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11 min read

    11 min read

    Harry here. There’s been a lot of big news with Uber and Lyft this week, some of which we covered and will cover more in-depth next week. Today, senior RSG contributor John Ince highlights the news coverage Uber received this week, predictive pay, and more. 

    Missed the news on Uber’s commission charges? Click here to read our coverage and what you should know about these changes.  

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    John highlights the news coverage this week, including that Uber is to repay millions to drivers, new predictive pricing, and in-house counsel woes.

    Uber to Repay Millions to Drivers, Who Could Be Owed Far More [The New York Times]

    Sum and Substance: A lawsuit last year said that Uber was committing a form of wage theft. Uber said Tuesday that it had made a mistake in the way it calculated its commissions, at a cost of tens of millions of dollars to its New York drivers, and the company vowed to correct the practice and make the drivers whole for the lost earnings. 

    The ride-hailing service said it had been taking its cut from a figure including state taxes, rather than a pretax fare. If a passenger handed over $20, and $2 of that represented taxes, Uber’s commission was a percentage of the full $20, not of $18, as it should have been. Even at pocket change per ride, the cumulative difference was vast. “We are committed to paying every driver every penny they are owed — plus interest — as quickly as possible,” Rachel Holt, the company’s regional general manager for the United States and Canada, said in a statement.

    But Uber’s handling of passenger payments raises questions about a larger legal issue, potentially far more substantial: not the pocket-change difference in the commission but whether that entire $2 in taxes is improperly coming out of the drivers’ wallets. Uber’s contract with drivers appears to allow the company to deduct only its 25 percent commission, not taxes, from their fares.

    But a lawsuit filed by a drivers’ advocacy group in New York last year said the company was making its drivers swallow the tax burden — a practice the group said amounted to wage theft. Documents examined by The New York Times also point to such a practice, which could have cost drivers hundreds of millions of dollars. 

    The questions arise as Uber is facing mounting pressure over what drivers say is declining take-home pay, epitomized this year by a viral video of an argument between a driver and the company’s chief executive, Travis Kalanick. Bhairavi Desai, executive director of the advocacy group, the New York Taxi Workers Alliance, said that “from the beginning, Uber built its business model on the assumption that ‘we hate taxes,’” and that it had long “passed this tax on to drivers.” 

    In response to Uber’s acknowledgment of error on Tuesday, the advocacy group said in a statement that “Uber hasn’t just wrongly calculated its commission; it has been unlawfully taking the cost of sales tax and an injured-worker surcharge right out of driver pay.” Other jurisdictions, like Rhode Island and Massachusetts, also levy taxes or fees on ride-hailing services, but it is not clear how Uber collects those taxes.

    In New York, the company must reckon with a state sales tax of nearly 9 percent per ride, as well as a 2.5 percent “black car fund” surcharge to cover workers’ compensation and death benefits. Under New York state laws and tax regulations, the charges are supposed to be paid by passengers, meaning they are to be assessed on top of the fares.

    But trip receipts have long suggested that Uber deducts the amount from the drivers’ portion instead. The receipts have typically depicted an overall fare amount, from which the company subtracted an “Uber fee” (essentially its commission), the sales tax and the black-car surcharge. The drivers received what remained. The collection method dates to at least 2014, and possibly to 2012, when Uber began operating in New York, and has affected tens of thousands of drivers.

    My Take:  It looks like Uber got caught with their hands in the cookie jar.  They claim their mistake was inadvertent. I suppose that for a company whose internal workings have been described as chaotic, it is plausible that this was just an honest mistake.  But it sure seems that an awful lot of Uber’s “inadvertent” mistakes somehow end up benefiting Uber – until someone catches Uber on their mistake – at which point they vow to correct the mistake.  Often it takes a lawsuit (or an article) for Uber to ‘fess up.

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    Perhaps that’s why Uber now has over 100 lawsuits pending and over 200 in-house lawyers working on them (see article below).  Oh, and here’s one more class action lawsuit filed a few days ago by passengers who discovered, like this blog did, that Uber was charging passengers based upon a longer route than the route taken by drivers, courtesy of Fast CompanyLawsuit Accuses Uber Of Fare Fraud – New complaint claims Uber is misrepresenting routes to riders.

    Uber’s Future May Rely on Predicting How Much You’re Willing to Pay [Bloomberg]

    Sum and Substance: Uber drivers have been complaining that the gap between the fare a rider pays and what the driver receives is getting wider. After months of unsatisfying answers, Uber Technologies Inc. is providing an explanation: It’s charging some passengers more because it needs the extra cash. 

    The change stems from a feature Uber introduced last year called upfront pricing. By guaranteeing customers a certain fare before they book, the company said it provides more transparency. But it continued paying drivers using the old model, a combination of mileage, time and multipliers based on geographic demand. The difference between those two calculations could be the future of Uber’s business.

    … pricing became something of a black box for passengers and another source of tension with drivers. Drivers accused Uber of cutting them out of income they were entitled to and misleading them about what the company was up to. During the last year, Uber had attributed price discrepancies to the uncertainty around estimating fares, even as it was experimenting with techniques designed to exploit the imbalance between what customers were willing to pay and what drivers would take.

    The Rideshare Guy, a popular blog among drivers, conducted a study in New York City published in May, finding widespread disparities between rider fares and driver pay. Workers weren’t happy. “It is immoral and unethical behavior,” said Chris Estrada, who drives for Uber in Riverside, California.

    Uber has faced a torrent of scandals this year, including a trade secrets lawsuit, sexual harassment allegations, a brief boycott over its ties to the Trump administration and a video showing the chief executive officer arguing with a driver over falling fares. Two of the longest-running criticisms of the seven-year-old company are ones that are sometimes at odds: It loses too much money, and it pays drivers too little. The company told Bloomberg in April that it lost $2.8 billion in 2016, not including its China business.

    In the case of upfront pricing, Uber may move closer to resolving investors’ concerns about losses but could alienate drivers along the way. “You know our numbers,” Graf said. “We do want to run and operate a sustainable business.” Uber said it isn’t hoarding the additional revenue generated from route-based pricing. The company said it reinvests much of it into increasing the number of trips, subsidizing UberPool usage and paying bonuses to drivers.

    Christian Perea, who writes for the Rideshare Guy, said drivers will appreciate the added transparency around how much passengers are paying. “That is a big deal,” he said… Uber is a company filled with over-optimizers, who will continue to futz with prices and hope to find equilibrium. “If things are not balanced, we create levers to motivate people to make it balanced again,” Graf said. “There’s choices, right? Always. There’s never, ‘I have to use Uber.’”

    My Take:  At some point Uber has to figure out a way to make a profit, or it will go bankrupt.  The challenge is especially daunting because the company is catching so much flak for its pricing tactics and driver compensation schemes.  The crux of the problem is that Uber has been pricing its service well below market rates with the goal of stimulating growth and capturing market share.  Those are the figures that startup investors tend to value most – up to a point.

    But any reasonably aware investor eventually will realize that it’s an artificial growth if Uber is subsidizing fares.  When reality sets in – and investors grow impatient with Uber’s continuing losses – Uber will have no choice but to raise fares.

    This approach, essentially charging those passengers who can afford to pay more, bringing the entire fare structure closer to market rates – seems to be a step in the right direction.  The problem from the driver’s perspective is that they don’t get any increases as a result of these higher fares.  Thus to keep drivers on the road, Uber has to continue subsidizing driver pay with bonuses.

    Somehow it seems to me that all those smart people Uber has recruited to its executive ranks are outsmarting themselves by layering all these complexities on their fare and driver compensation system.  Why not just charge passengers market rates? Driver pay will go up.  Bonuses can be discontinued. Some passengers will go back to taking public transit, and that’s exactly as it should be. Unless Uber wants to be in the public transit game – which has never been a money-maker for anyone.

    Uber’s Firing of 2 In-House Lawyers Raises Questions About Legal Culture [Corporate Counsel]

    Sum and Substance:  Uber reportedly fired the lawyers late last year after they turned to outside attorneys for advice on proposed changes to the company’s document- and data-retention policy, allegedly without the necessary authorization from the company.

    According to the report, the firing of the two attorneys caused unrest on Uber’s litigation team. Three other unidentified lawyers left the company over the next several months, the publication reported. General counsel and other private lawyers unaffiliated with Uber said generally that the termination of the attorneys—beyond revealing tension inside the law department—provides lessons for legal officers at other companies. “They are under the spotlight right now,” Steven Rossum, former general counsel to AirTran Airways and now a partner in Smith, Gambrell & Russell’s Atlanta office, said of Uber and its legal department. “So everything they do draws attention.” 

    Salle Yoo, Uber’s general counsel since 2012, leads an in-house department of roughly 200 members. Corporate Counsel was unable to confirm the identities of the two lawyers who were fired or the three others who reportedly left in the unrest that followed. Several lawyers who recently left the company either declined to comment or did not return calls seeking comment. 

    The focus on Uber’s law department has only ramped up in recent months as the company grapples with claims of pervasive sexual harassment and now a reported federal criminal investigation into the use of software—called “Greyball”—to evade regulators in cities where the ride-hailing service hadn’t yet been approved. The software, which Yoo reportedly approved, raised ethical concerns for some outside observers.

    Meanwhile, the company faces mounting litigation woes—and the stakes have never been greater. Drivers for rival ride-hailing service Lyft Inc. are suing Uber over allegations the company allegedly tracked them. In February, Alphabet Inc. subsidiary Waymo sued Uber, claiming a former employee stole intellectual property used in autonomous vehicles…. Uber’s plan to change its information governance policy was central to the concerns the two lawyers raised with outside counsel, according to the account The Information published. Yoo, together with an outside law firm and a retired federal judge, reportedly proposed the change to the policy, which included directives on data preservation.

    The nature of the proposed change was not immediately known, according to The Information. Companies will amend a document retention policy for any number of reasons, including to comply with new regulations, save storage space and mitigate potential data breach losses. Concerned about Uber’s proposal, the two lawyers reportedly reached out to several law firms for advice. The ride-hailing giant, The Information said, considered the move a breach of the employees’ ethical and fiduciary duties to the company. The in-house lawyers were also accused of providing incomplete information to outside counsel, according to the published account.

    My Take:  Fascinating. Did you realize Uber has an in-house legal department of over 200 lawyers?  That’s like Uber has its own law firm.  If this is an indication of where Uber’s priorities lie, then let’s just say that Uber’s corporate strategy is heavily reliant on winning legal battles.  But to the main point of this article – that Uber fired two lawyers for questioning their policy on disposition and retention of documents – and seeking advice outside.  To put this another way, sure seems like Uber wants to send a clear signal to its legal team not to create a paper (or digital) trail that could leave them vulnerable to prosecution.

    Readers, what do you think of this week’s round up?

    -John @ RSG

    John Ince

    John Ince

    John Ince is a former Fortune reporter and Wall Street banker. He has about 1,000 rides under his belt driving part time for Uber and Lyft.  He’s writing a book about his experiences entitled:  Travels With Vanessa:  A Rideshare Driver Tries To Make Sense of It all - For a sneak peak visit the link above.

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