Uber Screwed

At various times here I have ranted and raved about Uber and other “sharing economy” companies. My contention is that they are just clever ways to dodge existing laws and regulations in order to undercut exiting providers. It’s not a new technology or a new way to provide a service. It’s technology used to evade the law. It looks like the law is slowly coming around to that position.

It would appear that the California Labor Commission has ruled that at least one Uber driver is an employee.

As it stands now, Uber employs its drivers as third-party contractors, operating as a logistics company that provides access to customer demand and directions, transactions, etc. for the drivers. Uber has argued repeatedly in various courts that it is not a transportation or taxi company, but rather a software platform that matches customer demand with supply.

This ruling changes all that, turning Uber into a transportation startup instead of a logistics software company. That puts the company in a position to face a number of legal obstacles, as well as rising costs of employing those drivers directly and offering them benefits, etc.

As BI points out, one of Uber’s main costs is its full-time employees that work out of Uber corporate offices. If Uber drivers are deemed employees, the business model shifts drastically.

Uber is not the first company to try this trick. Most states have laws to address the use of “part-time” and “contract” employees. That’s because companies tried to shift their employment costs onto their employees by classifying full-time employees as contractors or temporary. In most states, an employee counts as an employee as soon as they reach a certain number of hours.

Years ago I was involved with a union campaign in Massachusetts. The company used part-time drivers and got into trouble when they let the part-time drivers work full-time hours. They were working 40-50 hours per week, but classed as seasonal temps. Sensing an opening, the Teamsters tried to organize them promising better wages and benefits.

Anyway, there’s no mystery to any of this. Operating a car service has well known costs. The car, its maintenance, gas and taxes are not costs that can be mitigated with a phone app. Similarly, licensing and regulatory fees are set by the state. There’s never been a lot of room to cut costs or increase efficiency. It is a basic business made more expensive by government.

The only way Uber and Lyft can be offering a better cheaper service is to avoid the government imposed costs or transferring some of their costs onto others. It turns out they are doing both of those things. On the one hand they dump their fleet costs on their drivers. On the other hand they dodge local regulations and licensing. Add back all of those costs and Uber is just another taxi company.

The interesting thing about this line of attack on Uber is the potential liabilities. Once the states start calling those Uber drivers employees, they can go to the local labor boards and get back wages, benefits and possibly damages. At the very minimum, Uber will be hiring a big shot law firm charging big shot law firm rates. Those costs will show up in the price of the product.

As I’ve said in the past, I’m not against Uber or Lyft. I’m against the idiots claiming they are creating “disruptive technology.” That offends me. Uber and Lyft are not building a better mousetrap so much as they are just exempting themselves from the laws the rest of us must follow. We have a lot of stupid laws governing banks, but I’m still against bank robbery. Most taxi laws are probably stupid too, but that does not mean Uber is a great way to mitigate those laws.

 

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Thrasymachus
8 years ago

Uber is obviously illegal. Airbnb isn’t quite as obviously illegal, but would have to skirt a lot of regulations on operating an inn.

Generally the elites get away with disobeying laws they don’t find convenient, which is why maybe investing in these companies wasn’t totally stupid, but there is a limit to what you can get away with.

Zeek
Zeek
8 years ago

I’m sensitive to the abuse of the “independent contractor” status rife in Silicon Valley. I trained briefly with a company called “Magic” that demanded full-time in-office work from its army of “independent contractors” who were OBVIOUSLY employees in every sense of the term save the strict, legal one.

But in this case, Uber drivers really are more like independent contractors, making their own hours and operating their own vehicles.

In any case, interesting to see how this will play out.

bob sykes
bob sykes
8 years ago

Many years ago I was teaching civil/sanitary engineering, and I had a colleague in construction management that strongly advocated that construction companies classify as many employers as possible as self-employed contractors. This was deliberately intended to transfer all sorts of costs (FICA, health insurance, liability insurance, workers comp, etc etc) to the “contractor.” The scheme has spread far and wide. Uber is merely an obvious example.

james wilson
james wilson
Reply to  bob sykes
8 years ago

Good. Why do you assume that the multi-generational accumulation of socialist debris is a good thing? This country is dying, and not due to a failure to respect FICA, but because it does.

james wilson
james wilson
8 years ago

If the Uberlike companies can destroy the cab-government cartel entirely, a swell thought, then they won’t any longer be taking advantage of existing parasitical arrangements will they? Destroying them is the bonus. You are a statist or you are not.