Are Uber Drivers Employees? The Answer Will Shape the Sharing Economy

By Omri Ben-Shahar

Posted on November 17, 2017


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Of all the legal troubles that pestered Uber recently, the one that would fundamentally threaten its business model is not the licensing fight with an occasional rebel city. Rather, it is the employment status of its drivers. Are they independent contractors each owning his or her single car business, as Uber likes to claim, or are they Uber’s employees, entitled to benefits, overtime pay, and collective bargaining? The answer to this challenge could dramatically reshape the sharing economy.

Image: Uber driver waiting in car

Uber uses legal language in its contract with drivers to define them as “partners,” not employees. It says it is providing drivers with “business opportunities,” and it refers to itself as a “technology company” or a “platform”—not a transportation company.

 

But in several lawsuits, drivers are arguing that despite this guarded Uber-speak, Uber in fact behaves like an employer. Drivers are therefore entitled to benefits that the law guarantees to employees, which Uber currently does not provide. The law defines an employer as one who has “the power or right to control and direct the employee in the material details of how the work is to be performed.” Various courts have now weighed in on the question: does Uber “control and direct” its drivers?

 

Lower courts in California and in New York, and this week a sweeping new British court decision found that the answer is “yes.” Uber is an employer because it does have significant control over how drivers perform their work. Other federal courts held the opposite. The issue is far from settled.

 

At first glance, it seems that Uber has a good argument—it does not control or direct its drivers. Surely, the most attractive feature for many Uber drivers is flexibility. Drivers are free to work or not to work, whenever and wherever they want, for as many or as little days or hours, and take any number of breaks. Drivers are their own bosses. They are paid not by Uber but by customers—Uber’s sole role is to collect and distribute these payments (minus its own cut). They are free to work elsewhere, and many indeed double up for Lyft or keep their day job. Whereas employers typically provide workers with tools, Uber drivers use their own cars and pay for gas. In fact, it is hard to imagine many employers who would exert so little supervision and grant such autonomy to employees.

 

But upon closer examination, some courts have found that Uber does have meaningful control over drivers. The fares are not negotiated with riders but rather set by Uber. Drivers have to abide by Uber’s code of performance. They must not fall below the minimum average rating that Uber sets. They are required to accept rides assigned to them and drive the route the Uber app plots. Uber “recommends” micro-rules for drivers’ conduct, like what to discuss with passengers, and forbids contact with passengers after rides. When drivers deviate from the rules, Uber sends “tips” to modify their behavior—a typical feature of an employment relationship. And it banishes drivers who repeatedly violate its rules. In reality, many of the drivers are economically dependent on Uber for continued work.

 

It is tempting to think that drivers would be better off if classified as employees. They would be entitled to pensions, employer-provided health insurance, workers comp, and other benefits. True, they might lose the freedom they cherish to choose their work hours, but it is not clear how important such freedom is to many among them who already drive every day for long hours.

 

On the other hand, the added benefits for drivers-employees would come at a cost. It is likely that Uber would significantly reduce the drivers’ direct pay from rides (which is currently 70-75% of the fare), to cover the cost of the mandated benefits. For drivers who prefer cash over benefits, this trade off would be a bust.

 

Even if the net effect on drivers income would be positive, the overall impact might be negative because many potential drivers would be left out. An employee status for drivers would inevitably alter the composition of Uber’s workforce. As an employer, Uber would bear greater liability for harms caused by drivers, and would have to screen them more closely. Instead of a large decentralized cohort of gig workers, Uber will end up having a smaller reserve of full time drivers. The employee status would likely slow down recruitment, sorting out many part-timers—perhaps those most desperate for the added side income from ridesharing.

 

The most fundamental change that employee status would bring is to the trajectory of the gig economy. Like Uber, many sharing platforms create opportunities to coordinate peer-to-peer exchanges, enabling people to freelance everything—cars, homes, goods, and skills. If Uber is a transportation company that employs its drivers, is Airbnb a hotel chain? Is TaskRabbit (an app matching freelance labor with local demand) a cleaning and repair company? Is Instacart (a grocery delivery platform) a shipping company employing errand runners? Would these services survive a shift to employment status?

 

The brave new sharing world did a lot of good by eliminating barriers to trade. It removed protectionism and increased competition. It promoted rapid entry into previously regulated professions. It reduced prices for consumers and helped deploy assets more efficiently. But, yes, it also circumvented longstanding welfare protections that previous generations fought hard to secure for workers. The Uber litigation might succeed in restoring these protections. But it will carry a great unintended cost, squandering many of the benefits of the sharing economy.

 

 

The preceding is republished on TAP with permission by its author, Omri Ben-Shahar, law and economics professor and Kearney Director of the Coase-Sandor Institute for Law and Economics at the University of Chicago Law School. “Are Uber Drivers Employees? The Answer Will Shape the Sharing Economy” was originally published November 15, 2017 in Forbes.

 


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About the Author

  • Omri Ben-Shahar
  • University of Chicago
  • 1111 E. 60th St., Room 518
    Chicago, IL 60637


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