There's an economic incentive for contract workers with no sick pay to go to work: Aquent CEO

Aquent CEO John H. Chuang joins Yahoo Finance’s On The Move to discuss how the coronavirus has impacted contractors and the gig economy.

Video Transcript

JULIE HYMAN: I'm Julie Hyman. We have been talking a lot today about workers and how they are coping during this pandemic. Among them, of course, are contract workers, folks who are not full-time employees of their employers. And they had a lot of thorny issues to deal with even before this all unfolded. To talk to us about that, we are joined now by John Chuang. He is the CEO of Aquent, and he's joining us to talk about this issue. Aquent, by the way, is a platform for hiring that uses AI. And I'm assuming there are some contract folks on there and some non-contract folks on there who are looking for jobs. Right, John?

JOHN CHUANG: Yes. We're a--

JULIE HYMAN: Please.

JOHN CHUANG: We're a work for services company, and we have around 10,000 employees that we place for large companies every year. Most of our folks are employees, and we're known for offering really great benefits for our employees.

JULIE HYMAN: Gotcha. So talk to me about-- while this pandemic is unfolding, what do you think is the most acute issue for people who are contract workers in particular?

JOHN CHUANG: Right. There is a really big issue with the pandemic when it comes to gig economy workers. Gig economy workers are the fastest-growing segment in our economy. There are 150 million workers in the US economy. The gig economy over the last 10 years has exploded from zero to now around 10 million folks.

So we have 10 million folks who work for the gig economy, and that's for companies like Uber and Lyft and Grubhub and Instacart, et cetera. And the trouble with these companies is that they choose to misclassify their workers. And by doing so, they essentially ignore US labor laws.

In other words, if you're a worker, and you work for an Uber or an Instacart or a Postmates, you do not get benefits associated with work. In other words, the minimum wage doesn't apply to you. Overtime doesn't apply to you. You don't get unemployment insurance. You don't get worker's comp.

So sort of the worker norms that we've held for granted for literally a years have been sort of ignored by these companies. And these companies are getting a lot of flack for it, and there's a lot of dissatisfaction. With the pandemic, it's especially important, because none of these workers get sick pay. And of course, if they don't get sick pay, then there's an economic incentive to go to work even though you're not feeling well. And it becomes a public health issue as well. So the pandemic has really shined a strong light on the labor practices of these companies. And unfortunately, they're not looking too good.

- John, what would it cost to provide the kinds of benefits that more traditional, old-world economies and businesses have to pay to supply benefits versus gig economy?

JOHN CHUANG: Yeah. You know, it's-- you know, let's first put this into context. There are plenty of companies out there that are successful in providing values to their customers and being able to pay people a minimum wage. You look at companies like Starbucks or McDonald's or Walmart. Somehow, all these companies manage to pay their employees a fair wage, at the same time provide high value to the customers. The gig economy companies claim, though, that they can't do that.

How much would it cost them? Well, the minimum wage is different in different cities and different places, but the federal minimum wage is $7.25. All right? So that's really not a lot there. On top of that, to pay the various taxes and employment taxes-- you know, calculate maybe 15% extra on top of that. So we're not really talking about a lot of money. And a lot of companies have successfully been able to do that. In fact, the vast majority of the 150 million workers in those states get these benefits. But the gig economy claims that, wow, we can't do that without impacting service or the cost of our service.

- Meanwhile, John, the likes of Uber and Lyft have poured over $100 million to try to create this, quote unquote, third category employee, as you rightly point out. And I'm in the state of California. We know 85 was implemented. They have this ongoing lawsuit right now with the attorney general here.

What do you think is the likelihood? Is there any room for that third category? Because we have seen other industries, like the truckers, who have said we do not want to be classified as employees. We'd rather be independent contractors. How do you see this really shaking out?

JOHN CHUANG: I think-- you know, a couple of things on that. This is sort of-- it's almost-- it's almost outrageous sometimes when you think about it. First of all, California passed a law specifically to say, hey, gig economy companies, you have to follow the law. You have to do the things that every other employer in the state does-- pay labor taxes, pay payroll taxes.

And even after the law is passed, they refuse to do it. That's first thing that's ridiculous. The second thing that's ridiculous-- instead of following the law, instead of giving their workers benefits, they spend $90 million on a ballot initiative to overturn the law. They could use that $90 million to simply give their workers the benefits they deserve. That's the second ridiculousness.

The third ridiculousness is this idea of a third classification. I call this the Uber-verse. They're in their own universe of labor laws, and they want to create their own labor laws that work for them. And I think this gets kind of silly. In other words, instead of the minimum wage, which everyone else follows, they have this guaranteed work concept, guaranteed wage concept, which is, of course, less than the minimum wage.

Instead of worker's comp, they have this occupational classification benefit, which is, of course, less than worker's comp. Instead of normal mileage reimbursement where everyone else in the country pays the IRS numbers of $0.57 a mile, they want to pay their workers $0.30 a mile. So all of this, I think, is absolutely ridiculous. They should not have a different set of rules just for them while every other company follows the laws.

And I'm really glad that the California Attorney General is now going to enforce this law and has recently sued Uber and Lyft for failure to follow these laws. So I think what they're trying to do-- create this third tier, the special set of rules that just apply to them-- is utterly ridiculous and unfair.

- John, I just want to ask, what would you say to Uber or Lyft or other gig economy companies when they claim that if they did have to provide unemployment, pay into taxes, provide higher pay for their workers, higher guaranteed minimum wage, that they wouldn't be able to operate because people simply wouldn't use those services anymore?

JOHN CHUANG: Yeah, that's really a false tradeoff here. I would say the reason why they can't do it is because their business model just doesn't even make sense now to begin with. And the prices that they're charging are artificially low. And so to expect that somehow, the public has to kind of subsidize their business model by eliminating labor standards, I think, is utterly ridiculous.

Again, there are plenty of companies out there, from McDonald's to Walmart, who are able to provide great value to many segments of the society at very low cost, at the same time being able to pay people minimum wage and follow laws. Uber should be able to do that as well. Uber's prices right now are just too low. And the people who are benefiting from that are the Uber shareholders.

Right now, if you're an Uber driver, you're not getting benefits. If you're an Uber Eats restaurant, for example, you're kind of getting gouged on the prices you're paying. And look, in the United States, we don't really want to be associated with businesses that mistreat their workers. Look at 100 years ago. The United States decided, hey, we don't like to buy clothing from sweatshops, and we passed lots of landmark laws.

Even 10 years ago, we decided, hey, we don't want to buy athletic shoes from child labor in factories in third-world countries. We just don't want to do it. We'd rather pay more for a sneaker. And I think today, people are saying, hey, I don't want to get a burrito from a company that's delivering it to me in a way that abuses their workers and doesn't give them their rights.

And so I think that the consumers will eventually say, hey, I would rather pay a little bit more to treat these workers fairly rather than just continue to pay the lowest price possible and watch all this abuse happening.

JULIE HYMAN: We'll see if that is borne out. John, thank you for your perspective. Really appreciate it. John H. Chuang is the CEO of Aquent. Thank you.