The Freedom of the Open Road (Subject to Terms of Employment)

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Just a few short months ago, I made the worst, most impractical decision a New Yorker can make: I bought a car.  And you know what?  I friggin’ love it.  Not because I’m a masochist (I don’t think), but because I LOVE driving–I love the freedom of driving.  It’s that freedom that makes the car an amazing pastime for former Midwesterners like myself.

I also like the idea of applying that same liberation to my day job. I’d be lying if I said that I hadn’t at least considered turning my new four-wheeled investment (ticket-capturing device?) into an Uber or Lyft, perhaps just a few nights a week.  There’s something very attractive about making your own hours while doing something you enjoy doing.  That’s the dream, right?  Indeed, as an Uber driver you can even make a competitive wage as compared to driving a yellow cab.

The problem is that Uber drivers may not be as free as we thought. A few weeks ago, the Labor Commissioner for the State of California issued a decision stating that Uber owed Barbara Ann Berwick expenses of over $4000 because Ms. Berwick was…drumroll please…Uber’s employee! If you’re not up on what that decision means, legally speaking, the long and short is that Uber may be incorrectly classifying its independent-contractor drivers as employees.  Or, in other words, the State of California does not think that Uber drivers have the freedom to take fares as they please and how they like, in the way a truly independent worker would.  And if that’s true, Uber drivers may be afforded the typical protections of an employee: minimum wage, overtime, workers’ comp, and maybe even health insurance.

(On a side note, the California Labor Code presumes that a worker is an employee until proven otherwise, so this isn’t a terribly surprising decision)

Uber’s obviously appealing the Labor Commission’s decision, but there are a few things that come out in the facts that suggest Uber has, at least arguably, a lot of control over its drivers.  Most of these come from Uber’s driver agreement:

  • Uber drivers have to provide rides to Uber’s specifications;
  • Uber cars can’t be more than 10 years old, and the model has to be approved by Uber;
  • Uber drivers don’t take tips;
  • Uber has complete authority over when a driver gets paid;
  • Uber provides an iPhone if the driver doesn’t have one;
  • Uber drivers’ apps are disconnected if they are inactive for 180 days.

These factors led the Labor Commission to say that Ms. Berwick was an employee, and therefore Uber owes Berwick her expenses incurred on the job under California law.

But what’s the real takeaway here? Why does this matter?  Well it’s not like Uber invented their model. VCs have invested over $9.4 billion into on-demand startups since 2010.  And the models for on-demand services are prevalent, even ordinary in cities like NYC.  What happens if all of the workers of these services–your favorite Drizzly delivery person, a Handy cleaner, or even an AirBnB host–are employees of the respective platforms they participate in?  For one, the platforms’ costs increase substantially: minimum wage and overtime kick in and the companies may have to offer insurance under PPACA.  This could, potentially, make these on-demand models infeasible, as Vinay Jain indicated in a recent blog post.  And this decision could turn the on-demand boom to a major bust.

On the other side of the equation, not all employees want to be employees subject to typical tax withholdings.  Of course if business isn’t going so well an Uber driver may want to claim minimum wage, at the least.  Then again, I’m sure, had Ms. Berwick been awarded back wages, she would not have wanted those wages subject to normal withholdings.  Who wants to see a quarter of their paycheck disappear?

In all, there’s something to be said for disrupting the traditional model.  Sure, there are beneficial economic effects that arise from competitive disruption.  But there are also growing pains.  At some point our laws will need to reflect the growing importance of the freelance economy and on-demand services (is there a new classification of worker we haven’t considered here?).  In the meantime, drivers may need to think about whether they’re willing to sacrifice the freedom of the open road for a chance to get plugged into the next big platform.