Business

Why the gig economy doesn’t work for everyone

Ride-hailing services

Many Lyft drivers are doubling their efforts as Uber drivers while they drop off riders in front of Terminal 1 at Los Angeles International Airport.

(Mark Boster / Los Angeles Times)

Fridays are paydays for Edgardo Villatoro — and also for the company where he works, XPO Port Services.

Villatoro, 54, gets paid for driving tires and furniture from Los Angeles-area ports to railway stations. But in return, he has to compensate the company for renting a truck, parking, insurance on the vehicle, and maintenance. He also buys diesel fuel.

Those expenses, which Villatoro says hover about $900 a week, sometimes leave him with a “negative paycheck.”

“I tell [my wife] ‘Look, the work was slow. We aren’t going to have much to buy food. We have some savings, and we have to spend that on food this week.’ ”

Welcome to the booming — and largely unregulated — world of shadow employment.

Villatoro is one of 12.5 million people who are considered independent contractors, a group that has swelled in the last decade and now represents 8.4% of the U.S. workforce, according to a new study by economists at Harvard and Princeton universities. Nearly 3 million Americans became freelancers from 2005 to 2015, the study found.

Because people who work independently are not technically employees, they do not enjoy the raft of worker protections that apply to almost everyone else. That leaves independent contractors out of the wave of pressure to upgrade pay — the latest example being the $15-an-hour minimum wage that is poised to become law in California and New York.

“Raising the minimum wage is extraordinarily important, but it shouldn’t distract us from the other question, which is: What do we do about the fissuring of the traditional American workplace?” said Seth Harris, former deputy secretary of the U.S. Labor Department.

The “gig economy” has become synonymous with app-driven ride-hailing and home-sharing services that have altered the way many Americans travel. But new research by Harvard economist Lawrence Katz and Princeton economist Alan Krueger suggests that the vast majority of contract workers do not answer to Internet companies.

Less than 0.5% of the labor force works through an online intermediary such as Uber or Airbnb, Katz and Krueger found. Most contractors do other freelance jobs, in areas such as sales, home healthcare or construction.

In these arrangements, the assumption is that workers sacrifice a safety net in the interest of flexibility. Freelancers aren’t entitled to workers’ compensation, healthcare or unemployment insurance, or the minimum wage. In exchange, they are their own bosses.

In Joy Brande’s case, that control is a matter of degree.

Brande, 66, spends about 15 hours a week driving for Uber. She can choose to not take rides when she knows “drunk kids” will be the main clientele, and can simply turn the app off if she’s feeling burned out.

But if she is online and does not take 80% of the rides, the company sends her a text strongly encouraging her to accept a greater share. Uber also sets the fares for each of her rides and monitors her customer service rating from riders.

Harris explained that federal law treats contractors “like independent businesses that are expected to be able to negotiate their own individual compact through bargaining with other businesses.”

The problem is that many people called contractors by the companies that pay them do not actually have total autonomy.

Indeed, one of the main strategies of labor activists to extend protections to contract workers is to turn them into employees.

“Port truck drivers across America are misclassified as independent contractors,” said Barb Maynard, a spokeswoman for the Teamsters union. About 65% of all truckers are not properly labeled as employees, according to a 2014 study by the nonprofit National Employment Law Project.

Driver Villatoro said he typically takes home about $800 per 70-hour week, minus expenses, which comes to about $11.40 per hour. On weeks when his expenses exceed his earnings, though, the South Central Los Angeles resident has no remedy. Contractors can’t unionize.

XPO Logistics, the trucking company’s parent, said in an email that it has conferred with its drivers and “the vast majority of them value the significant benefits that operating independently can bring. This model is the right one for XPO.”

Trucking companies have been battered with lawsuits and claims to the state labor commissioner’s office from drivers who have demanded millions in back pay after allegedly being misclassified.

In December, the commissioner’s office ordered Pacific 9 Transportation to pay 38 drivers nearly $7 million in back wages.

Since 2012, the commissioner’s office has received 720 complaints from truckers, and it ruled in three cases that covered 100 drivers so far.

The onslaught has taken a toll on some companies. Premium Transportation Services Inc., one of Southern California’s largest trucking companies, filed for bankruptcy in March after losing $4 million to workers’ misclassification claims and lawsuits.

In June, a jury will hear arguments in a class action lawsuit brought by California-based Uber drivers, who say the company should treat them as employees rather than freelancers. Uber has said drivers would lose freedom if they were to change their status.

In July, in an effort to prevent the class action from going forward, Uber presented testimonials from 400 drivers in the state confirming that they’d prefer to freelance.

Proceeding with the class action “would destroy the very independence and flexibility that countless drivers love about Uber,” the company said in a court filing.

Instead of transforming contractors into employees, some lawmakers have tried to make it more comfortable to be an independent contractor in the first place.

Assemblywoman Lorena Gonzalez (D-San Diego) introduced a bill last month that would give independent workers the right to collectively bargain for pay and other benefits. Seattle passed a similar law, which allowed Uber and Lyft drivers to unionize, in December.

Business groups are pushing back. The U.S. Chamber of Commerce sued Seattle last month, saying the measure contradicted federal regulations. Chamber of Commerce lawyers said that the law could “undermine the flexibility, efficiency, and choice that accompany independent driver arrangements.”

Brande, the Uber driver, values that flexibility.

The Costa Mesa resident also has a part-time job as a cashier at TJ Maxx that pays minimum wage but doesn’t come with benefits. Superiors admonish her for failing to make the right notes about a returned item, Brande says. She follows a very specific protocol for ringing up goods and has to consult with a colleague for some small errors she makes at the register.

“If I were making a lot more money at this I could understand why they are so demanding,” Brande said, “but this is a minimum-wage job, so you are screwed all around.

“I like Uber better because nobody is standing there telling me, ‘Oh you have to do this.’ I really like freedom.”

natalie.kitroeff@latimes.com