Why Letting Workers Choose Their Own Classification Status is Problematic


In response to the challenges of worker classification being experienced by the “gig economy” leveraging what has become known as the “Uber model”, some firms are rethinking the utility of their business plans. As the legal ground beneath the gig economy continues to shift, some companies are reconsidering the idea that the drivers, housekeepers, grocery pickers, and other workers connecting to end users via these proliferating “apps” should be categorized as independent contractors. Some like Uber are waging epic (and costly) legal battles to retain this arrangement while others have succumbed to legal challenges and folded up. Still others, like grocery delivery outfit Instacart, are dabbling with an eyebrow raising tactic involving allowing the worker to decide for him/herself whether to be classified as an employee or a contractor. Is this a good idea? Let’s explore how workforce ideas evolve over time and see if we can save the industry some heartache.

Remember when the bleeding edge of workforce management fashion was to send call center positions to low-cost countries like India and Brazil? Scores of leading companies raced to capture cost savings by situating their tech and customer support functions overseas. The results were categorically less wonderful than expected once the downside of this arrangement became apparent. Whatever cost savings may have been gained were quickly erased as brand equity for these companies suffered thanks to language/accent barriers. Moreover, the lack of local control made it difficult for companies to properly monitor and control quality. After a few years, the fashion evolved towards the “reshoring” still under way today. What is the lesson here?

Allowing candidates to decide for themselves whether they wish to be W2 or 1099 workers may seem like a novel way to skirt the thorny issues of classification being fought by gig economy companies. Surely, a worker who has chosen his own classification for his own reasons will be disinclined to join a class action, no?  Are you willing to risk your organization’s standing by relying on workers to make the decision on their own?  Who’s to say they still wouldn’t find a reason to become disgruntled and sue?

What’s more likely to occur is something similar to the way most companies sorted out which roles were effectively offshored and which were better reshored.  Gig economy courier Shyp recently opted to classify its couriers as employees instead of ICs. Instacart decided the training they must provide to ensure their grocery pickers were providing consistent, quality service to customers required the pickers to be classified as employees. However, they still classify their delivery drivers as ICs – something of a mixed workforce model. In this way, they’re ensuring service while still being able to hedge on labor costs to some degree.

Clearly, these adolescent businesses are in the throes of a steep learning curve as the disruptive technologies they’re built upon produce unintended consequences.  We’d recommend organizations continue to retain control over classification decisions, but with a mind toward how to (legally) optimize their usage of non-employee labor. Just like their more traditional counterparts, these businesses will come to the realization that there is no “magic bullet” for eliminating the costs associated with labor. The new paradigm will certainly reshape the way labor is regarded, but at the end of the day, there’s nothing new under the sun. Keeping control of IC classification has been and will continue to be a mission-critical element of any business.