drive their own cars to deliver packages from the multitude of Amazon storage warehouses going up around the country.

Earlier this year, a lawsuit was filed accusing Amazon.com Inc. of misclassifying drivers as independent contractors. On May 20, the company argued that it should be sent to arbitration. Sean Hoyt Jr. had been a driver for Amazon Flex, the filed suit claiming that the company has been misclassifying drivers, circumvented California employment law, failed to properly pay the drivers overtime wages, failed to reimburse the drivers for business expenses, and withheld meal and rest breaks. His attorney, Oakland-based Steven Tindall with the Gibbs Law Group, thinks that AB 5 will help make the case. “It will make it plainly illegal what they are doing,” he said.

Amazon is pretty much guaranteed to survive these trying times. Tesla has never had a profitable year, though a few quarterlies have met the mark; and Musk’s SpaceX is looking viable, though being a privately held company makes it trickier to study its financials.

As for the other companies — Uber, Lyft, DoorDash, Postmates, Instacart, Airbnb, Amazon Flex, Hopskipdrive, Gett, Getaround, and other mobile apps — their future is very much in question. Uber and Lyft have gone public and their latest quarterly statements aren’t showing signs of improved financial conditions coming up anytime soon; nor do financial analysts expect that happen in the near future.

Will some of them be bought out or find a major investor, like Gett was by Volkswagen? Will Amazon acquire them? Will they be bought out and have their shuttlers closed and customer lists absorbed? Will they be sunk by debt and class-action lawsuits? Most likely we’ll see fewer of them around in the next few years.

One of the most followed mobile app startups has been WeWork, which has established office locations in major cities for workers to rent space, tap into its resources, and socialize with peers instead of staying stuck and isolated at home. Not long ago, WeWork’s initial public offering flopped. It’s primary investor, SoftBank Group of Japan, through its Vision Fund, lost a staggering $4.5 billion.

SoftBank Group has been very important for funding and supporting the future of mobility. It’s tightening the reins, and many other companies and investor groups are becoming more cautious about backing Elon Musk, Uber, and the next big thing. Governments want to have their say in the matter — especially when it comes to lost tax revenue they say they’re owed. They’ll be watching whether AB 5 sticks and if it should be brought over to their jurisdictions.

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