Uber has recently faced legal action in the United States in a debacle that threatens the fundamentals of its business model by questioning the employment status of its drivers. For those who are not aware, Uber is a five year old app based ride-sharing service. It allows people to find taxis using the app, advertising its drivers as being independent or ‘freelance’ contractors and, in California alone, Uber has over 160,000 drivers. In the five years it has been in operation it has began to revolutionise the way that the taxi industry operates by providing nicer cars, more convenient over the phone payments, and shorter wait times.
There has been much legal toing-and-froing over the issue and earlier this month Uber filed an appeal against the decision laid down by the California Employment Development Department (EDD). The decision was in favour of drivers being classed as employees as opposed to independent contractors, and the outcome of the appeal could have a far-reaching affect on employment law throughout the world as it encompasses complex and universal legal issues.
The lawsuit states that Uber treats their drivers like employees whilst denying them the benefits and stability of employment in a traditional sense. The company argues to the contrary; maintaining that drivers are in favour of being independent contractors as it allows them to be their own boss; drivers work their own hours, drive where they want, and undertake any other ‘gigs’ when they wish. The outcome of the case will likely impact significantly on the ‘gig economy’ as a whole, and other apps that allow users to ‘be their own boss’ such as Airbnb, Taskrabbit and Etsy will have to take note of and heed any findings that come out of the case..
It is not hard to see why Uber are taking this stance, as ensuring that drivers are independent contractors rather than employees is fundamental to the company’s business model. It has been estimated that to take on drivers as employees would cost the company an additional $13,145 per person. This could total as much as $4.1 billion when applied to all their drivers and would lead to huge financial issues, even with the valuation of Uber standing at around $51 billion. Investors clearly believe that, in time, Uber will grow and make enough money to cover this additional cost, but whether they will wish sit tight and wait for that return is another question.
For Uber, it is yet another obstacle in their path to establish themselves as the alternative to traditional taxi services. They have already faced opposition from cab unions around the world, and in Sao Paulo in Brazil they have even been banned from operating at all.
As we have explained above, things are looking worse still in the US, and the outcome of Uber’s appeal could hold significance not just for their own business model, but the gig economy as a whole. If the legal argument is replicated around the world it is likely only a matter of time before these ‘driver status’ issues begin to crop up in Britain as well.
If you are unsure of your status at work, or require any other employment advice, please contact our Employment Team via phone on 01245 890110, or by email at [email protected].
Recent Posts