Just a few months ago, Safi Majidzadah was living out an all-too-familiar horror story among gig economy workers. Facing unstable wages and a fiercely competitive market as a Lyft driver in San Francisco, Majidzadah, 39, found that he had to drive 17 hours a day just to make ends meet, often sleeping in his car for three to four days at a time because he couldn’t take the time away from work to see his wife and two kids.
Majidzadah’s plight is one shared by many workers hired as “independent contractors” to drive, clean or perform other odd jobs through on-demand service companies. Without the legal protections — like workers’ compensation, overtime, stable wages — that employers are legally bound to provide official employees, these “flexible”, “be-your-own-boss” jobs can quickly become exploitative as companies reap record profits on the backs of informal workers barely scraping by.
“I was barely sleeping; one time I worked 23 hours in a day just to make rent,” Majidzadah said.
That is, until a fortuitous conversation with one of his riders landed him a job at Eden, one of several on-demand companies that are re-envisioning employment in the gig economy — and proving that investing in the well-being of their workers is one of the best strategies for strengthening their business as a whole.
“When you have a business based on people, relationships are incredibly valuable currency,” says Joe du Bey, CEO of Eden, which offers on-demand office support ranging from IT to cleaning and handyman services. “We wanted employees who were going to be excited to grow with us and build relationships with our clients.” Late last summer, Eden began offering employees W-2 status — an official employee designation that provides standard worker benefits and protections (including workers’ compensation, disability, minimum wage). They also provided employees with equity in the company, offered healthcare after three months of employment, and created career paths within the company for those wizards who would like to take on managerial roles and are working on providing retirement benefits.
Safi Majidzadah (Credit: Eden)
“We want to become the gold standard in the on-demand space for providing worker benefits. We’re growing well in excess of 50 percent in revenue each month,” says du Bey, “and I believe that kind of growth is only possible because of the culture we built around investing in our employees.”
Now Majidzadah only works 8 to 10 hours a day, makes considerably more hourly and gets home for dinner with his children every night. “Every day I wake up ready to go to work at a job I love, where everyone is treated well and works together,” he says. “I want to stay with Eden for as long as possible.”
Creating Gig Jobs That Are Good Jobs
During the recession-and-recovery cycle of the last decade, many middle-class jobs with decent wages and benefits were replaced by unstable, low-paying jobs in the on-demand sector. While companies like Uber and Lyft were initially lauded for providing flexible work in a down job market, it quickly became clear that this gig economy was often doing more harm than good — providing insecure work, often for little pay, no job security and no labor protections. Nonetheless, many of these companies grew rapidly, in large part because they could avoid many of the costs of doing business by not providing workers with fair pay or benefits, not paying into workers’ compensation or social security, and working around minimum wage and overtime protections.
But informal, contract labor has many downsides — such as high turnover and little to no staff oversight — that become special liabilities in the service industry, where relationships between customer and server are paramount.
It was this focus on relationships that led the founders at Hello Alfred, an on-demand house cleaning and errand service, to completely reorient their business model to put their workers (“Alfreds”, as they call them) at the center.
Unlike Task Rabbit or other one-off cleaning and errand services, the concept behind Hello Alfred is to mimic having a “personal butler” at a fraction of the cost, so consistency in service — and trust in the person delivering it — is key.
“Four months in, we decided that our end user (the client) was no longer our customer — our employee is our customer. If we make every decision in the business to help empower our employees and make their jobs fulfilling — our end user will be happy,” says Marcela Sapone, who co-founded Hello Alfred with former business school classmate Jessica Beck in 2013. This decision led the company to switch from contract workers to W-2 employees, offer benefits like healthcare and paid maternity leave, create career paths within the company and pay significantly higher than minimum wage (starting salary is $18/hour).
“We wanted to signal to people that we were creating real jobs, so we could attract the kind of high-quality help that would set us apart as a business, and ensure that we can scale without sacrificing what matters to us,” Sapone says. Though the company began in Boston, they now also operate in New York and San Francisco.
Commitment to staff quality became even more central to the business model for Southern California-based HomeHero, a senior care service that must contend not only with customer satisfaction, but customer health. Though their “heroes” don’t provide medical care, they provide the day-to-day supports that can bolster senior health — picking up prescriptions, providing companionship, preparing food and bathing. Launched in 2014, the company’s need to provide extensive staff training led it to offer full-time, W-2 jobs to its 1,200 independently contracted caregivers this spring.
“Because legally you cannot provide training to contract workers, our hands were tied,” says HomeHero Co-founder Mike Townsend. The independent contractor classification is only intended for workers who are essentially running their own businesses — with all the autonomy over hours, duties and wages that entails. So, while maintaining a staff of independent contract workers cuts costs for on-demand employers up front, it dramatically limits how they can manage their employees.
Kyle Hill and Mike Townsend, co-founders of HomeHero (Credit: HomeHero)
“There’s a power with the W-2 that has allowed us to build out individualized training to help our Heroes handle common caregiving needs for seniors,” he says. At the same time, HomeHero is committed to offering caregivers a significantly higher wage than many existing senior care agencies, “to attract a meaningful, committed workforce that can deliver home care passionately.”
The explosion of on-demand companies has brought increased scrutiny to the use (and misuse) of the independent contractor classification, resulting in legal battles for some on-demand firms. Most notably, Uber and Lyft have been embroiled in lawsuits in several states alleging that they are abusing the contractor classification, though to date they have not been forced to reclassify drivers as employees.
Employee Investment as a Good Growth Policy
A commitment to providing (and in some cases, redefining) “good jobs” is a common thread for all of the companies above. Beyond the important distinctions of contract or W-2, full-time or part-time, these CEOs are thinking deeply about what constitutes quality employment.
“A good job is about a livable wage and career paths, but it also has to be defined by coming to work excited about and invested in what I am doing,” Sapone says. “That’s the rarest version of a good job, and we’ve tried our best to maximize all of those factors for our workers.”
This attention to job quality is even more significant when one considers the type of work some of these companies are “disrupting”: domestic labor positions that disproportionately employ women and are notorious for offering low-wage, no benefits jobs that leave many domestic workers living below the poverty line. This issue is heightened for women of color, who are over-represented in the domestic workforce, but typically occupy the lowest-paying positions.
As the on-demand sector continues to undergo explosive growth, there will necessarily be growing pains as companies attempt to bring these app- and online-based platforms to scale. What’s fascinating about the experiences discussed above — and promising for those who care about building an equitable economy — is that for all its talk of “disrupting” the economy with tech-based innovation, some of the most crucial lessons in growth have been shockingly old school.
Though technology can help connect people to services in faster, cheaper and smarter ways than ever before, at the end of the day the technology is merely the vehicle for human interaction — and if companies do not provide for the dignity, empowerment and well-being of their employees, the quality of this human interaction, and the business, will necessarily break down.
The same holds true for the on-demand economy as a whole. By turning its attention to providing good jobs that can attract, foster and retain quality employees — instead of merely exploiting transient labor to cut costs — this burgeoning sector will not only bolster its own growth and sustainability, but also become a positive force for resilient growth within regional and national economies.
The Equity Factor is made possible with the support of the Surdna Foundation.
Courtney Hutchison is senior communications associate at PolicyLink, a research and action institute advancing economic and social equity. She produces stories for the PolicyLink America’s Tomorrow newsletter, which highlights campaigns, leaders, policies, reports and local models that build an equitable economy.