The On-Demand Industry's $50B Problem

The ongoing debate that has been raging for years in startup and legal circles regarding the employee classification of on-demand workers doesn’t show any signs of abating.

The recent $100m employee classification lawsuit recently settled by Uber only adds another layer of complexity, with drivers in California and Massachusetts receiving compensation in lieu of fundamental changes to the legal structure of issues like healthcare and benefits being played out in the courts.

But the real elephant in the room for these on-demand workers and employers isn’t healthcare and benefits, or even qualifying for unemployment.  It’s something so mundane and boring that most people don’t even realize that it’s a $50b industry that touches every employer:  Workers compensation coverage.

Workers compensation coverage pays benefits to employees when they are injured on the job, and it’s a legal requirement for businesses in all 50 states.  When the help of another person is enlisted 'in the course of business",  they are considered an employee.

In the on-demand industry the US, and especially California,  it could be a court case about workers comp that changes everything - not any of the current cases winding their way through the system.

For a view into the how this might happen, we can look to the construction industry - the original source of much of the back-and-forth about worker classification.

Construction workers are engaged in daily physical labor and at enormous physical risk.

Typically in startups the biggest physical risk might be a someone falling off a treadmill desk - but  on-demand workers are often involved in strenuous and dangerous physical labor - whether they are housecleaners, painters, movers, or bicycle delivery drivers.

In the construction industry, labor is not well organized, often illegal, doesn’t speak English as a first language, and slips under the radar of the general public.  Yet this is still a well-known issue - construction employers misclassify workers at a slightly higher rate than other employers, but given the injury rates in the profession, it has an outsized effect on premiums charged to employers.  misclassification fraud are responsible for an estimated 50% of the estimated $1B-$3B on $30B of annual claims nationally, and are the #1 source of workers compensation lawsuits in California.

So even with that underprivileged and underrepresented class of workers, there is still an enormous amount of money spent both on workers comp insurance and claims - though it doesn’t creep into the public consciousness.

That’s not going to be the case with startup employees however - they are much more careful about documentation, plus they have a ready outlet for people who are watching their every move  - both tech journalists and the mainstream press.

The second there is a Handy cleaner that slips and falls, or a Taskrabbit that falls off a ladder, or a Postmate that gets hit by a bus, there’s could be a major lawsuit.

If a judge finds that these contract workers are actually employees, you could see a wholesale change in how these companies classify workers, and more importantly, new legislation coming from Sacramento or even from Washington.

A major lawsuit could also provide an additional push towards the creation of a new type of worker class, which might find some way to insure the risks of injury outside the workers comp disability system in addition to tackling the issues of benefits and unemployment.

By then, it may be too late to properly evaluation of the costs and risks of ad-hoc employment. And like many things, it might be “all fun and games until someone got hurt.”