Even though this week’s big CLC ruling affected only one driver, I think it speaks volumes to the uncertainty around driver’s employment status. I know that a majority of drivers (including myself) don’t want to be employees of Uber but I can also recognize the fact that this IC model has benefited companies like Uber A LOT more than its drivers. I think what ultimately should happen is a mixing of the two so that drivers can retain some of the flexibility they value but aren’t forced to bear a majority of the risk and exposure. Uber likely won’t push for that so who knows how long it could take to get this all resolved.
In the mean time, all we can do is sit back and read all of the news surrounding the story. Today, RSG contributor, John Ince, takes a look at exactly what this ruling entailed and breaks down some of the week’s other top stories.
If you’d like to read more about my thoughts on this week’s main topic, head over to Forbes and read: Do Uber Drivers Even Want To Be Employees?
California Labor Commission rules an Uber driver is an employee, which could clobber the $50 billion company
Sum and Substance: The California labor commission has ruled that an Uber driver is an employee, not a contractor, Reuters reports. The decision was made after a San Francisco driver, Barbara Ann Berwick, filed a claim against the company. The commission sided with her largely because it deemed Uber was “involved in every aspect of the operation.” It’s potentially a huge blow to Uber’s business model, at least in California. There’s currently a class action suit going on in which drivers are suing Uber (and competitor Lyft) trying to get classified as employees rather than contractors. Today’s decision is not part of that suit, but could help set legal precedent for it. Uber is appealing the board’s ruling.
My Take: This is a major development. It’s potentially a crippling blow to both Uber and Lyft. Investors surely are taking note of this and it will likely affect the valuations of the company in any future financing rounds. We can expect Uber and Lyft to fight this battle tooth and nail, but this precedent along with the FedEx ruling a few years ago and the recent settlement (See below) raises the real possibility that the rideshare companies’ business model isn’t going to fly in the face of legal precedent.
The numbers in this ruling are miniscule. The plaintive, was awarded a measly $4,152 bucks in reimbursement for driving just a few months in 2014. But multiply that settlement by the 50,000+ Uber drivers in California many of whom drive year round and you’ve subtracted hundreds of millions of dollars from Uber’s bottom line – every year. Potentially the most damaging aspect of an adverse ruling from the company’s standpoint is opening up the legal path to drivers union’s. If that happens then suddenly neither Uber nor Lyft can unilaterally decide what commissions they will be taking from the driver’s fares. It would become a matter of collective bargaining which changes the whole game. Stay tuned. This game has just become very interesting.
Sum and Substance: Facing increasing pressure from the taxi industry, authorities in New York have begun to crack down on Uber — issuing tickets and seizing cars of Uber drivers who participate in illegal pickups in the city. Between April 29 and June 15, the New York Post reports that NYC authorities seized 496 cars from Uber drivers taking illegal street hails, mostly at the three airports in the region.
My Take: The issue here in these car seizures is not the illegality of Uber. The problem is some drivers are making pickups on the spot, like taxis, rather than relying on the Uber app. If you’re driving and your car gets impounded, that’s a major deal. This war is heating up. The next step in the taxi’s challenge to Uber comes in just a week when Mayor de Blasio has to face the city’s taxi financiers who allege that e-hailing under any terms is illegal in NYC. Any you thought this game was over – already won by Uber /Lyft. Think again. Game on.
Sum and Substance: FedEx has settled a long-running dispute with FedEx Ground California drivers. The class settlement will create a $228 million fund to resolve claims by over 2,000 FedEx Ground and FedEx Home Delivery pickup and delivery drivers. Some claims date back to 2000 and some extend through 2007. The settlement must still be approved by the Ninth Circuit, but assuming court approval, will end one chapter in a bitter dispute. The settlement comes in the wake of a 2014 Ninth Circuit ruling that FedEx misclassified drivers as independent contractors. … Employees trigger a litany of federal and state tax withholding, fringe benefit, anti-discrimination, health care, pension, worker’s compensation and unemployment insurance obligations. Companies can avoid these entanglements by hiring independent contractors, but labels alone aren’t enough. A variety of state and federal agencies–including the IRS–can examine the worker status issue and reach their own determination. So can the courts in private lawsuits.
My Take: This just might be what we’ll see down the road a few years in the Uber / Lyft lawsuits over the same issue – except that the settlements will be bigger – much bigger because Uber alone has many more drivers than FedEx. Think about this – $228 million divided by 2300 drivers comes out to almost $100,000 per driver. If courts arrived at a comparable settlement in the pending lawsuits in San Francisco (should they achieve class action status) the settlement could be in the billions. Remember any settlement comes directly off the bottom line of Lyft and Uber, potentially wiping out all their profits. Investors beware.
The $50 Billion Question: Can Uber Deliver? Investors are counting on Uber to upend the delivery business much as it has for taxis, but progress has been slow so far
Sum and Substance: Uber Technologies Inc. became one of the world’s most valuable startups by creating a new way to transport millions of people in more than 300 cities. But using the same formula to upend the delivery business has turned into a slog. For more than a year, the San Francisco company has been trying to build what its chief executive once called “an urban logistics fabric” … So far, though, an Uber same-day delivery program launched a year ago with plans to sign up dozens of retailers has announced partnerships with just six.
My Take: Transporting goods is a whole different ballgame from delivering people, as Uber is learning. The landscape of delivery is littered with the ghosts of failed efforts like Webvan. For one thing, insurance has to be worked out in advance, rather than letting drivers struggle with the risks by concealing their status from their insurers. That said, Uber has a war chest so large that they may be able to finesse this in the long term. I’d give them another two years to see if they can deliver.
Sum and Substance: Taxi applications backed by Alibaba Group Holding Ltd. and Tencent Holdings Ltd. are seeking to raise funds that value the company at $12 billion to $15 billion, people familiar with the matter said. Xiaoju Kuaizhi Inc. is raising at least $1.5 billion to fend off Uber Technologies Inc. in China, … with the valuation doubling since the competing Didi and Kuaidi apps combined in February, … Didi earlier announced it would give away 1 billion yuan ($161 million) worth of rides to commuters to compete against Uber and Yidao Yongche, which also operates in the estimated $1 trillion-a-year market for transportation services in the world’s most populous country.
My Take: The stakes of this game in the world’s most populous country boggle the mind. That Didi is giving away over $161 million in free rides is noteworthy. Uber is up against a much bigger and better funded rival in China than they’re up against in the United States. Nevertheless, Uber CEO, Travis Kalanick has put on a game face in his letter to investors. (See Article Below) He’s accomplished a lot in China, but the more he accomplishes the harder the fight becomes.
Sum and Substance: A flaw in Uber’s website let a hacker take over a page and do whatever he wanted to it. Thankfully, security researcher Austin Epperson didn’t try to steal personal details or spread malware, instead he used the hack to display an ad for Uber’s arch-rival Lyft. … Uber points out that the section of the website in question wasn’t connected to any user login information.
My Take: While this particular hack didn’t cause any significant damage it’s a pie in the face of Uber’s tech team. Now imagine if a hacker gets into Uber or Lyft’s database of credit cards. You can be sure that hackers someplace in the world are trying to do exactly that right now.
Sum and Substance: In an internal letter to investors, Uber CEO Travis Kalanick said today that Uber is logging in 1 million daily rides in China. That’s as many daily rides as the company claimed to be hitting in all of its markets, worldwide, in December 2014. Encouraged its prospects in the country, Kalanick revealed the company intends to raise $1 billion specifically for its China operations…. Uber is only in 11 cities in China, and this fast growth is likely due in part to a heavily promoted service called The People’s Uber, in which Uber takes no commission from completed rides.
My Take: How long can both sides continue to subsidize their business in China? They can do it as long as investors are willing to foot the bill and believe that their team will win this battle. But what if neither team wins and the battle drags on and on … draining the coffers of all the competitors. Sooner or later, Uber and rivals must face the harsh reality of sustainable business models instead of just focusing on increasing market share and ridership figures.
Drivers, what do you think about the ruling in California this week? Would you rather be an employee, an independent contractor or a hybrid of the two?
-John @ RSG