Contractor Versus Employee

Not every company in the sharing economy treats its workers as Uber-ish freelancers.

STAFF/AFP/Getty Images
Nancy Cook
Add to Briefcase
See more stories about...
Nancy Cook
July 22, 2015, 4:30 a.m.

The “shar­ing” eco­nomy, as it’s called, got a nasty shock this week when Home­joy, a na­tion­al home-clean­ing com­pany, an­nounced it was shut­ting down at month’s end. The cause? Be­cause it faced four law­suits over clas­si­fy­ing its clean­ers as con­tract work­ers in­stead of as em­ploy­ees, CEO Ad­ora Ch­eung ex­plained, the com­pany could no longer raise money from in­vestors.

Uber faces a sim­il­ar ex­ist­en­tial threat. In June, the Cali­for­nia Labor Com­mis­sion ruled that an Uber taxi driver is really an em­ploy­ee not a freel­ance driver. This has con­trib­uted to pres­sure with­in the shar­ing eco­nomy, which re­lies heav­ily on con­tract em­ploy­ees, to think dif­fer­ently about its work­force. CEO Ron John­son of the star­tup En­joy, a web­site that sells high-tech gad­gets, re­cently told The New York Times he thought it most sens­ible for his com­pany’s bot­tom line to con­sider all work­ers to be em­ploy­ees not con­tract­ors. “I’d rather be tak­ing the high road from day one,” the former Apple and J.C. Pen­ney ex­ec­ut­ive said, “and not be sub­ject to that busi­ness risk” as­so­ci­ated with the pos­sib­il­ity of reg­u­la­tion.

A com­pany that’s already an ex­pert in this de­bate is an of­fice-clean­ing star­tup called Man­aged by Q. Launched just 15 months ago, the com­pany de­cided early on to hire its jan­it­ori­al em­ploy­ees as salar­ied work­ers, with the same ac­cess to be­ne­fits as the com­pany’s en­gin­eers, who keep of­fice-clean­ers (“op­er­at­ors,” in the com­pany’s par­lance) in touch with build­ing man­agers. Cur­rently, Man­aged by Q — named for the char­ac­ter in the James Bond ad­ven­tures who helps spy mis­sions from be­hind the scenes — em­ploys roughly 200 work­ers. It has raised more than $17 mil­lion in star­tup fund­ing and of­fers clean­ing and oth­er build­ing-main­ten­ance ser­vices in New York, Chica­go, and San Fran­cisco.

Na­tion­al Journ­al re­cently spoke with Man­aged by Q co-founder Dan Ter­an, a former Bal­timore com­munity or­gan­izer and product de­sign­er, about the com­pany’s de­cision to hire all of its work­ers as em­ploy­ees and the im­plic­a­tions for this grow­ing sec­tor of the U.S. eco­nomy. Ed­ited ex­cerpts:

NJ: How did you de­cide to make your work­ers em­ploy­ees in­stead of con­tract­ors, like so many com­pan­ies in the shar­ing eco­nomy?

Ter­an: It was a de­cision made in the fall of last year. We real­ized that the Uber mod­el would not be the right one for us, so I star­ted look­ing at com­pan­ies like Star­bucks and Trader Joe’s — places that his­tor­ic­ally have been good em­ploy­ers. It be­came clear that, to be suc­cess­ful in the long run, we needed to not have a di­vi­sion between people who work in the field and people who work in the of­fice, and to be able to cre­ate ca­reer paths and op­por­tun­it­ies to fuse the two. That boils down to how we re­cruit, train, and think about people’s ca­reers. It is a huge pri­or­ity, es­pe­cially now as we start to scale, to make it an en­dur­ing and sus­tain­able com­pany.

NJ: Why would the Uber mod­el not work for Man­aged by Q?

Ter­an: When you’re deal­ing with con­tract­ors, you can’t sched­ule them for re­oc­cur­ring work. And, for us, it is so much about the re­la­tion­ship between the op­er­at­or and the out­put. The op­er­at­or really be­comes the care­taker of the space. There is a con­stant flow of in­form­a­tion back and forth between the [of­fice-clean­er] and the people who are there dur­ing the day, which his­tor­ic­ally has not ex­is­ted.

NJ: What is the av­er­age start­ing wage for an of­fice-clean­er?

Ter­an: In New York City, it is $12.50 an hour. As­sum­ing someone works more than 30 hours a week, they are con­sidered full-time. They have full health be­ne­fits, 100 per­cent covered by the com­pany, and ac­cess to the com­pany 401(k). The plans that are avail­able to the clean­ers are identic­al to the ones the en­gin­eers get.

NJ: How do clean­ers move up in the com­pany? It seems like there would be a big di­vide between be­ing a clean­er and be­ing an en­gin­eer.

Ter­an: It is one thing we are work­ing on now. People come in­to the com­pany as a train­ee, and then they be­come an op­er­at­or and have their own ac­counts. From there, they can be­come a seni­or op­er­at­or. Then we have ment­ors, who have their own ac­counts, but they’re sent train­ees as part of the train­ing sys­tem, so it is the next level of re­spons­ib­il­ity. Then, you get pro­moted to be­ing a su­per­visor, where you’re do­ing qual­ity-as­sur­ance checks throughout the night — es­sen­tially mov­ing in­to a man­age­ment role. No one wants to walk in­to a dead-end job that is labeled as a dead-end job. So cre­at­ing op­por­tun­it­ies for ad­vance­ment is huge.

We are do­ing lead­er­ship train­ing and con­flict-res­ol­u­tion train­ing for people who have very low edu­ca­tion levels, em­pir­ic­ally speak­ing. But, they have huge po­ten­tial, so it is on us to be able to bring out the best in every­one. It is a lot easi­er to train and to hire in­tern­ally than it is to try to find people to come in from the out­side who don’t un­der­stand the cul­ture.

NJ: Some ex­ec­ut­ives with­in the shar­ing eco­nomy ar­gue that hir­ing work­ers as em­ploy­ees would im­pede the com­pan­ies’ growth. Is that your ex­per­i­ence?

Ter­an: We’re hav­ing an easi­er time at­tract­ing tal­ent than people who do not do this. What you es­sen­tially do when you hire con­tract work­ers is that you ex­tern­al­ize the com­plex­ity of the work­ers, and so you’re not re­spons­ible for any­thing for them ex­cept for a rate [of pay]. When you take them on as true em­ploy­ees, you’re re­spons­ible for a lot more — wheth­er it is health in­sur­ance or un­em­ploy­ment or dis­ab­il­ity, your con­tri­bu­tion to taxes. And so, build­ing the in­fra­struc­ture to be able to handle all of that is def­in­itely a lift. It’s not in­sur­mount­able.

NJ: As the founder of a shar­ing-eco­nomy com­pany, what do you see as the fu­ture of that sec­tor — es­pe­cially for its work­ers?

Ter­an: Be­cause the on-de­mand eco­nomy was born in the worst eco­nomy in any­one’s memory, now we are reach­ing much high­er em­ploy­ment levels, and it is just harder to get good people. You have to get com­pet­it­ive. On-de­mand em­ploy­ers can claim to be com­pet­it­ive be­cause of flex­ib­il­ity, but we also al­low flex­ib­il­ity. So, my hope is that — fin­gers crossed — as em­ploy­ment rises, that em­ploy­ers will have to be more com­pet­it­ive, and it will end up be­ne­fit­ing work­ers.

Also, peppered in there is some reg­u­lat­ory stuff. The Cali­for­nia Labor Com­mis­sion rul­ing about Uber was kind of like the shot heard around the world, and so, since then, nu­mer­ous oth­er com­pan­ies have made the shift.

NJ: And what do you want to do next with Man­aged by Q?

Ter­an: Saman [Rah­mani­an, the com­pany’s oth­er co-founder] and I are both product de­sign­ers by back­ground, and we’re both very fo­cused on build­ing the best products in the world, and that in­cludes our work­force. The trick isn’t to do it with 50 people. The trick is to do it with 5,000 people. Can we be the best em­ploy­er and then scale it to new mar­kets?

What We're Following See More »
White House Adds Five New SCOTUS Candidates
8 hours ago

President Trump added five new names to his Supreme Court short list on Friday, should a need arise to appoint a new justice. The list now numbers 25 individuals. They are: 7th Circuit Appeals Judge Amy Coney Barrett, Georgia Supreme Court Justice Britt C. Grant, District of Columbia Circuit Appeals Court Judge Brett M. Kavanaugh, 11th Circuit Appeals Judge Kevin C. Newsom, and Oklahoma Supreme Court Justice Patrick Wyrick.

Sessions: DOJ Will No Longer Issue Guidance Documents
9 hours ago

"Attorney General Jeff Sessions announced Friday the Justice Department will revamp its policy for issuing guidance documents. Speaking at the Federalist Society’s annual conference in Washington Friday, Sessions said the Justice Department will no longer issue guidance that 'purports to impose new obligations on any party outside the executive branch.' He said DOJ will review and repeal any documents that could violate this policy." Sessions said: “Too often, rather than going through the long, slow, regulatory process provided in statute, agencies make new rules through guidance documents—by simply sending a letter. This cuts off the public from the regulatory process by skipping the required public hearings and comment periods—and it is simply not what these documents are for. Guidance documents should be used to explain existing law—not to change it.”

Trump to Begin Covering His Own Legal Bills
10 hours ago
Steele Says Follow the Money
12 hours ago

"Christopher Steele, the former British intelligence officer who wrote the explosive dossier alleging ties between Donald Trump and Russia," says in a new book by The Guardian's Luke Harding that "Trump's land and hotel deals with Russians needed to be examined. ... Steele did not go into further detail, Harding said, but seemed to be referring to a 2008 home sale to the Russian oligarch Dmitry Rybolovlev. Richard Dearlove, who headed the UK foreign-intelligence unit MI6 between 1999 and 2004, said in April that Trump borrowed money from Russia for his business during the 2008 financial crisis."

Goldstone Ready to Meet with Mueller’s Team
12 hours ago

"The British publicist who helped set up the fateful meeting between Donald Trump Jr. and a group of Russians at Trump Tower in June 2016 is ready to meet with Special Prosecutor Robert Mueller's office, according to several people familiar with the matter. Rob Goldstone has been living in Bangkok, Thailand, but has been communicating with Mueller's office through his lawyer, said a source close to Goldstone."


Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.