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How making drivers employees could be bad for Uber — and its drivers

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Yesterday, a California regulator ruled that one of Uber's drivers is legally an employee, not an independent contractor. Warren Meyer, a small business owner behind the Coyote Blog, speculates on the various ways this could affect the ride-sharing company:

  • This would obviously make Uber drivers subject to minimum wage. How does one even figure that out? Now that there are local minimum wages (e.g. LA soon to be $15 an hour) how do you compute minimum wage for a trip that begins outside of LA but ends inside the city? Or vice versa?
  • Uber drivers currently only get paid for transporting passengers, but what about their time driving around waiting for a passenger? Will that be classified as standby time for which the employer must pay for? You can expect the standby time class action in California in 3..2..1..
  • This changes the whole relationship between Uber and its drivers. Currently, Uber does not have to worry about driver productivity or work ethic, as long as they get good customer ratings when they do drive. Why? Because Uber is not paying them except when they haul a passenger. Now, if they have to pay them by the hour, Uber suddenly must police them for productivity and set minimum revenue generation targets for drivers. The flexibility that drivers love will be gone.
  • And then there is Obamacare. If drivers drive more than 29 hours a week, Uber would have to provide health care or pay really expensive penalties. Will Uber find it necessary, as my company has and many other service businesses have, to cap driver hours at 29 hours a week max?
  • What about California break law? Employers have an affirmative duty to make sure employees take a 30 minute unpaid meal break after X hours. And just allowing for it (ie allowing drivers to put themselves in unavailable status) is not enough - employers have to have processes and documentation in place to make sure the employee takes their break (I kid you not).
  • What about CalOSHA? Is Uber suddenly responsible for working conditions and safety in the vehicle? And how does it do that if it does not own the vehicle?
  • Every employee is essentially his or her own manager. Does that now make Uber subject to ensuring every driver has all state-mandated manager training, such as sexual harassment training?
  • Employers are typically liable for actions by their employees, even if those employees are breaking the rules and ignoring the employer's wishes. Is Uber now liable for a driver who, say, verbally harasses a passenger? In the past, that gets sorted out pretty fast by the rating system, but does Uber have to take a more direct hand now do avoid a deluge of lawsuits?
  • As of July 1, California employers must provide paid sick leave to employees. They must provide unpaid leave under the family and medical leave acts. In fact, California requires employers provide and track literally dozens of forms of mandatory paid and unpaid leave (including leave for victims of stalkers, just as one example of the scope of these requirements)
  • The taxes and required fees owed by employers for each employee are myriad. State and Federal income tax must be withheld, Social Security and Medicare taxes paid, California state disability tax paid, unemployment tax paid, and workers compensation premiums paid.
  • Unemployment could be real nightmare. Can drivers choose to drive for a while, then take unemployment for a while, maybe while tourist season in San Francisco is slow, then go back to driving? You think that can't happen? A number of my seasonal employees work in the summer, then take unemployment all winter despite having no intention of trying to find work in the winter. I pay 7% of wages in California as unemployment taxes and would pay more except that scale is capped and I can't get in a worse category than my current F-.

A few thoughts about this:

  1. Many of these issues seem manageable, especially for a large company like Uber. For example, the requirement for employee breaks would be easy to implement in software. Others, like the OSHA requirements, are not unique to Uber — presumably other employers let employees perform work duties in their personal vehicles, and those same rules would apply.
  2. The minimum wage seems like the requirement that could force the biggest changes, especially in jurisdictions where the minimum wage is high. If the minimum wage is significantly lower than what the average Uber driver makes, then it wouldn't cost much for Uber to guarantee that workers make the minimum and fire workers whose earnings fall too far below the minimum. But if the minimum wage is raised to the point where it's closer to the average worker's earnings, then Uber will have to start exerting a lot more control over when and where people drive. That would be bad for Uber and its customers (who would end up paying more for less reliable service). And it could also be bad for drivers who value the option to work whenever they want — even if that sometimes means making below minimum wage.
  3. It will be a lot easier for a well-established company like Uber to comply with these rules than for a startup to do so. Uber can hire an army of lawyers to keep track of the many requirements of labor law — or lobbyists to seek tweaks to labor law if they interfere with their business. The next Uber, however, might be forced to comply with these complex requirements from its infancy, making it harder for it to ever reach Uber's size.
  4. The bottom line is that conventional labor laws are based on the assumption that employers dictate employees' hours and working conditions, and so we need things like mandatory breaks, sick leave, and safety regulations to ensure employers don't take advantage of workers. But in an on-demand economy model, rules designed to "protect" workers don't necessarily do that. Uber drivers can take breaks whenever they want. Uber doesn't care. So a rule requiring employees to take breaks after working for a certain number of hours simply reduces drivers' freedom for no good reason. If Uber drivers are going to be subject to employment law, there needs to be a legal category for employees who genuinely set their own schedules.