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Wage Theft in the Gig Economy

Wage Theft in the Gig Economy

Last updated on: December 8, 2020 at 10:33 am by Fr. Matthew P. Schneider, LC

Wage Theft in the Gig Economy 2020-12-08T10:33:40-05:00 Fr. Matthew P. Schneider, LC

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Wage theft has been a serious issue in the US, with a 2009 estimate putting it at $40-60 billion a year. This is about $120-$180 per person. As it is distributed overwhelmingly on certain people and often on the poorest, a person working around the poverty line in certain jobs might have $1000 or more stolen from them by their employer. Another study found 2/3 low-income earners suffered wage theft at an average of $2,634 annually. As a report on this latter studied note, this wage theft could easily be “the difference between paying the rent and utilities or risking eviction and the loss of gas, water, or electric service.” On top of the obvious injustice of theft, this is worse as it is generally the rich stealing from the poor.

But, this only counts formally owed wages. A new issue of wage theft comes up from the gig economy. Gig economy startups set up systems where “independent contractors” often make below minimum wage. This is unjust. Catholic teaching has long stood for workers’ rights to just remuneration for work done.

1 dollar bills representing how these companies nickel and dime people out of a salary (CC0 Sharon McCutcheon on Unsplash)

This unfortunately is widespread in new gig-economy “jobs” where it looks good at first but then all the extras make it sub-poverty wages. A report this week brought a particularly insidious company’s practice to light but this isn’t the only case.

Uber Paying Drivers Below Minimum Wage

A report in 2018, estimated Uber wages. The Guardian reported: “The first draft of the paper, released last month, said the median profit was $3.37 an hour.” However, Uber noted some criticisms of the first draft so he raised the estimate to $8.55 an hour. It seems like much more but this study saw a dramatic drop once it “factored in insurance, maintenance, repairs, fuel and other costs.” Thus, it concluded, “For 54% of drivers, the profit is less than the minimum wage in their states and that 8% of drivers are losing money on the job.”

I can imagine someone who dedicates their time to something they are passionate about might take below minimum wage. For example, I think a decent number of Etsy creators earn below minimum wage. However, that is with a degree of passion and control not present in Uber or most other gig-economy apps. Plus, I presume often such Etsy creators are often the second household income. I know a woman who did something like this sewing all kinds of stuffed animals and quilts to sell at local craft fairs pre-internet once her kids were older. However, this woman’s husband pulled in a six-figure income, so it was more a hobby than a job.

Arise Reaches New Levels of Wage Theft

This week a ProPublica report pointed out the worst case I’ve seen of wage theft in the gig economy. This report focused on Arise which outsources call centers for major corporations. It noted in summary: “Many agents find that the pay, after the cost of training and fees to Arise, dips well below minimum wage.”

Simple Underpaying in the Gig Economy

Tami Pendergraft lost over $1400 from about 15 weeks of work for Arise. She had to pay $1500 for equipment and had do 57 days of unpaid training (which she paid for but no cost was given) to get under $100 for three weeks’ work. She also had to sign a nondisclosure form. She said they had promised pay for 10 of the 57 days of training. Answering calls for three weeks for AT&T after 12 weeks of training netted her $96.12.

Another woman, Krystin Davenport earned $2.52 an hour after also dedicating time and money to training and equipment. She answered phones for Intuit software for a month in late 2018 before quitting. In her last two weeks, she had worked 23.2 billable hours. (Below, we will address the issue of real hours likely being significantly more than billable hours.) A bunch of fees were deducted from her pay from the various steps between herself and Intuit, meaning in the end she made $58.45. Per hour, that’s about $2.52. As that doesn’t even count in equipment and training costs put up to work for Arise, making it so she too lost money.

Over-recruiting and Under-employing in the Gig Economy

Several of the stories indicate an issue with misaligned goals. In a normal job, an employer is incentivized to only hire as many people as they need as the employer needs to pay for training and employee set-up. This on-boarding is not cheap.

I experienced over-recruiting in my first job restocking grocery store shelves during high school. I was hired on at the end of a hiring blitz, then nobody was getting enough hours and we were all complaining to management. Thus, despite having a perfect record for being on time and job performance, I was let go as union rules required the guy with the least seniority be let go unless there was a serious issue with another employee. The grocery store lost money letting me go as they needed to pay for my interviewing and training, needed to pay me one shift in severance, etc.

Call center employees, like Arise, with fake smiles (CC0 Pixabay)

On the other hand, Arise puts all this on the “independent contractors,” thus creating no incentive not to prevent over-recruiting. There may even be perverse incentives for them to over recruit. For example, Pendergraft spoke about paying for training. She had put in 50-55 unpaid hours and paid $199 for a one-week training curse on the specifics of answering calls for AT&T. She kept hearing instructors say, “Practice, practice, practice, practice,” so they could pass a succession of tests. About half did not pass so they lost a week of unpaid work and $199 for training specific to one company. In a normal employee relationship, if someone doesn’t make the cut, the company loses its investment in that employee.

Certain jobs might have to have general training one needs to get the job. Anything from a half-day course to get government certification as a flagger (the guy holding a stop sign at a construction site) to a graduate degree for a biotech researcher. However, these are general certifications that apply to dozens of different companies. Any specific training for that company should be on the company’s dime: both the instructor and new employee.

Arise presents the job opportunities as far more than they really have. ProPublica summarizes their logic: “To guarantee it can deliver the labor force that corporate clients are paying for, the company over-recruits agents for each client, a former Arise executive told ProPublica. That way, the former executive said, ‘when the need comes, you have people with extra capacity lying around.’” However, this creates a situation where tons of people buy equipment and spend money based on false pretenses from Arise. Then when, unsurprisingly, many can’t get hours from that, Arise loses nothing – unlike any normal employee relationship – while the person is out hundreds or thousands of dollars.

Also, even if you are needed, the scheduling/billing is unjust in two ways. Pendergraft was under contract to be on the line 20 hours a week but would only get paid for the time people actually called. “Sometimes I wouldn’t get a call for 30, 40 minutes, sometimes an hour,” she explained, “and I’d just have to sit there.” If a person is contractually required to be on the computer waiting, they need to be paid for that time. I can imagine paying a higher rate for time on the phone, but it is unjust to require a person to be not just on call at a few minutes’ notice like a doctor of hospital chaplain might be, but instantly, and not pay them.

Second, Pendergraft couldn’t find clean blocks of time in the schedule so she could get her schedule. Having to do 30 minutes here, 30 minutes there prevented her from having a life, even while only doing half time (20 hours a week). Requiring a person to schedule so many random times that it makes them unable to have a life even to get 20 hours a week in, indicates injustice in the setup.

Clearly an Employee but Unable to Sue

These companies have a ridiculous amount of control and metrics, which means these are employees not “independent contractors.” The article gives just a few examples of lists of 25 or 40 metrics one needs to meet, including resolving 199/200 calls without a call back as the issue is too difficult or only issuing credit a maximum of 1 call out of 15 for AT&T cell phones. At least from my experience, I could imagine more than 1/15 calls to a cell phone provider is about a mistake in billing that should be credited to the customer.

Going back to my grocery store stocking job, I was making just above minimum wage, but I only had a few metrics: how many pallets I unloaded in my shift, speed in responding to price checks for my department on the intercom, and not being such a big jerk to customers that they called the manager. I didn’t have to be thinking of two dozen different job performance metrics, some of which seem almost unobtainable.

Yet, at the same time, despite such control clearly making these people employees, Arise insists they aren’t. They enforce this by mandatory mediation and a waiver against class actions, then lose repeatedly when a person pushes enough to insist they weren’t paid a few thousand as an “employee.”

Moral Issues with the Gig Economy

The idea of the gig economy is not in itself unethical. But when it leads to people being forced into “jobs” with no control where they are “earning” below minimum wage, it is unjust.

The Compendium of Social Doctrine of the Church (#302) speaks of a just wage:

Remuneration is the most important means for achieving justice in work relationships. The “just wage is the legitimate fruit of work”.

They commit grave injustice who refuse to pay a just wage or who do not give it in due time and in proportion to the work done (cf. Lv 19:13; Dt 24:14-15; Jas 5:4). A salary is the instrument that permits the labourer to gain access to the goods of the earth. “Remuneration for labour is to be such that man may be furnished the means to cultivate worthily his own material, social, cultural, and spiritual life and that of his dependents, in view of the function and productiveness of each one, the conditions of the factory or workshop, and the common good”. The simple agreement between employee and employer with regard to the amount of pay to be received is not sufficient for the agreed-upon salary to qualify as a “just wage”, because a just wage “must not be below the level of subsistence” of the worker: natural justice precedes and is above the freedom of the contract.

The direct quotations are from: Catechism of the Catholic Church 2434, Gaudium et Spes 67 from Vatican II, and Rerum Novarum of Leo XIII. In fact, that encyclical of Leo XIII also says, “To defraud any one of wages that are his due is a great crime which cries to the avenging anger of Heaven.”

In other words, the current labor practices of some gig economy companies are highly unjust. We need to fight for these employees’ rights. They deserve to be paid a reasonable rate even they are working part-time and/or as a second income in the family. Venture capitalists can grow rich, but they should not grow rich by exploiting employees. Sohrab Ahmari (opinion editor at the NY Post) went so far as to call this practice “serfdom.” He stated that we should be “committed it is to fighting this kind of thing: the erasure of all worker protections and the repackaging of serfdom as ‘entrepreneurship.’“

Let’s fight for worker protections and a just wage for all people.

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