Two court cases in San Francisco are focusing attention on the downside of living in an Uber-ized world.
The class-action lawsuits against Uber and its rival Lyft are being brought on behalf of drivers who argue they are not independent contractors, as the two ride-booking companies contend, but rather employees. As employees, the drivers claim they are entitled to file for expenses, such as gas and vehicle maintenance, that they now have to pay themselves. If the court agrees, Uber and Lyft could be forced to cover workers' compensation, unemployment insurance and social security for the drivers, all of which would increase the cost of the services and detract from their appeal.
Uber, a private company that was valued at $40-billion (U.S.) when it raised $1.2-billion from investors last year, has a lot riding on the court decision. But then so do we all, because the U.S. precedents will help shape thinking around the world on the hot-button issue of how employment markets should be structured in an Internet age.
Much of the commentary on Uber and similar services has gushed about its ability to topple the antiquated taxi oligopolies in major cities, including Toronto, Montreal and Vancouver, by allowing people to use their mobile phones to book rides with private drivers.
But Uber's significance is much greater than that. It provides a slick and highly efficient way to match up riders and drivers, and it's easy to see how similar systems could be used to connect supply and demand in any industry.
For instance, in a few years' time, anyone in need of a lawyer might be able to put her legal work up for bid on a Uber-style site that would allow qualified professionals to bid for the job. From taxi drivers to lawyers, from secretaries to accountants, we could all compete to sell our labour by the hour or by the task through centralized, online clearinghouses.
It would be a dream world for the people doing the hiring – no long-term commitments, no enduring obligations to the temporary hires – but perhaps not quite so fine for the people selling their labour, especially if they fall sick or have skills that fall out of demand. Among other worries, the model gives the central clearinghouse a tremendous amount of power. Uber, for instance, despite its claim to be simply an app provider, screens potential drivers and sets the rates at which they are paid.
One way to view Uber is as a risk-shifting mechanism. It transfers much of the uncertainty involved in running a taxi business onto the shoulders of the people actually driving the cars. At the moment, vehicle maintenance and insurance are the responsibility of drivers; a bad patch for business also falls most heavily on drivers, more so than on Uber itself.
In exchange for bearing this risk, drivers gain the flexibility to work the hours they choose and to roam wherever they want. But while higher risk is usually supposed mean higher reward, it's not clear that Uber drivers actually do better than traditional taxi drivers.
A report prepared by Uber and Princeton economist Alan Krueger surveyed 601 Uber drivers and found that drivers in the company's biggest markets bring in about $6 an hour more than local taxi drivers. Crucially, though, the report focuses only on gross income; it doesn't account for the cost of gas, insurance and vehicle maintenance, which an Uber driver must pay out of his or her own pocket. It's also not clear how representative the surveyed drivers are: They represent a very thin slice of the more than 160,000 active U.S. drivers that Uber reported in December.
The court decisions in California will help define an emerging frontier in what constitutes acceptable labour practices. At issue is the tough question of whether structuring a market as a loose agglomeration of free agents boosts everyone's fortunes, or just the bottom line of the organization at the centre of it all. That's an issue that extends far beyond taxi rides.
Ian McGugan