The best thing I’ve seen about Uber recently comes from about a month ago. The Wall Street Journal wrote up a perfunctory story about the company’s $50 billion valuation, and it included a very truthful passage. So truthful, in fact, that presumably some PR flak got on the horn and made them change it for the online edition. @NeilAnAlien captured it on Twitter.
Online edition: “The company hopes to attract enough drivers and passengers that its business model becomes profitable.”
Print: “The company hopes to build enough loyalty that it can charge customers more and pay drivers less.”
At this point I should mention that attempted monopolization is a criminal action under the Sherman Antitrust Act.
But Uber has far bigger problems than that. A California judge is threatening their fiendish “Let’s arbitrage state and federal law and replace a monopoly with a different monopoly” plan:
Northern District Court Judge Edward Chen determined that 160,000 current and former Uber drivers in the state could be treated as a class, which will allow a lawsuit against the company to go forward. At stake are questions about the future of jobs in America and potentially billions of dollars for one of the world’s fastest-growing companies.
The lawsuit alleges that those drivers were misclassified as independent contractors rather than employees, and that Uber has thus cheated them out of things that employees get under California law, like reimbursements for gas, worker’s compensation and other benefits. The lawsuit also claims that the company failed to pass on tips to the workers.
Whether they’ll get gas reimbursed is up in the air, it’ll get decided later.
Class action lawsuits have become VERY difficult to certify at the federal level. I wrote about this a couple years ago in conjunction with the Bank of America HAMP modification case, where employees for their servicing arm charged in testimony that they were told to lie and given bonuses for putting people into foreclosure. That was tossed, because of minor differences in the individual homeowner cases. The Supreme Court set the precedent for this in Walmart v. Dukes, creating a more stringent class certification test, forcing the complainants to prove up-front whether the commonality of their claims was the most important factor in the case. Indeed this is what Uber’s lawyers argued – that Uber drivers are so diverse in their dealings with the company that they can’t possibly make up a single class. The goal is to divide and conquer, to force individuals to pursue litigation alone (and be outgunned by Uber’s legal team).
So if a federal judge is certifying the Uber class, in many ways they’ve cleared the biggest hurdle. Uber has already lost a misclassification case like this at the California Labor Commission, but because it was an individual driver suing and not a class, they only had to pay $4,000. But Judge Chen saw right through Uber’s gambit, writing: “Uber argues that individual issues with respect to each driver’s ‘unique’ relationship with Uber so predominate that this Court (unlike, apparently, Uber itself) cannot make a class wide determination.” In other words, Uber insists that all their drivers are independent contractors, but when challenged on it, claim they’re all little snowflakes, no two alike.
Judge Chen did exclude drivers from the class who didn’t opt out of a forced arbitration clause in their driver contracts starting in May 2014. That’s also fallout from a 2011 Supreme Court ruling, AT&T Mobility v. Concepcion, which effectively legalized putting mandatory arbitration in the fine print. Still, since Uber was late to that scheme, the class could be substantial – Uber says 15,000 but they’re almost certainly lowballing.
That’s why you can expect Uber to appeal, and the same Supreme Court that backed up big business and closed the courthouse door to workers in the Walmart case might get a shot to do that for Uber. However, the rank stupidity of their argument – that everyone’s a contractor but nobody’s the same – might be too much even for the Roberts Court.
If Uber ultimately loses this fight, forcing them to classify their drivers as employees, they become just another car service. Anyone can build an app to hail and pay for a ride – the New York City taxi system just unveiled one this week, and e-hailing apps do very well globally. Uber’s “disruption” derives mostly from skirting around labor laws and getting a lot of VC money amid promises to gouge their workers and customers once they put the taxi industry out of business. So having to pay back wages and payroll taxes and reimbursements would kind of blow up the whole thing.
Citing Matt Stoller on Uber from last year:
Uber is quietly gaining enormous power, almost feudal power, over its drivers. Remember, Uber wanted to ‘reward’ drivers with a great paycheck. This works both ways. Are you an Uber driver who is complaining too much about Uber stealing your tips? Well, gosh, it seems like the magic algorithm keeps giving you bad customers. Or no customers. Or think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers, who may have other options and can squeal. But it can also lower prices paid to drivers, and these drivers are dependent on Uber for their livelihood. In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars.
Remember, the customer doesn’t even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to ‘reward’ them. And let’s be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits.
These are just the troubles Uber is having locally. In Mumbai the still-robust taxi union has been on strike for two days, protesting Uber’s expansion after getting a ban overturned in June. In China there’s a local rival that has 80 percent of the car-hailing market and has been buying up competitors. Korea’s version, Kakao Taxi, is emerging as a strong competitor as well.
There’s no special sauce to what Uber does. And if they are prevented from breaking the law in the U.S., they’ll just be another face among many, struggling for profitability.
I suspect the Roberts court will be able to find a way to surprise us on any and all issues related to labor vs Capitol.
The insurers are in issue. Uber will inevitably be in lawsuits left and right as accidents pile up. Judges go ballistic on pizza deliverers anyone working for tips, they will always favor a non-uber claimant/plantiff/whatever with mind blowing evidence. A pizza delivery guy and my older sister had a quirky run in, and the judge asked where they were driving. When he heard pizza delivery, he ruled in favor of my sister. Taxis deal with regulatory structures which at least requires a certain level of competence. A taxi driver would not have hit my sister.
When insurers have to start dealing with lawsuits because Uber drivers weren’t taking care of their brakes, they are done. Uber and similar services will go the way of 30 minute pizza delivery promises.
My guess is auto insurers want to get rid of Uber because they won’t be able to determine who is running a unregulated taxi service.
Virtually every single personal auto policy in the US contains the following language under the Exclusions section: “We do not provide Liability Coverage for any Insured; for that Insured’s liability arising out of the ownership or operation of a vehicle while it is being used to carry persons or property for compensation or a fee.” Go ahead and check your policy; it’s there.
In other words, if you are driving around carrying passengers (or pizza) for money, you have NO COVERAGE under your auto policy. You are ‘going bare’. This is why Domino’s has to buy commercial auto coverage for their drivers. The insurers don’t care about Uber because it is not their problem. (I’m an insurance coverage lawyer.)
The issue will arise through Uber’s commercial coverage. Not the driver’s auto insurance.
The insurers will be dragged into court and be forced to determine cases where there are Uber drivers. They might not be liable, but they will have to demonstrate an Uber situation, and it’s easier to shut it down than to deal with local court proceedings across the country.
No. Ditto is correct. This is commercial coverage only. There are decades of case law pointing out the ‘pizza delivery exclusion’ is valid. There may be a couple of stray cases here and there, but this issue has been litigated for decades. Delivering people or property for a fee is NOT COVERED. Full stop. The plaintiff bar is not stupid.
No. Ditto is right. This issue has been litigated for decades. Carriers will not settle on this basic issue.
I’m mildly optimistic actually on that front. The independent contractor loophole to employment law has become so egregious that I think there is serious interest in reigning in the more extreme excesses a tad, releasing some pressure if you will, and Uber works great for that. High public profile, low interconnectedness with the established power structure, specific industry that heavily regulates workers.
Or to say it differently, I think Uber has violated the fundamental law of looting: don’t be so blatant about it that the legal system can’t justify it without completely destroying their own credibility. Face saving is key. If Uber drivers aren’t employees, then even hugerer numbers of workers are not employees than already aren’t employees today, and I don’t think TPTB are in tight enough control to weather the fallout from that kind of logic. Especially with how much political capital went into entrenching employment-based health insurance with PPACA. Something the Roberts court found Constitutional, by the way.
A few more tweaks — e.g. if you work for Uber you must finance your car through them — and they’ll have a transportation version of the Southern crop lien system.
This is pretty much the model that FraudEx uses in many states for its Home Delivery/Ground division. They weren’t able to get away with it in Cali:
‘think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers’
Or think a few years up the road behind us, when there was nothing but locally-licensed taxi monopolies in every city in the land. The horror!
Amazing that people invoke the specter of monopoly by a firm which is busting old monopolies with lower prices.
Of course, the agenda here is the same as the criticism directed at Consumers Union (now Consumer Reports) in the 1930s:
Lower taxi prices, comrades: they’re a communist plot.
Thre local cab companies are not all one company .
There are price regulations on the old companies and the prices are covering things Uber isn’t paying for, like their employees time, insurance etc etc. Are people really so naive that they don’t remember the basic business strategy of keeping prices low to drive competitors out of business and then hike up prices well above your competitors former prices?
Was listening to a radio interview yesterday with some Manager from Sacramento Yellow Cab (where the Sac Airport just approved Uber to ply business there). Basically, that’s what he said. IOW, Uber may be cheap now, but don’t count on if forever. If the regular taxi cab businesses get driven out of business by Uber’s low rates, then guess what?? Fares will rise again. What goes down will often come back up. Mr. Free Market ain’t free.
Some believe that the standard was set by “Standard”…
Ahh yyeah-the antinomies of “free markets”…are the “locally licensed taxis” being restrained from competing “unduly” or “unreasonably”?
I’m on the fence vis Uber/Lyft. I have many misgivings, but some anecdotes:
1. Someone I know drives pt for Uber. His business (unsure what it is) was in the doldrums. Being able to easily drive for Uber enabled him not to declare bankruptcy; keep his business going; found Uber a life-saver; felt the company was good to work for; would not have been so able to drive for a regular taxi company; nice to have this option.
2. Another person I know quit working for taxi company and went to Uber. Claims it’s much better for him, and claims he makes more money, even acknowledging his car maintenance/insurance costs.
3. In San Francisco, it’s next to impossible to hail a “regular” taxi, so one either takes public transport, walks or uses Uber or Lyft. I have found many of the drivers to be personable but very very lacking in knowledge about where anything is in SF. It’s ok for me bc I can direct them to where I want to go, but if you’re a foreign/non-CA visitor, good luck with that. One driver kept going in the totally opposite direction of where he should go, despite GPS. Go figure.
Sacramento airport has just allowed Uber to now pick up and drop off at the airport. Ride costs are significantly lower than the taxi services. Taxi companies complain (with some reason) that they are held to a higher standard – there are fees, specific insurance, etc, to be paid, plus their drivers are vetted by DOJ and DMV searches. The taxi company argument is that it’s ok to have competition but this is not a level playing field.
As a rider, I feel insecure about using Uber bc I don’t really know what I’m getting and what outcomes might happen should there be problems. I am all for competition, too, and I often feel that taxi companies do charge overly high fees. Yet and still, there’s some security (is it false? I don’t think so) in knowing that there are regulations governing the taxi companies. For single women, especially, this may be very relevant.
Just saying. I’m not overly fond of the Uber/Lyft model at this time. But that’s me, comrades – a socialist to the core. C’est la vie.
I have a feeling that some changes may be coming down the pike for the Uber/Lyft business model.
I’ve checked out the meetings for prospective Uber drivers. The people who come are very, very, VERY desperate for money. Which makes me wonder how well their cars work and how much maintenance is being done.
Call it exploitation of the down and out.
Not exploitation in all cases, but does seem that way often. Albeit, I do know several drivers who claim they really like the Uber/Lyft business model, as it provides them with the option to make money this way with few constraints.
IMO, as stated before, I think there should be more regulations, both to avoid exploitation of drivers and for the safety of riders. However, many US citizens have been heavily propagandized to believe in this fake “libertarian-y” hokum about how any govt regs are terrible for all concerned and that Mr. Free Market is so very wonderful and avoids/solves all problems. Color me skeptical.
1. I don’t understand the monopoly argument you are making regarding the drivers. They are not the customers.
2. If the S.Ct. bought Uber’s argument, it would destroy the point of the contractor or employee control test that is currently used to prevent exploitation by employers. The whole point of the test is controls can vary. So the different elements together are weighed. It is the basis for a wide range of regulation, including the IRS.
This is an exciting development and I wish the Uber Drivers the very best, but I am very skeptic that it leads to anything. As another reader commented I’m fairly sure the Robert’s court isn’t about to let a meddling Federal judge disrupt a widespread and completely entrenched corporate practice that is near and dear to the hearts of CEO’s and CFO’s across the land. It’s interesting that Uber is the test case for this shady practice of arbitraging labor with the filmiest of third-party contracting companies used as a fig leaf because unlike many full-time employed Americans, Uber actually can make a compelling argument that it’s drivers are independent contractors not employees. I’ve started using Uber a good bit since I moved from NYC to LA about a year and a half ago; most of the drivers I meet tell me they are moonlighting as Uber drivers for extra cash. They only work when and where they want. No boss, no schedule constraints. The Uber drivers I typically meet are very clearly independent contractors, although doing the job full-time as your primary source of income and financing a car with Uber certainly does change the calculus a bit. As far as I know, Uber has no anti-competition clause, and I’ve seen drivers with multiple phones using multiple competing taxi apps like Lyft, picking and choosing the most advantageous fares as they please. Again not something a true “employee” would be able to do. A pizza delivery driver for Papa John’s can’t switch teams in the middle of his shift and go deliver a gigantic order for Pizza Hut, even though (s)he still is providing the service of his/her own vehicle.
I enjoy the convince of Uber’s service but I am no fan of their business model. My feelings regarding the company are very mixed. It’s hard to weep for the taxi medallion kings of New York who have been most impacted by Uber’s success. There’s probably never been a more worthless and less deserving lot of rentier capitalists. Good riddance. Concerning other taxi industries in other cities I wonder why they were so slow to adapt and defend their turf against Uber. When my wife lived in Bogota two years ago all of the local taxi companies used a ride hailing app nearly identical to Uber and everyone in town used the app. It was considered dangerous to just hail a cab on the street. Why couldn’t taxi operators here in the United States embrace the same technology given the threat from Uber? Seems a bit lazy and stupid to me. Adapt or die. Would it have been fair for Kodak to lobby the government to outlaw digital cameras? When compelling technology (smartphones) offers an industry (taxicabs) a chance to improve their product for the better I think it’s wrong for the industry to expect the government to protect their monopoly status instead of changing with the times and embracing the inevitable societal and technological changes that are always occurring. Government regulation is great but it shouldn’t provide entire industries the opportunity to inconvenience the public with Luddism. Show me a well-regualted taxi app that works as well as Uber and I will gleefully switch.
There’s so many other worker groups which are more deserving of full “employee” status than Uber drivers it’s ashamed if this is the test case. There’s thousands of crappy third-party, shell companies across the land with hundreds of thousands employees which “sub-contract” for one and only one very large corporate client. All of these workers should be employees of the parent company with matching pay and benefits of their marque-name big corporation analogs on the other side of the labor arbitrage wall. I’m talking about people who work full-time or more, do the exact same job for the the same “real” boss and get much lower pay and way crappier benefits thanks to a fig leaf shell company which supposedly constitutes an employer or “subcontractor”. I wish workers from one of these shell company ‘subcontractors’ would bring a class action lawsuit to get the same pay and benefits as employees at the marque name parent company. Now that would be a dagger through the heart of corporate America and a boon for main street and unions.
From your keyboard to God’s ears: http://www.npr.org/2015/08/28/435415990/nlrb-ruling-could-pave-the-way-for-fast-food-unions
It will be very interesting to see who gets hit with this ruling. Its not just the low end “workers in warehouses, in janitorial operations, construction and people who contract through home health care agencies.” as the article implies, but highly skilled professionals like pharmacists and airline pilots are often abused and labor arbitraged through these shell company subcontractors which are the playthings of the parent company. I think there is some degree of this taking place in almost all of the higher paid professions in America.
Interesting, I view this almost from the exact opposite angle. I’d say Uber exerts the kind of uniform control over labor activity that seems very well suited to a class action suit on employment. Uber isn’t some neutral marketplace connecting drivers and passengers, nor is it engaging in one-off or unique activity, nor is it the end customer.
It is acting like an employer using employees to provide its product to customers. It is hiring drivers to provide a standard service at a large scale. The job is so routinized it is directed by software. Uber is also evaluating not just the end result, but where, when, and how drivers do it. When you “clock in” – open the app – Uber is in the driver’s seat. When customers rate you, Uber determines how that affects your eligibility to continue driving. Etc. Strikes me as not too dissimilar from FedEx drivers (which has been in the news in CA recently).
I’ve never driven for Uber but I’m always asking my Uber Driver’s how it works and if it works well for them. The driver’s aren’t directed anywhere, they can see where riders are requesting a fare but they can’t see where they want to go. The drivers can drive as close or as far from home as they want, but most will pick neighborhoods with high demand. Uber assumes correctly that their “surge” pricing scheme which is shared with the drivers, will be incentive enough to attract drivers to areas experiencing high demand. Uber drivers can drive as much or as little as they want, and pick the days and hours when they drive. There is no clocking in, asking for vacation time or calling in sick. Drivers can work or not work as they please. Yes Uber drivers get rated but so what? So do doctors, lawyers, hairdressers and restaurants on Yelp. Same for ebay merchants, ratings. A rating system is hardly some Orwellian control device involving extreme coercion. Most people are evaluated and held to some kind of standards in their jobs so I can’t say I see this as cruel or unreasonable. As things stand now Uber drivers can drive for Lyft, the local taxi company or any other number of Uber competitors if they don’t like it. I’m not crazy about Uber’s business model or their corporate ethics either, but let’s not make wild-eyed claims that simply aren’t true.
I stand by my claim that there are many other employees in this country far more deserving of full employee status than Uber drivers, but I really do wish them the best of luck. No sour apples here.
Orwellian control device is exactly what I think of when thinking about the Uberx software and driver policies. There are different opinions of course, but that kind of proprietary, non public control strikes me as the antithesis of a market. Yelp, for example, has a much different relationship to restaurants than Uber does to drivers, IMO. And many doctors and lawyers do work for the big firms. The stress on small private practice – true entrepreneurship, not the fake Uber and FedEx and franchise restaurant kind – is one of the major developments across our economy over the past couple decades.
But moreover, my interest here was about the class action status. I see Uber drivers as a group that makes sense because their tasks are so similar and the method by which their work is directed is the same set of policies and software.
I don’t disagree with you that there are other employees improperly classified. But few of those areas have the scale and common cause for such a class effort.
“…Hattie Carroll was a maid in the kitchen
She was fifty-one years old and gave birth to ten children
Who carried the dishes and took out the garbage
And never sat once at the head of the table
And didn’t even talk to the people at the table
Who just cleaned up all the food from the table
And emptied the ashtrays on a whole other level
Got killed by a blow, lay slain by a cane
That sailed through the air and came down through the room
Doomed and determined to destroy all the gentle
And she never done nothing to William Zanzinger
And you who philosophize disgrace and criticize all fears
Take the rag away from your face
Now ain’t the time for your tears…”
from “The Lonesome Death of Hattie Carroll”, Bob Dylan
The sweet revenge of Hattie Carroll is upon us and William Zanzinger, the massive Ubertaker of Slave Energy, gets slain by his own cane on a whole other level.
Am eavesdropping on an Uber drivers’ conversation. To put it mildly, the company’s assistance to drivers with leaves a lot to be desired.
Suffice it to say that they’re not a happy group of drivers.