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What Happens When Gig-economy Workers Become Employees

Drivers For Cannabis Companies In California Now Have To Be Classified As Employees, Rather Than Independent Contractors. But Has That Been A Good Thing?

Ever since the emergence of companies like Uber and Lyft, businesses and labor advocates have engaged in an endless, largely theoretical debate about whether classifying workers as independent contractors—responsible for setting their own hours and paying for their own insurance, mileage, and other expenses—helps or hurts them.

On one side are gig-economy employers, who say workers like the flexibility of being an independent contractor, and prefer working when and if they please. On the other are labor advocates, who argue that gig-economy companies push much of the cost of their business onto workers, who don’t receive worker protections that were once standard, such as minimum wage and overtime protections.

The debate intensified in California in late April, when a state Supreme Court ruling found that employers must use a narrow test to determine how to classify employees, raising the likelihood that more companies will have to categorize gig workers as employees. Gig-economy companies lobbied the state to override the ruling, claiming that workers would lose their jobs, while labor advocates predicted that it would ensure that fewer people would have to rely on the state safety net. As usual, many of the people engaged in the debate about what’s best for workers were not the workers themselves.

But while the policy debate rages on, a real-world experiment has been testing what, exactly, would happen if companies had to switch a large swath of their workers from independent contractors to employees. As of January 1 of this year, cannabis-delivery workers are mandated by state law to be classified as employees. These rules, adopted after Californians voted to legalize marijuana in 2016, are a way for law enforcement to ensure that dispensaries take responsibility for their product, and that it is being handled by trained employees. Since they were enacted, dispensaries around California have started the process of switching delivery drivers, and in some cases other workers as well, from independent contractors to employees. Their experience highlights, more than any hypothetical debate, how there is no one easy answer for how to best structure the gig economy.

The decision to require delivery workers to be employees was very deliberate, according to Barry Broad, a Sacramento lobbyist who represents labor clients including the Teamsters and who was involved in the negotiations. Government officials thought that for the industry to be stable and accountable, independent contractors shouldn’t be carrying around marijuana, especially given that they could also be simultaneously driving for another gig-economy company. Law enforcement also needed to know, if they stopped a driver with a car full of cannabis, who was responsible for that cannabis, and so preferred that the drivers be employees of licensed dispensaries. There was another reason, too, Broad told me. “We wanted to make sure there is not a situation where there’s just gross exploitation of workers,” he told me.

Cannabis companies got on board, too, a marked contrast to other gig-economy companies. Jerred Kiloh, the president of the United Cannabis Business Association (UCBA) Trade Association, which represents legal dispensaries in Los Angeles, said that his organization wasn’t initially sure whether to support the rules or fight them. But unlicensed dispensaries were pushing back against any regulation, and licensed dispensaries worried that the proliferation of independent contractors would lead to the creation of a “gray area” in which customers didn’t know who was actually selling the product, and if they were buying from a licensed dispensary, he said, so they came around to regulation.

Workers are split on whether they like the changes. Sky Siegel, the general manager for the Perennial Holistic Center in Los Angeles, said about half of his drivers preferred being independent contractors, and quit before the change went into effect so they could find other gig jobs. Some left because Siegel can’t yet afford to offer them benefits, so he is limiting employees to 30 hours a week so as not to trigger IRS provisions that would categorize employees as full-time. Though they received minimum-wage protections under the new rules, many workers decided that 30 hours a week, even as an employee, was not enough.

But for the half who stayed, some parts of the job are easier. Rather than using their own cars to make deliveries, they use vehicles provided by the dispensary. The dispensary withholds their taxes, so they get to avoid the April panic that’s become a rite of passage for gig-economy workers. Because of California labor laws, if they work shifts that last more than eight hours a day, 40 hours a week, they receive overtime pay. Their shifts follow a regular schedule now, replacing the free-for-all that would happen in the past when new shifts were posted (Mondays at 4:20 p.m., of course).

Matthew Johnson, 24, is one of the employees who stayed on after the transition. He’d been driving for companies like DoorDash and Grubhub before he started working for Perennial, so he was accustomed to being an independent contractor. But he likes the predictability, job security, and guaranteed hours of being an employee. He has even moved up the job ladder: As an employee keyed in to what was happening around the office, he started doing some events with Eaze, the start-up that works with Perennial and other dispensaries to manage deliveries. He showed his bosses that he was a hard and dedicated worker, and was able to suggest some tweaks to the platform that made it run more smoothly. He got a promotion, and now, in addition to driving, he also manages customer-support service and operations for Perennial.

Johnson now thinks all gig companies should switch to the employee model. “I think that with the amount of hours people work, and the type of hard work they put in for these companies, they deserve to be employees,” he told me. “Sometimes the companies just throw them away, like they’re disposable.”

But Earl Kim, who started at Perennial as a driver and now also works in operations and management, is less sure that the change has been positive. Some workers don’t like that there are fewer hours available, and that shifts are more regimented, he said. Before, if you finished your shift early, you could leave; now you are getting paid by the hour, rather than by how much work you complete in a period of time.Employers are divided on the change, too, largely because categorizing workers as employees has a much higher up-front cost to companies. Having employees means more meetings, more tracking of people’s progress, more coaching workers who might need improvement, more hoops to jump through when you want to fire someone.Kiloh, the UCBA president who also owns the Higher Path cannabis collective in Los Angeles, told me the switch increased his costs by 12 to 15 percent—a huge amount in a competitive industry. But he’s targeting older customers, and he’s found they like interacting with trained employees who know the product well and take on responsibility for any questions they might have. “Customers are saying, ‘I like this more, these people represent your brand, they represent your product better,’” he told me. Kiloh, who has a master’s degree in economics, actually thinks it’s more cost-effective to classify workers as employees than independent contractors, because they become more invested in doing a good job. Still, he says he’d prefer to be able to have mostly employees and a few independent contractors during busy periods.