When benefits become bondage

How seemingly beneficial programs can violate contractors’ independence

Lyft has partnered with Guild to offer tuition discounts and financial aid to drivers. Uber’s vehicle solutions program gets drivers to own their own cars. AirBNB wants to give its hosts equity.

How considerate of these platforms to extend benefits to their contractor base.

Except for one condition — in making benefits contingent on continued engagement on the platform, these platforms are violating the very independence that they rely on to shift uncertainty risk from their own income statements to the household budgets of workers.

For this reason, the SEC has denied both AirBNB and Uber’s requests to issue equity to hosts and drivers, respectively. According to the SEC rules for private companies, only employees and investors are eligible for stock options and equity ownership.

One could argue that excluded contractors from equity agreements makes them worse off, as they are unable to participate in the upside of their labor. This is especially relevant as several gig platforms (Uber, Lyft, and AirBNB included) have filed S-1s with the SEC, indicating that they will go public in 2019, thereby creating liquidity for private shareholders.

However, in having equity in a single company, that company becomes a preferred platform for the contractor. For instance, let’s assume that a driver has equity in Uber but not Lyft. Then Uber dramatically cuts prices and, therefore, the drivers earnings. In a world without the equity grant, the drivers would easily switch to Lyft, which pays more per hour, which is what independent contractors typically optimize for. However, in increasing the supply availability on Lyft, they are increasing estimated time of arrivals on Uber, thereby worsening the customer experience and likely engagement on the platform. This harms their equity position in the company.

Unlike full-time employees who are designed to be wedding to a specific company, independent contractors are intended to be, well, independent. Granting equity in a specific platform clearly violates the agnostic view towards a specific platform that contractors should have.

This is similarly true with other benefits like education discounts and vehicle loans. Drivers typically have to do a certain number of monthly trips and retain a certain star rating to qualify for these programs. As discussed in this post, the IRS dictates that independent contractors retain control of what and how their work will be done. By linking benefits to work volumes and performance standards, gig platforms have found a cheeky way to heavily influence what and how work is being done on their platform without technically violating the terms of the independent contractor agreement.