The lawyer taking on Uber and the rest of the on-demand economy
fusion.net
fusion.net
Also, look at:
> Deep-pocketed companies like Uber, which has raised nearly $5 billion in venture capital since launching, could surely afford the additional expense of putting drivers on its payroll.
The implications of this are decidedly harmful to both consumers and drivers. Once you set this precedent, it will only be the deep-pocketed companies that can afford to put drivers on their payroll. This is especially problematic in the States, where in spite of a substantial amount of their federal budget being for healthcare, lacks a comprehensive public healthcare system, so employee benefits can be quite expensive.
I've recently incorporated in Ontario, and working as/hiring people on contract is very easy. A big part of that is because, apart from issues relating to workplace safety, we're not responsible for paying for healthcare services for people who do work for us. It was also very easy to leave my cushy corporate job for a startup, because I didn't have to worry I'd be made destitute if I had to pay for a few nights in a hospital were I to contract a really bad flu or get hit crossing the street.
More and more I see the US turning into a country where you _must_ work for a large, established corporation. Lawyers like this are just helping those already on top stay there, at the expense of those in the middle or bottom.
[1] Although I'm actually not convinced the premise of Uber drivers being employees is correct.
I don't want to spend my morning dumping on the US, but I'm amazed at just how often your poor and very poor are convinced to support causes that only help the very rich.
It is almost impossible to fire employees in many European countries. Solution: only hire people as temp workers.
I think it is odd that you are calling out America for putting employment obligations on business when most decry the lack of protection America gives to employees. Only than a few Asian countries, American employer obligations are among the lightest compared to other first world nations.
http://www.forbes.com/sites/rickungar/2012/12/09/walmart-bai...
There are two basic approaches to running a functioning society. You can establish a fair bit of regulation on how each thing is supposed to work and enforce it vigorously, or you can establish some relatively basic principles and then give people a right of private action through the courts.
Every country does some of each, of course. But America leans more heavily on the latter. And I think it's generally good, because it allows for more innovation. The government doesn't have to try to regulate each new thing. Companies know that if they fuck up and harm people, they'll end up on the wrong end of a lawsuit.
One problem with this approach is that it doesn't work well for small harms. If I find a way to fuck over every American to the tune of $10 each, I make $3b. That pile of cash lets me easily fend off the few Don Quixotes who sue me over $10. A class action suit, though, lets one lawyer sue on behalf of every American, and the opportunity of winning back $3b makes the gamble worth it.
As an entrepreneur, I much prefer the American approach. As long as I'm responsible, lawsuits aren't a huge risk, and I don't have to get advance approval from the Department of Commerce, Internet Apps Division, before I ship each new version.
Does the distinction serve a useful purpose? It seems like they are both "people you hire to do work".
A contractor could be viewed as a business relationship -- here is the contract, do what it says or don't get paid/the money back from you. Certainly there is value for having work done on a contract. The contractor should be able to do it themselves or subcontract it out.
An employee could be seen as a single individual who shows up on time and is paid for doing so. It is the employer's job to make sure the individual is doing something productive whatever those tasks may be.
That is a very simple separation and not really correct, but certainly there are good reasons for there to be legal separations. Also consider there are so many legal expectations for the two depending on where one is located. A big challenge for startups riding the line.
Personally I am more concerned about basic labor rights & employer abuse rather than guarantees of benefits and minimum wages. One only has to look at migrant labor abroad to get a good idea of just how bad it gets -- slavery alive and well.
Yes, the US Department of Labor has to decide there's no such distinction and must decide to reorganize various structures.
> Does the distinction serve a useful purpose?
Arguably, yes. The issue is that technology has brought on changes that don't fit neatly into the two boxes.
An employer provides everything for an employee who performs a very broad function. Think front-desk receptionist where a computer is provided. Health-care is sometimes provided, but they may be paid as little as minimum wage (sometimes less).
A contractor, on the other hand, is expected to provide everything themselves. Think plumber or locksmith. They bring their own tools, perform a specific task and they're done and free to move onto the next contract. They provide their own health-care, which, since they're traditionally paid far about minimum wage, is perhaps fair.
(There's a lot more to it and it quickly becomes quite involved with tax code, but suffice to say the plumber is recognized as owning their own business and performing their own trade.)
Does the distinction still serve a useful purpose in this day and age?
As long as we rely on employers to provide necessary benefits that (eg preschool), and not the government, it serves a useful purpose.
Sure, convince the Congress and state legislatures to do so (employment and tax law that makes such distinctions--and not, IIRC, on exactly the same criteria--exists at both levels.)
It's all very legalese.
This is a well known phenomenon in public choice economics, colloquially referred to as "Bootleggers and Baptists"[0] after an observation during Prohibition.
In brief, the morally righteous and the morally suspect share a common interest in some regulatory goal. The righteous, or "Baptists," want to make the world a better place, e.g. by restricting the sale of alcohol. The morrally suspect, or "Bootleggers," want the same restriction in place because it protects their source of income, i.e. it is more profitable for a bootlegger to sell illegal alcohol than legal and the illegality of their venture discourages competition.
That being said, I am never convinced by a statement akin to the article's "Deep-pocketed companies like Uber, which has raised nearly $5 billion in venture capital since launching, could surely afford the additional expense of putting drivers on its payroll." Being cash-rich, high-revenue, or any other sign of corporate success does not indicate that arbitrary costs can be imposed with trivial impact. It may be true in any specific case, but it is a bold claim requiring more analysis and backing than "they're rich." Affluence does not indicate immunity to costs, nor does it change any reasonable cost-benefit analysis.
Ninja Edit: An effect we see with this phenomenon is that the "Baptists" often move on to their next righteous cause after securing regulation/legislation against the first vicious behavior, content that they have addressed an evil in society. Authorities can point to the Good Thing they did, and bootleggers continue on with their vicious trade.
I would also like to note that I hope we don't get hung up in the language of morality I have used. I chose the morally heavy verbiage primarily because the name of the phenomenon lends itself to such discussion. I am not herein passing any sort of moral judgment on either side of the issue (in my examples or in the case at hand in the article), merely using the language to help identify the goals and motivations of the actors playing either role. The important thing to note is that, regardless of actual moral quality or efficacy, the "Baptist" believes they are doing good for society at large, and the "Bootlegger" has a self-serving interest. These motivations do not imply that the "Baptist" is actually doing good (intention != results), nor do they imply that the "Bootlegger" is actually doing bad ("It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."[1]).
If Uber's costs will go up if they are no longer able to classify their employees as contractors, they can simply raise their prices. Uber appears to provide both a lower price and higher quality taxi service than traditional cabs, so even if their prices go up they will still be competitive.
If they have to raise prices above traditional cabs (highly unlikely), that suggests their service depended too heavily on a legal loophole that traditional cabs did not have.
I don't think you realize how much it would damage their business model's profitability to have to pay payroll taxes on all their drivers. It's not just about offering a better service to consumers; Uber/Lyft would emphatically not have this many backers if their business model weren't insanely profitable. If profit margins shrink, poof, there goes funding.
Anecdotally, Lyft/Uber are so much better that they could charge me a lot more and still be preferable, though obviously they expect the margins would be smaller. I doubt it would be business-model-killing smaller though.
Some points:
* eBay can ban a seller for not following the rules.
* eBay absolutely requires its sellers to earn revenue.
* eBay can set expectations and incentivize behavior with its various seller-partner programs at different levels.
* An eBay seller may depend on eBay for their livelihood.
I am not proposing this as a slam-dunk against the case, but I'd love to see some discussion on these points.
I will state clearly and unambiguously, though, that I do not believe Uber should have to treat all of its drivers as employees. This does not imply that I am opposed to discussion or hearing opposing viewpoints.
Ninja Edit: Typoes (grammar-oes?).
My only opinion on this is that the balance should probably be tilted a little more in the workers' favor for these arrangements, although I am not sure full categorization as an employee would be the correct approach.
These are very good points and I am glad you brought them up.
I think the rates and tips are very valid concerns here, but categorically different from one another.
I think that offloading costs to drivers still fits the eBay analogy, though it is certainly weaker. A seller must store goods, prepare them for shipping, and in many cases add value to the product in some way (e.g. refurbishing is common, which includes cost for all related equipment). Again, not a perfect analogy, but offloading costs to the seller/driver seems to bear some resemblance between the two.
Setting the rates is a strong argument in favor of a relationship more toward the traditional employee end of the spectrum. I think I need to think about this more.
As to the tips, I glossed over that section so I am glad you've raised it here. I do not know the exact details of the agreement between Uber and drivers as regards tips, but this seems at first glance to be a pretty severe violation of any relationship between driver and Uber. I agree this needs to be addressed, and a class-action suit does seem appropriate here. I think this can and should be viewed independently from any classification as partner/employee.
>My only opinion on this is that the balance should probably be tilted a little more in the workers' favor for these arrangements, although I am not sure full categorization as an employee would be the correct approach.
I think you're right on this point. I am still unsure as to what I think is best to achieve this. My initial reaction is to ensure that there is an environment where competitors are likely; I believe a strict requirement on the type of relationship between company and driver will only hamper this (limit the type of relationships => limit the viable business models => limit the possible solution space).
That is, they must either embrace the full employee or full contractor package, and not just take the parts they like of each with none of the liabilities.
I think that this quote from the article is apt:
>U.S. District Judge Vince Chhabria, who is overseeing the Lyft case, said that existing labor law doesn’t map well with these companies’ business models. Lyft drivers don’t seem exactly like employees or independent contractors, he wrote in his motion. “The jury in this case will be handed a square peg and asked to choose between two round holes,”
Just because we have two clearly delineated buckets to drop people into doesn't mean that these accurately describe those individuals.
That Uber set themselves up in such a way that they can't relate to their workers in a clearly legal way is suspicious -- which is exactly the accusation: they're dodging liabilities they should have by making up their own kind of square peg.
I don't really understand this - I've never tipped an uber driver, their interface doesn't even support it. What are they talking about?
>nor are eBay sellers compelled to make a minimum amount of listings.
It is my understanding that an Uber driver can choose when and how often to drive for Uber. Looking through the other comments on this article, that seems to be a common understanding. If this is incorrect I'd love to know and see a source for it.
"Uber screened and trained its drivers, and drivers could get deactivated by Uber for having their rating dip below what local managers set as a cut-off, for not accepting a certain percentage of trip requests, or for customer complaints.
Not to be pedantic, but do you have a source handy that indicates this? I would just like to have one for reference.
You don't defraud eBay/customers by saying you have a good when you don't actually have it, and you don't defraud Uber/customers by saying you are available to drive when you actually aren't.
You can choose when to offer an item for sale, and when you choose to be available to give rides for Uber.
eBay doesn't set prices because it would be too onerous with the variation of items. It's more economical for them to have the market dictate pricing. Also, when I was a contractor using an agency to find work, I wasn't able to set my price for their clients. I'm fine with that because I traded my ability to set pricing for someone to find work for me.
Rather than merely being a medium for connecting drivers and passengers, Uber the controller of these transactions, and is assuming the role as the provider of the services.
There are many other reasons that the eBay/Uber comparison is invalid, which other commenters have given. And, like the original author said, Uber drivers fail the IRS's 20 point test spectacularly.
As somebody who has only used Lyft, this is yet another reason why I won't even touch Uber. I've cancelled many times because a driver accepted a request while sitting in their house and then wasted my time while they (presumably) sat on their ass and watched TV. I've also had drivers call me and ask me to cancel because their car broke down or the app on their phone locked up. I don't want to have to call support and argue with them to waive a fee every time this happens.
(oh, and your whole comment was spot on... I was just so shocked when you wrote that Uber operates like that that I had to say something)
Have you used Uber? That's a feature. I don't want to comparison shop on Uber; I'm performing a quick action in real-time, often on a busy street or at an airport after a long flight. Plus it's not like you have this huge pool of drivers to compare--at least the times I've used it. People don't want to put huge amounts of effort into a transient experience that gets them from A to B. Now shopping for that antique armoire, of course.
> Uber drivers fail the IRS's 20 point test spectacularly
Interestingly removing drivers for bad ratings and customer complaints were reasons they gave for failing the IRS test, so I guess no one will ever be satisfied. If Uber is so awful, don't use the service. I mean, barring ISPs, I generally don't use products & services I hate.
I think they should, because currently it's very hard to live a life as an uninsured contract worker unless you are married to someone with health insurance.
I think the ultimate solution to this is to do away with distinctions between W-2 and 1099-MISC income, and really only have investment income vs. wage income.
The incredible value of Uber and similar is not that they are a better way to hail a traditional cab. That is not disruptive, and doesn't create huge value. At most a better way to hail traditional taxis smooths the process a little bit.
The huge value that Uber and similar create is in allowing a very low friction means to utilize the millions of private cars that otherwise carry few people and sit idle >90% of the time. This provides value to drivers (defray an expensive and largely fixed cost) and to riders (higher availability than traditional taxis). This value-add is primarily due to the low friction to providing marginal rides.
If every driver is an employee, then you destroy the marginal ride benefit and turn Uber and its ilk into just another traditional taxi service, just with a better hailing app.
I have been an employee without being required to work a set amount of hours per week, is called a zero hours contract and didn't make me any less of an employee, it just meant it was really difficult to plan anything.
I told them I wouldn't be coming back and they told me that my contract required me to give notice and that I would have to turn up to work for two more weeks on whichever shifts they wanted.
I pointed out that the contract also stated that I had zero hours contracted and that shifts had to be agreed on a week by week basis, so if they really wanted I could give them 2 weeks notice but for that 2 weeks I would not be agreeing to do any more than the hours they had written on the contract.
I also asked if they could go and count them for me.
Uber drives can at any given point in time get in their car, log in and start accepting rides.
All of the Uber drivers I've talked too seemed really happy about it as it gave them the flexibility to do what they wanted.
And this: "..but the company also gave them strict guidelines for participation which made them look like employees according to the IRS’s 20-prong test. Uber screened and trained its drivers, and drivers could get deactivated by Uber for having their rating dip below what local managers set as a cut-off, for not accepting a certain percentage of trip requests, or for customer complaints."
How are those strict guidelines? So now contractors are exempt from any scrutiny in the services they provide? Makes no sense. Then Uber would be getting sued for putting passengers at risk by having zero QA.
> That worry may be exaggerated, however. Deep-pocketed companies like Uber, which has raised nearly $5 billion in venture capital since launching, could surely afford the additional expense of putting drivers on its payroll.
What a silly argument! Raising a ton of money in venture capital doesn't mean that the business model itself is profitable, and in the long run that's what matters. If the profitability of the entire business model is built on illegal classification of workers, then the model is a failure (within this legal framework, at least) and won't work.
Either change the law or change the model, but something will have to change.
It's interesting to think about how different the world would be right now if Uber had gone into software sales as opposed to attempting to be a cab competitor.
I realize the inventors largely created the service as an alternative/competitor to cabs, which they disliked for various reasons. It's still interesting to think about what could have been, if only they'd been more interested in fixing the logistics of cab companies than "inventing an industry".
If this attorney is ultimately successful, I can easily see Uber/Lyft's business model morphing as a result. I don't think there's enough profit in their business if they have make all their contractors W-2 workers.
As she says these companies are square pegs that are trying to be forced into round holes. Uber drivers are not normal independent contractors, but nor are they full employees. I really like Uber, but forcing employees to pay for gas, maintenance, insurance, etc is abusing their position. There needs to be a reclassification that can work for the on demand companies. Place these employees somewhere in between and require certain things be met, maybe pay for gas whilst they are driving passengers, or a stipend for maintenance costs.
Drivers are only fired for not taking a certain percentage of rides offered while the driver is logged in and active. That's an enormous distinction.
Drivers don't have be active, and they can go inactive at any time. In fact, over half of the drivers with whom I've ridden are logged into both Uber and Lyft while waiting for a fare, and then log out of the other app when they accept a fare from one. (Yes, I quiz my drivers on the particulars of driving for these services and keep track of what they tell me).
The whole point of threatening to fire (and actually firing) drivers for not meeting acceptance rates seems to be to incentivize them to log out during the times they aren't actually willing to take a fare.
If cases like Liss-Riordan’s are successful, on-demand
companies would have to pay overtime, deductions from
wages, and, in California, the expenses incurred by their
service providers. Those costs would mount into the
millions, and proponents of the on-demand economy worry
that they could force successful companies out of business.
I mean, either Uber pays an independent contractor $10, they pay $2 in tax and $3 in expenses and end up with $5 in their pocket; or Uber pays out $2 for tax, $3 for expenses, and pays the employee $5. In both cases, Uber pays $10 total and the driver takes home $5.
I assume Uber's business model doesn't rely on contractors tax-dodging or skimping on vehicle maintenance!
So why should they worry about the reclassification putting them out of business?
> “Uber and Lyft can survive classifying drivers as employees,” she says. “It might cost them a little more, but it’s a successful concept. It’s not going to go away because we are trying to enforce the rules
> And several on-demand companies, such as the house cleaning start-up MyClean and the food delivery service Munchery, already treat their workers as W-2 employees. These companies’ labor costs are higher than their 1099-dependent rivals, but they get additional benefits, such as being able to train their workers and hold them to consistent schedules.
I wonder if Uber is fighting this because it will cut into profit margins and raise overhead costs, rather than because it is an existential threat. There seems to be two different opinions presented in the article (though I'm not educated enough in this area to be able to tell which one is closer to being right).
Uber is a young company, and they have yet to learn what most mature companies have learned.
Big businesses like regulations. They don't mind jumping through whatever hoops are imposed by regulations, because they can afford to drop the money on it, they can treat the cost of compliance as part of the cost of doing business and pass it on to the consumer, while their smaller competitors can't afford to pay for compliance. The competition gets priced out of the market, and big businesses sweep up all the customers who would've gone with the smaller competition, making regulation a net financial gain for them.
The only big businesses you'll see who don't like regulation are monopolists and near-monopolists, like ISPs. Look at the hissy fit the big ISPs are throwing over Net Neutrality. Why are they so upset? Because there's no real competition, no smaller players who will be priced out of the market by NN, so the established players just see it as a straight-up cut in revenue.
The only sensible conclusion is that Uber either a) thinks like a small player or b) thinks like a monopolist. Both are worrying, though for different reasons (reason A makes me doubt their competence, reason B makes me think they should be squashed sooner rather than later).
Umm. That is a bad assumption. Uber's business model depends on foisting liability to anyone but themselves while simultaneously dodging the regulatory constraints on taxi drivers. So while its not specifically dependent on their contractors tax dodging, making that behavior easier leads to a lower cost of labor so the incentives are aligned all wrong. Basically, Uber doesn't perform any kind of reasonable verification beyond a figleaf on anything and hopes contractors won't cheat in a way that reflects badly on Uber.
This leads to situations like this:
http://www.chron.com/news/transportation/article/How-Uber-dr...
> The city of Houston's criminal background checks have detected numerous crimes by prospective Uber drivers, ranging from aggravated robbery to driving on a suspended license, according to a report prepared for a Texas House legislative hearing Thursday.
> In information prepared for the legislative hearing Thursday, Houston officials said Uber's background checks have problems; Wyoming, for example, is omitted from its search.
> Because Uber's check, done by a company called Hirease, is based on Social Security numbers rather than fingerprints, it can be more easily manipulated, the city says.
Their entire business model depends on their ability to avoid doing things properly. If it didn't, they wouldn't be intentionally endangering their passengers by cutting corners on things like background checks.
I'm not sure that's a good assumption.
Nobody is valuing taxi companies at $40b. Part of why they're so appealing from an investment perspective is that Uber's model is a heads-I-win-tails-you-lose proposition. Any time money gets made, Uber gets a big cut. Costs and most downside risks are transferred to the drivers.
That includes risks that the capital costs (that is, buying the cars) and the maintenance costs aren't really justified by the revenues. It also includes the risk that there are too many drivers available.
If I were in Uber's shoes, I would worry about the defensibility of the business model. At least here in SF, drivers often participate in multiple services. For consumers, switching is as easy as installing a new app. If Uber is consistently more expensive, then I could imagine a lot of people switching. One way to keep costs low is to screw the workers as much as possible, and pretending that employees are contractors is a pretty popular way of screwing workers.
A legal Uber already exists (in London): it's called Addison Lee. Smartphone app and everything. It's worth £300M, not $40Bn!
Uber is currently available in 56 countries, how many is Addison Lee available in?
If there was no such thing as Uber, and no one else was allowed to write a taxi app other than Addison Lee, it would easily be worth $40 billion.
I have a feeling that sooner or later, possibly in a country like France, they're gonna get called on this and dragged through the courts for big bucks.
Uber's business model is based on violating regulations.