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Comment by michaelt | Hacker News Reader

  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.

Surely taxes and expenses still have to be paid, and the "independent contractors" set their prices accordingly?

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?

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> I assume Uber's business model doesn't rely on contractors tax-dodging or skimping on vehicle maintenance!

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.

Nobody is valuing taxi companies at $40b

A legal Uber already exists (in London): it's called Addison Lee. Smartphone app and everything. It's worth £300M, not $40Bn!

http://www.bbc.co.uk/news/uk-england-london-22230868

Addison lee had 4500 drivers at their time of sale. I don't think the number of uber drivers is disclosed, but it is at least 162,000 active drivers as of this past December: http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/22/n...

Part of that valuation has to do with size and breadth.

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.

>> pretending that employees are contractors is a pretty popular way of screwing workers.

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.

This article is about current lawsuits, in the US, for exactly this reason.

> I assume Uber's business model doesn't rely on contractors tax-dodging or skimping on vehicle maintenance!

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.

Well, it sounds like they maybe shouldn't be:

> “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).

> 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.

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).

The Uber CEO may be a believer in the free market, which changes the equation away from legally protected monopolies.

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