Uber Spends $100 Million to Save its Business Model, But It May Have Just Doomed It

By David Dayen, author of Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud, releasing May 17.

I’ve written before at this august site about how Uber’s business model is to arbitrage state and federal law and replace a monopoly with a different monopoly. They obviously placed a high value on the arbitrage. How high? About $100 million:

Uber has survived a major threat to its business model, settling two legal suits brought by drivers who sought to be classified as employees instead of independent contractors.

The ride-hailing firm will pay up to $100 million to the 385,000 drivers, but their employment status will not change.

The class actions were brought in California and Massachusetts. Uber, which is valued at up to $70 billion, is on the hook for a $84 million initial payment, and another $16 million if it goes public.

I’m not seeing much of a reason for Uber to ever go public, so I should amend to say the arbitrage was worth $84 million. And while a judge has to sign off on the settlement, with both sides in agreement on the resolution I can’t see that being a big hurdle.

This concerned two big employee misclassification lawsuits, which if successful would have turned Uber into just another car service. Now that Uber settled, they don’t have to worry about providing worker’s comp or expenses or overtime or the employer half of Social Security taxes or any other benefit given to a worker on staff. In other words, they got off cheap.

As Michael Hiltzik points out, this highlights a big problem with class action lawsuits, namely that they’re nearly impossible to get through the courts in this day and age, and even if they do, once the legal team gets their cut they provide nothing of value to the actual litigants:

The key question left unanswered by the settlement announcement is whether the drivers are receiving enough in return for what they’re giving up. As is often the case with class settlements, the big headline number obscures how little trickles down to the plaintiffs. In this deal, drivers with the most time and mileage recorded with Uber are in line to receive one-time payments up to about $8,000. (Though the typical driver will receive far less from a settlement that averages out to $218 per driver.)

Nothing fundamental in the balance of income and expenses will change as a result of the deal–drivers will still be on the hook for gas, insurance and wear-and-tear on their vehicles, and Uber will retain the right to set fares and extract fees and commissions of more than 20%.

There are a few more benefits for drivers in the deal. Uber cannot deactivate drivers at will; they now must show cause and give drivers a chance to shape up before dismissal. Not accepting enough rides cannot be a cause. Driver’s associations can be established to work with management on driver concerns, but this could undermine the efforts underway for drivers to unionize. Finally, drivers can solicit tips from their passengers for the first time. But this WSJ piece gets at a couple reasons why that’s not going to work. The entire appeal of Uber was that it was seamless: you summon a car on the app and the payment is executed there, without having to fish around in your pocket or purse for cash. Riders thought the fare included tips and it’ll be hard to change that behavior. Plus, Uber won’t put a tip tool on the app, meaning drivers will be reduced to begging their clients for cash only, which plenty of people just don’t carry anymore. Yes, rider ratings would be at stake for non-tippers, but so will driver ratings for those that demand tips.

I guess Lyft allows tips and most people do it, so it’s not impossible. But I also don’t think it’s a huge step forward for drivers when they’re not getting a single benefit afforded an employee. The class action was an imperfect opportunity to help workers, but outside of a small cash payout the drivers really didn’t get much, and Uber kept its model virtually intact.

However, in an almost cosmic bit of justice, among the other legal actions, union drives, and National Labor Relations Board investigation is a gem of a lawsuit that actually relies on Uber’s boasting that their drivers are independent contractors. The case asserts that Uber’s drivers – including its CEO, Travis Kalanick, who has driven a few times – are engaging in price-fixing collusion. Allison Frankel laid it out earlier this month:

Uber argued that it’s simply not plausible to claim hundreds of thousands of drivers assented to a price-fixing conspiracy. (Uber does not disclose an actual number of drivers.) According to the company, the most plausible explanation is that each driver made an independent decision to sign up with Uber, not that these strangers conspired with each other and with Uber to inflate charges for customers. In the company’s depiction, it has increased competition by offering customers an alternative to taxis, car services, mass transit and even walking […]

But the plaintiffs said Uber can’t enjoy the benefits of its disruptive business model without suffering the consequences. Because Uber drivers aren’t traditional employees, but independent contractors who assented to Uber’s anticompetitive terms, they are plausibly co-conspirators under the U.S. Supreme Court’s 1939 ruling in Interstate Circuit v. U.S., according to the plaintiffs. And by insisting that it is not a taxi company or car service, they argued, Uber cannot claim it competes with those businesses. According to the plaintiffs, the relevant market for antitrust claims against Uber is mobile app-generated ride-share services – and Uber controls 80 percent of that market.

Hahahaha. Live by the independent contractor loophole, die by the independent contractor loophole, I guess. And at the root, does Uber create a monopolized “market” for its services that controls prices, including when those prices surge? Aren’t these allegedly independent contractors who could otherwise undercut each other on price operating under a fixed scheme? I think it’s worth some fact-finding.

None other than Jed Rakoff is the presiding judge in this case, and he allowed this case to go forward a few weeks ago, setting a trial date of November 1. While the misclassification case would have just made Uber unprofitable, this price-fixing case would effectively shut Uber down completely. It would be so poetic for Uber to wiggle its way out of every threat to treat its workers like employees, only to see that be the very thing that causes their downfall.

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This entry was posted in Auto industry, Curiousities, Free markets and their discontents, Market inefficiencies on by .

About David Dayen

David is a contributing writer to Salon.com. He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


  1. JohnnyGL

    Thanks Dave, good stuff! Jed Rakoff is awesome. The guy writes the best opinions. This should be fun.

  2. Jim Haygood

    This data says it all:

    Transactions from the ride-hailing startup Uber have surpassed rental cars among American professionals, according to Certify, the second-largest provider of travel and expense management software in North America.

    Uber accounted for 43 percent of ground transportation transactions expensed through Certify last quarter, while rental cars had 40 percent. Ride-hailing services, with Uber at the forefront, overtook rental cars for the first time in the fourth quarter of 2015 and have since widened their lead, according to a study by Certify published on Thursday.

    The data show the changing preferences among business travelers. Rental car transactions have fallen 15 percentage points in two years. The decline isn’t quite as steep as the one experienced by taxis, which fell 23 percentage points over the same period. Taxis accounted for 14 percent of ground transportation transactions in the first quarter of 2016.

    “It really comes down to convenience,” said Robert Neveu, president of Certify. “The ability to hail and pay efficiently—that convenience factor is huge, and we’re seeing it change the habits and behaviors of our users.”


    Consumers love convenience, and they love low cost. Combining both is a killer app, no matter what the whiners and moaners say.

    The same crowd was dead set against “horseless carriages” 120 years ago, claiming that speeds over 20 mph would cause asphyxiation.

    1. Art Eclectic

      Uber has to tread carefully, though. They’re running a Walmart strategy in a race to the bottom and where that leads is to poor product. As they keep cutting driver pay, the result is drivers with lower end vehicles and lower standards.

      That leaves room for a slightly more expensive service with cleaner cars and higher quality drivers, just like Walmart being a slovenly pit left room for Target to pick up the slack of discount shoppers who wanted a cleaner experience.

      1. Louis

        This brings to mind the old axiom about service: you can good service, you can have fast service, and you can have cheap service. You can not, however, have all three–at least at the same time.

        At some point, if it hasn’t already happened, both Uber and its customer base are likely to learn this the hard way.

    2. paulmeli

      “Consumers love convenience, and they love low cost.”

      When 90% of workers are reduced to minimum wage, nothing will be low cost or convenient.

    3. Michael T.

      You are over-simplifying it. First, Certify is closely affiliated with uber so please take their “study” with a grain of salt – but it does make for nice headlines, I guess. Second, apps like that existed years before Uber Tech Inc. was founded in 2008. So there is no real innovation in Uber. Third, check patents that belong to Uber – you won’t find any that relate to car-hailing. That’s because such apps already existed (one was TaxiMagic which was operational (and regulatory-compliant) years before Uber). So your comparison to “horseless carriages” is incorrect because everyone now offers their own apps – taxis, limos, car services – you name it – they have an app in addition to a call center (and most often, a website). And by the way, note that I haven’t even touched on Uber competing unfairly even though I personally think it does. See – if you have taxi and limo companies following laws and regulations AND offering apps – there is no reason to exclude Uber from same exact set of requirements.

    4. allan

      “Consumers love convenience, and they love low cost.”

      In short: Who cares about laws and regulations. What’s the China price?

      1. JoeK

        So Jim, Henry Ford was an idiot to pay his workers enough to buy the cars they produced?

        Addressing the OP or other NC’ers: I have a simple question, and excuse my unfamiliarity with Uber or Lyft, not having lived in the USSA for a number of years: isn’t the main problem with Uber that the company greedily takes too big a cut while charging customers too little (in order to undercut taxis), so that drivers can’t make real money once depreciation/repair/maintanence/fuel costs etc are factored in? Could a simple set of regulations stipulating that Uber play fair (more or less) ameliorate this situation? Is Lyft just as greedy? Where’s the FB to Uber’s Myspace that will offer drivers a better deal and keep fares reasonable merely by not taking a ridiculous 20%+ for making the hookup?

        As to the way in which Uber has potentially kneecapped itself, glee seems to have slid off my emotional palette but I feel something like how I remember it felt back in the day about merely the prospect of this bro-run exploitative company going down in flames.

        1. NotTimothyGeithner

          This is a myth. Ford paid his workers so they wouldn’t leave the great Lakes area and wouldn’t have to retrain every six months. The location reduced his supply line costs versus a site in PA or NY or even the South such as Atlanta where he could abuse workers to his hearts content, and unions were a major player. I seem to recall a good deal of violence.

        2. HotFlash

          In the olden days, govts, usu municipalities, instituted licensing and regulation for hotels, taxis, beauty and barber shops, food stores, restaurants and landlords b/c owners, even small ones, had a propensity to rip us customer-types off. Overcharging was, of course, a big issue, but so was insufficient safety for customers and poor conditions for employees. Repair, maintenance was poor to unsafe/unsanitary (ie, as little as could possibly be done while still having the car roll/the building stand, the substance be regarded as food, at least until eaten), and there was no liability insurance for when things went wrong. Which of course they will do, from time to time.

          Oh, and actual providers (ie, taxi drivers, hotel staff, beauticians, waiters, porters, janitors, etc.) were often ripped off by the taxi, hotel, building, shop, etc. owners — you will note that these are professions that often rely hugely on ‘tips’ and other perks for their livelihood.

          With the advent of the ‘app’, Uber and the other ‘sharing’ outfits (AirBnB, TaskRabbit, etc.) can ensure you, the customer, are not overcharged, but they can thumb their noses at existing regulations re customer safety. I mean, if/when there is an accident involving the Uber vehicle you are in, who pays? Insurance co’s definitely do cover commercial vehicles, but lordy mamma, the premiums are *whoa*. And the Uber drivers are probably not paying for that, which is one reason why Uber is cheaper.

          If this is TL:DR, then this is the crux: Uber and the ‘sharing’ outfits scoop up the profits while outsourcing the risk. Just hope your Uber driver doesn’t get hit in traffic with you in the car. Just hope your Air BnB hostess hired a real electrician for the wiring — could be a frie computer, could be worse.

    5. diptherio

      But it does not follow that we let a bunch of capitalist d-bags run the show. There’s no reason why municipalities can’t run their own publicly owned (or driver-owned) Uber knock-off. There’s an open-source platform already out there called La’Zooz, from France. With a little tweaking, any city could set up their own version of Uber and actually have that low cost and convenience serve everybody, not just Uber’s owners.

      1. jrs

        It’s hard to say this should be a priority over say more frequent bus service … and a lot of things a lot of areas could really use.

      2. different clue

        Is there any inherent reason why cab companies can’t “appify” their operations while maintaing current pay scales and employER-employEE statuses and relations?

        1. HotFlash

          Here in Toronto several cab cos have apps that approximate Uber for convenience, but Uber is cheaper. Real taxis have to cover licenses, they actually include deprecation costs, the drivers get paid OK, oh, and there is good liability insurance in case you are in a cab that gets smacked (or smacks) — not cheap, that.

          To paraphrase what I said above, Uber is all about sending the profits to HQ, and offloading the risks to the serfs.

    6. Alejandro

      “low cost”

      …simple magi-matics without the externalities…the making of dead-beat oligarchs…philanthropy as “tail wagging the dog”…

    7. TomD

      “Consumers love convenience, and they love low cost. Combining both is a killer app, no matter what the whiners and moaners say.”

      Interesting straw man. No one said the opposite of those things, in fact many have argued that cab companies have really dropped the ball on the convenience side of things.

      However, traditional cab companies have built in costs for a reason. Things like not wanting to be raped or kidnapped upon getting a cab ride is near the top of these.

      1. Jim Haygood

        ‘We rape your wallet, not your bodily orifices.’

        Sounds like a value proposition to me!

        1. RUKidding

          Well if push comes to shove, I’d rather be ripped off somewhat by a cab company than raped or kidnapped or killed by some Uber/Lyft driver off his/her meds and with an ax to grind… as has happened.

    8. lyman alpha blob

      “Consumers love convenience, and they love low cost.”

      Slavery was pretty convenient and cost effective for many people for thousands of years. Why not go back to that?

      Maybe rather than thinking in terms of consumers we ought to be thinking in terms of human beings. Just a thought.

      1. IMTreble

        “Maybe rather than thinking in terms of consumers we ought to be thinking in terms of human beings. Just a thought.”


    9. Skippy

      Jim its about rights and if memory serves you take your rights very seriously or are you saying your rights, too cheap and quick transport, out vote the rights for decent wages and working within the law.

      Disheveled Marsupial…. sorry if I find the logic biased….

    10. Lambert Strether

      “among American professionals” isn’t really identical to “consumers,” is it?

      Though I do grant that the illusion of being serviced by an “independent contractor” much like one’s self is far more attractive than hailing a cab with a smelly prole at the wheel.

  3. Eric

    I’m conflicted here: on the one hand, I understand that Uber is engaging in numerous unfair(? – perhaps unethical or immoral) business practices; but on the other hand, it’s very nice to have access to an affordable car service – particularly as I live in the suburbs. If you want to go out and have a nice dinner and a couple of decent drinks downtown, you’re running the risk of getting a DUI unless you take a cab. The problem is, where I live, that was a $35 trip each way to get downtown. With Uber it’s $35 all in (perhaps less). Before Uber, we never went downtown or over to neighboring suburban towns (where sometimes restaurants were better), now we go all the time. So, yeah, they’re probably exploiting people, but I think it’s also probably getting a lot more people to go out who used to probably stay at home, so there’s likely some economic benefit there.

    1. Chris

      Either this is some dry-as-fuck sarcasm, or “Eric” is an Uber AstroTurf sock puppet. “Sure the drivers are exploited without recourse, but look, my wife and I are getting a much better quality cocktail out of the deal.” Both sides! Reasonable!

    2. JoeK

      Well, yeah, the world’s a lovely place full of rainbow lollipops if you don’t think about stuff too much.

      1. NotTimothyGeithner

        “On one hand, my SUV Is bad for the planet, but on the other hand, my SUV makes me feel like a big man when everyone points at it and laughs. I’m spreading joy.”

        “On one hand, I deplore violence, but on the other hand, why do we have a military if we arent going to destroy wedding parties? Churches in the suburbs don’t get drowned. I guess this will teach a lesson to the Muslims about having a church wedding.”

        “On one hand, its awful people can’t afford to use insurance, but I like Obama and it makes me sad when people criticize his policies. ”

        The American liberal.

      2. Left in Wisconsin

        I think you two are missing the point. You can say that Eric is a bad person but solving the Uber problem is hardly as simple as making everyone who uses it feel bad. The points Eric makes are perfectly valid and no doubt gazillions of other consumers are making the same choices.

        The notion that consumer choice is somehow going to lead to the downfall of bad employers is one we need to drop sooner rather than later.

    3. diptherio

      See my comment above.

      I’ll also add that, as it stands, Uber’s business model (and AirBnb’s) is based on violating administrative regulations and laws and encouraging others to do the same (you have to have a medallion to offer taxi service, you have to have a license to run a hotel and you can’t do it just anywhere)…because it’s convenient!

      It’s true that regulations are written in screwy, unhelpful ways right now, but that doesn’t mean we should let some rich dudes break the law with impunity and then support them in it. We should be using this opportunity to create just and equitable versions of these services, not just rolling over and saying “yeah, well, maybe it’s corrupt and exploitative, but it works for me.” That’s the attitude that’s led us to the sh*t-show we have today….

      1. Left in Wisconsin

        I agree that they are clearly violating various codes and laws but shouldn’t that mean that municipalities all over are suing the sh1t out of them? And that efforts are made to inform consumers who use the service that they are potentially law-breakers?

        As with consumer choice above, expecting consumers to know and abide by laws and codes that Uber is violating when they can quickly and easily call up the app and get a car is a pipe dream. We have been sold out by our municipal elected officials. Shocking, I know.

        1. IMTreble

          bawhahaha!! Dunno about Wisconsin, but here in San Francisco cha ching it’s da dough that get da deal baby. Mayor Ed Lee was bought by Uber right at the beginning. It goes farther than city government. When the California DMV spoke out with an official statement saying that individuals using personal licensed vehicles for professional driving services were in violation of the law, literally over night the statement was withdrawn. The only explanation was pressure from someone in state legislature! Uber and Lyft have huge money behind them and the entire intent of these companies is to pave the way for the autonomous vehicle. Why do you think our bay area big money players put so much $$ into Uber? Ain’t cause they wanted to own a taxi company, trust me. Now GM and Lyft have promised to have a small fleet of autonomous vehicles giving rides by the end of the year.

      2. dk

        We should be using this opportunity to create just and equitable versions of these services, not just rolling over and saying “yeah, well, maybe it’s corrupt and exploitative, but it works for me.” That’s the attitude that’s led us to the sh*t-show we have today….

        This. This is the point. Repair broken regulation. It’s as important as physical infrastructure recovery (and cheaper and faster to do).

    4. reslez

      The reason trips to the suburbs cost so much with a traditional taxi is that they just aren’t profitable otherwise (it’s very difficult to find another fare and you don’t get paid for any of the wasted driving time). Uber is a strip miner, destroying its workers and their cars and leaving wreckage behind. Its customers don’t pay the true cost of what they use. Insurance, wear and tear/depreciation on the car, benefits for the driver that normal people consider necessary for life, etc.

      If you want to enjoy nice evenings in the city you’d be better off pushing for decent public transportation.

          1. Left in Wisconsin

            If your suburb has the kind of decent public transportation described (that can get you out and home in the evening to a restaurant in another suburb), congratulations. For most of us, getting access to such in 50-100 years is probably a pipe dream.

  4. John Glover

    This is one of the reasons I really hate class actions sometimes.

    Let’s say the average Uber driver makes $15K per year. According to my calculations, the employer’s share of the payroll tax alone amounts to over $440 million per year. On top of that, the drivers are losing worker’s comp, overtime and other benefits. Why would they possibly settle the case for such a small amount?

    This case was obviously brought to benefit the lawyers. The drivers will receive pennies and will be bound by the settlement.

    Horrible. One can only hope Rakoff rejects the settlement.

    1. ScottW

      If the State & Federal taxing authorities cared, they could have sued Uber for misclassifying the drivers as independent contractors. That is one way to get the money back.

      The real question that few ask and no one answers–could Uber make any money if it actually paid its drivers a living wage with benefits as employees? The prices might go up and Uber’s take and valuation would certainly go down, but to what degree on both sides? Instead, Uber operating in its current fashion of worker exploitation is considered inevitable.

      1. sleepy

        Yep, that was my first thought reading the article–that state and federal taxing authorities and/or various labor departments should be the ones leading the litigation to reclassify Uber workers as employees.

        In the past, like 40 or 50 years ago, those administrative authorities worked pretty hard on the “independent contractor” dodge. Not so much anymore. We’re all entrepreneurs nowadays.

  5. Nick

    Interesting. I imagine that the same independent contractor loophole applies to a slew of other “gig” companies as well and may end up affecting them in the same way that it affects Uber (however that may be). The fact that it’s “valued at up to $ 70 billion” is of course a bit vague, but this should nonetheless provide an interesting display of fairly substantial power at work.

  6. EmilianoZ

    Ian Welsh on Uber:

    The wages they pay to their drivers are less than the depreciation of the cars and the expense of keeping the drivers fed, housed, and healthy. They pay less than minimum wage in most markets, and, in most markets, that is not enough to pay the costs of a car plus a human.

    These business models are ways of draining capital from the economy and putting them into the hands of a few investors and executives. They prey on desperate people who need money now, even if the money is insufficient to pay their total costs. Drivers are draining their own reserves to get cash now, but, hey, they gotta eat and pay the bills.


    1. JoeK

      Thanks for the link.

      It’s kind of the next evolution of the IKEA business model: buy this slick-looking cutesy-named pseudo-Scandi-design dresser made from pressed waste-wood and toxic glues, save some cash but spend two hours putting it together for us while, if you’re very careful, only damaging it in a couple of places. Ka-ching, you just became one of our minimum-wage contractors and helped our tax-evading billionaire CEO become that much filthily richer. Maybe in fact the Plöply light-bulb first lit up over little Travis’s head one day while deciding between the Blöblür and Slykvyl models of kitchen tables for his starter condo.

      1. jrs

        uh no, exploitation on the job is not the same as building your own Ikea, talk about trivializing the problem, could it get any more trivializing. People have power as consumers in a way that don’t as workers. They could go to the thrift store for furniture, they could do without etc.. But as workers people are driven by the dire need of the green paper for survival itself.

        1. Tom M

          To some degree, it’s a symptom of the same problem. Build your own furniture, check out your own groceries, vet your own taxi driver – companies externalize the shittier and more expensive work to their customers while calling it innovation and raking in the difference.

          The ideal modern business model consists of one set of customers serving another set, mediated by an app maintained by freelancers in a coworking space. Behind it all is a holding company and a bank account.

        2. JoeK

          I think you missed my point or I made it poorly. Perhaps the analogy wasn’t apt, but I wasn’t trying to trivialise the situation of Uber drivers. I’ll try harder next time, please do the same before jumping on someone’s comment.

    2. ScottW

      The IRS mileage deduction is $.575 per mile. Most part-time drivers would take that deduction, rather than trying to figure out the allocation for depreciation, insurance, expenses between personal and business miles. Add to that a self-employment FICA/Medicare tax of 15.3% on any profits and you wonder what type of income Uber drivers actually claim? Hard to believe any of them come close to minimum wage despite what Uber claims.

      And remember, lots of uncompensated miles are driven going to pick up customers, but are subsequently deducted as an expense that reflects money not going into a driver’s pocket.

  7. Michael T.

    Majority of Uber drivers want to be classified as employees. I don’t think this is over.
    If anything, Uber’s settlement is silent admission of fault.
    I think Uber’s IPO is getting closer to they HAD TO remove this obstacle (for now). And (for now) they did.
    But there is no doubt that additional lawsuit will soon follow.

  8. oho

    “I guess Lyft allows tips and most people do it, so it’s not impossible.”

    as an ex-driver, when the rider base of Lyft was small (riders who pro-actively wought an Uber alternative), 15% of my gross revenue was from tipping.

    as Lyft’s rider base expanded to be the public-at-large, my tipping income declined to 5% of my gross revenue—-passengers M-Thursday (presumably frequent users) tipped a lot more than weekenders.

    The general problem w/tipping are free riders. And unlike tipping a server, there is no social stigma for non-tipping a driver.

    Furthermore, “anyone” can drive a car, so people tend to have less empathy for work of a driver than a Starbucks barista’s.

    IMO, tipping is an awful concept and allows employers to “outsource” their labor costs to the 1 in 5 people who actually care about liveable wages.

    1. oho

      I’d also throw out, Travis/Uber’s legal department would be INSANE to pass up this settlement—-as someone above mentioned the potential payroll tax liability Uber would save are $$$$$.

      It’s a deal too good to be true—-Uber wins, plaintiffs’ attorney wins, drivers (and all 1099ers) lose.

    2. Louis

      I’m in agreement with tipping. I suppose it’s okay for exemplary service but all too often tipping, as you correctly point out, is a form of cost-shifting more than a form of a bonus for good service.

      Tipping also makes things more complicated than they need to be. Maybe not quite in the same way that our (American) healthcare system of insurance makes it practically impossible to figure out what something costs ahead of time, but tipping can still be a pain in the you know what. It would be much nicer to know what I’m supposed to pay upfront.

  9. Silas Barta

    Now that Uber settled, they don’t have to worry about providing … the employer half of Social Security taxes

    Kinda funny how this is ostensibly an “economics blog”, but the posters ignore the fundamental economic result that the incidence of a tax doesn’t depend on who you charge it to. See tax incidence.

    Even if Uber were forced to “pay” the employer’s portion, they could simply cut payouts by the corresponding amount; if drivers were willing to drive for that take-home before, they’d still do so after. So it really doesn’t matter whether or not you “make” Uber pay for this portion; it’s tilting at windmills.

    Ditto for the “is the tip included” question, which is also a case of arguing over nothing. You can equally well say that a $10 fare was:

    A) $2 tip, $8 fare that Uber takes a $2 cut from, or

    B) No tip, $10 fare that Uber took a $2 cut from.

    In both cases, Uber took $2 and the driver $8! “Winning” the right to “keep” the “full” tip is meaningless!

  10. two beers

    There’s something very curious going on with Uber, apart from the obvious, well-publicized weirdness: they’re advertising like crazy on the radio, both national and locally here in San Francisco (I don’t know if they advertise in other local markets). That in itself is hardly remarkable. What is remarkable is what they’re advertising. They’re not advertising their service. They’re advertising for drivers. Think about it. When has a company ever paid to advertise in mass media for workers? I think the reason is obvious. If the gig was profitable to the drivers, and there was a reasonable retention rate, they would have no need to advertise in mass media. But as we know, the pay sucks, especially when vehicle costs are factored in, and the attrition rate is atrocious.

    You can’t outsource local service workers, so their localized labor arbitrage hits a wall. Maybe a handful of drivers actually make a living at it, but for most, it’s a sink hole. Uber literally can’t find enough employees – not because the demand for the product is so high, but because the supply of suckers drivers willing to drive for a loss or negligible profit is so small. As time goes by, Uber will try to extract ever more value from its drivers and drive compensation even lower, all while the experience and cost to customers approaches traditional transportation services. The idea that Uber is worth anything close to its valuation is a farce, and that is why its CEO has emphatically stated he doesn’t care if they ever go public.

    It’s nothing but a scam.

    1. Arizona Slim

      I’ve been around Uber drivers, and let me tell you, they are NOT a happy bunch. Not in the slightest. Which is why the “drivers wanted” advertising blitz doesn’t surprise me.

  11. jo6pac

    My brother and wonderful wife were in SF for a Giants game. The hotel asked there wanted uber and brother being a Union member Yellow Please. The staff member asked him again and Please send a Yellow Cab.

  12. Ian

    If Uber dribers are classified as employees, then Uber’s business model, valuation, and profitability drops by, what, 80% ? At their prices? But how can they be employees if driving their own car is the very basis of the business? Shouldn’t Uber then buy them all cars?
    I am sure that alot of readers aren’t really familiar with the IRS rules for independent contractors. There is a 20- point “litmus test” to determine wheather a person can claim independent contractor status. Most businesses have NO IDEA what the rules are, they just don’t want to pay payroll taxes, comp, 2 15 minute breaks per day, overtime, UC, (both federal amd state). Plus the personnel to tabulate it and keep it all straight. Hey! Sounds like uber!

  13. john gleason

    In my area (Detroit MI), all taxicab drivers are either owner-operators or independent contractors driving for owners of cabs. The independent contractors pay between $60 – $80 a day for the use of the cab (the owners of the cabs pay for commercial insurance, upkeep and a fee to a taxi-company (such as Yellow Cab) for marketing and dispatching services.

    The independent contractors’ tax return forms show a net income between $3000.00 to $12000.00 per year (I am an insurance adjuster and must calculate wage losses when a driver has a motor vehicle accident). I do not know how Uber drivers can afford to operate if they have to pay their own commercial insurance and upkeep.

    1. oho

      re. the last sentence…most drivers don’t have commercial insurance unless per local ordinance. as for depreciation. people won’t know that driving a new/relatively new car has turned them upside-down on their car note until they try to get a new car.

      and if you have a family that relies on you…..make sure you gave some adequate term life insurance in the one on million chance something goes wrong in an uber/lyft. otherwise your heirs are in for a long court fight at the best, s.o.l. at the worst

    2. IMTreble

      They do not have commercial insurance for the most part. I work for a taxi company and deal with accidents. I currently have two on my desk involving a LYFT driver who was at fault. Both drivers were immediately deactivated from the Lyft platform as is their policy for ANY accident. One tried to deny that he was driving a TNC (lyft) and we had to go through the entire reporting process to his personal insurance who denied the claim. Then we had to go to Lyft, who ignored us, the driver split the country, I finally had to complain to the CPUC who has virtually no power over Lyft even though they are governing body, but the woman I am dealing with is very nice :|. The 2nd accident, a driver rear ended our vehicle on the freeway at about 55 mph because she was clearly doing something else and didn’t notice the traffic had slowed. She also gave personal insurance who denied claim. However, her insurance adjuster gave me the Lyft insurance claim information and they were actually excellent to deal with. The now deactivated (aka fired) Lyft drivers in both cases were on the hook for all damages to their own vehicles. The freeway incident was significant damage to a nearly new vehicle.

  14. nat scientist

    “It would be so poetic for Uber to wiggle its way out of every threat to treat its workers like employees, only to see that be the very thing that causes their downfall.”

    Employee not me
    is Irony
    the mobile kind.
    So unkind,
    this fleet

  15. dao

    I once worked as a pizza delivery driver and was a private contractor using my own car. I received something like 50 cents per delivery plus tips (this was many years ago). I basically relied on the tips for my income. In short shifts (4-5 hours) I was putting on well over 100 miles on my car. I was smart enough to realize that all I was doing was trading depreciation of my car for money and quit after a few months.

    If an Uber driver drives an average of 25 miles per hour and works an 8 hour shift, that’s 200 miles. At the IRS mileage rate (which just went down from 57.5 cents to 54 cents this year) that amounts to a cost of $108. And that rate assumes regular car insurance, not commercial. What they make beyond the $108 is what constitutes their real pay. If you do the math, you see that even with tips, these drivers are making less than minimum wage.

    Of course, Uber depends on drivers only thinking about their costs in terms of gasoline and in practice that’s how many drivers look at it. Once their car needs major repair work, they’re out of business but there’s always someone else willing to take their place. It’s a race to the bottom indeed.

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