In only five years, Uber has rapidly established itself as the poster child of the “sharing economy,” garnering both public support and consumer demand. The company, which provides for-hire cars through an app (and which sold 140 million rides in 2014 alone), has attracted numerous large investors and been valued at $50 billion.
But the Uber business model has hit a speed bump. A recent ruling by the California Labor Commission (CLC), brought to light an issue with how the company has been treating its drivers: by misclassifying them as independent contractors, not employees, Uber has avoided responsibility for providing its hires with the workers’ rights and benefits they are owed. Uber’s drivers are the core of the company’s success. But Uber, though it claims to be the lynchpin of the sharing economy, has yet to share its good fortune with its workers.
Uber and the Sharing Economy
Uber has promoted itself as a part of the sharing economy, and the media coverage of the company has usually accepted this at face value. But it isn’t actually true.
Participants in the real sharing economy own some sort of good—a room in an apartment, a bicycle, a spot in a driveway—that they don’t use to its full potential. Airbnb, for example, allows people to rent their unused housing to visitors for short spans of time, but it does not require its users to invest much of their personal time or energy in the process. It simply allows an owner to come closer to maximizing the utility of his or her good. While this practice is hardly new (and is perhaps better understood as a return to older informal economies than as what we normally think of as “sharing”), there is no question that new technology has made these systems of informal exchange easier and more prevalent.
Uber certainly does use new technologies to its advantage, but it requires more than just the sharing of goods by informal participants. A company that did for cars what Airbnb does for housing would essentially be a way to facilitate short-term car rentals between individuals. In fact, a company called RelayRides follows this exact model.
Uber, by contrast, works like a cab service: a user requests a ride, is picked up by a driver (often in the driver’s vehicle), and is then transported to a destination. If Airbnb operated this way, the owner of the house would also have to provide full-time maid service. Uber participants are not only renting out unused goods—they’re also selling their time and labor. As a result, Uber drivers are workers in a way that those who rent their goods in the sharing economy aren’t.
What Are Uber Drivers?
In the unregulated, informal marketplace constructed by Uber, it is apparent that drivers are actually doing work. But what kind? Uber has argued, adamantly, that its workers are actually independent contractors. The recent ruling by the CLC disagreed: their decision determined that a former Uber driver, Barbara Berwick, who had sued the company, should be classified as an employee.
Uber’s version of the story is that drivers determine their own locations and hours and that Uber’s only role is to provide the technology that allows workers to run their own independent cab services in their free hours. Berwick, on the other hand, points out that Uber has relatively stringent standards for who can become a driver, what kind of vehicle they can use, how they behave, and whether there are paid cancellation fees by users. All of these factors, she says, are enough to legally make an Uber driver an employee, and the CLC agreed.
What Makes An Employee?
The case brought Uber into a debate that has become increasingly common in recent decades: How do we determine what makes an employee?
When we think of work, we typically think of an employee following a regular schedule for one employer, moving up the pay scale, and building a lasting, mutually beneficial relationship with a company. Increasingly, though, workers are relegated to the status of independent contractor, and they are therefore unprotected by federal laws that would otherwise guarantee them certain rights and benefits like an hourly minimum wage and worker’s compensation.
The independent contractor status has made sense for white-collar professionals who provide temporary services and have their own source of benefits. Shifts toward a service-driven economy, however, have led to employment practices where more low-income workers, who are already without the prospect of engaging in meaningful collective bargaining, are exploited under this model by employers who are simply looking to cut costs.
Uber now joins a wide range of companies, most prominently FedEx, which have faced criticism and legal challenges because of their misclassification of workers as contractors. The immediate legal impacts of the California decision will be small (Labor Court rulings, like this one, do not create precedent, and Uber has appealed), but nevertheless, the case has the potential to alter the public’s positive perception of Uber.
So far, coverage of Uber has mostly focused on it as a means for increasing our economy’s efficiency and eliminating waste, something that true sharing economy companies arguably do. For some, this vision of the company won’t be disturbed by the ruling; Uber’s proponents see this decision as just part of our legal system’s struggle to cope with innovative new business models. But this thinking ignores the impacts of Uber’s strategy on the lives of its workers.
In reality, this case shows that we need to recognize Uber for what it really is: a traditional employer looking to increase its profit margins by undercutting the rights of its employees.