A case for compromise on Uber's 'contractor' legal dispute

As a California ruling joins a Florida lawsuit in challenging Uber's business model, workers in the sharing economy need a middle ground.

uber app iphone

Uber's mobile app.

Credit: Zach Miners/IDG News Service

Uber ought to be on top of the world. The "ride-sharing" app has already raised more than $5 billion and is worth an estimated $50 billion. Just as important, it has reached the stage of ubiquity where people use its name as a verb: "Forget driving, we'll just Uber over to the event."

And yet, a dark cloud is shadowing Uber's future, along with that of many other companies riding the wave of the so-called "sharing economy." Many of those companies' business models are built around workers classified as contractors, not employees, but it seems increasingly clear that no matter how convenient for Uber and its ilk, that classification is unlikely to stand up to judicial scrutiny. At least not without major changes in the law and the way these sharing-economy companies do business.

From Miami to Sacramento

Late last month, I wrote about how a Florida fender-bender could threaten Uber's business model. Last week, things got even more serious when the California Labor Commissioner's Office decided that a driver for Uber was actually an employee of the company, not an independent contractor.

For now, the ruling applies only to California, but many observers predict it could have widespread repercussions. Uber is appealing, of course, and the company has won some battles against similar efforts in other states.

Whatever happens in these cases, this issue isn't going away. The government's employee/contractor rules are intentionally vague, so many traditional companies have long struggled with the distinction. But the sharing-economy business model falls into an in-between area so complex that it could easily be defined either way.

Uber has long taken a scorched-earth path to fighting these issues, but it seems to me that Uber's claim that drivers are contractors – at least in the classic, generally understood sense – simply doesn't hold up. Uber drivers do use their own equipment (their cars), which is often one element of being a contractor. But the law also says contractors are supposed to have wide leeway in performing their tasks, and Uber's strict rules about how those folks do their jobs are well-known publicly.

That makes Uber's claims that it is "nothing more than a neutral technology platform" patently ludicrous. According to Reuters, for example, California officials found Uber is "involved in every aspect of the operation."

From courtrooms to compromise?

At the same time, though, Uber drivers' flexibility in work hours, their ability to work for other ride services (although Uber does much to discourage this practice), and other factors don't jibe with the typical understanding of what an employee is either. And some drivers may value those factors, while others are demanding the increased security, benefits, and predictability that often comes with being an employee.

On Friday, the LA Times posted a story by Tracey Lien, Tiffany Hsu, and Daina Beth Solomon suggesting that a compromise might be possible, and while this won't be easy, I'm increasingly coming to believe that's the only viable long-term solution.

Classifying drivers as traditional employees could lead to much higher costs for the sharing-economy companies, including Social Security, workers' comp, and unemployment insurance, not to mention healthcare benefits and so on. That could cost jobs and increase fares, which doesn't seem good for anyone. But it also seems clear that Uber and other sharing-economy companies are using every method they can to maneuver drivers and other workers out of the protections enjoyed by other workers. Given the huge disparity of power in these relationships, there's a very real concern about exploitation.

Neither traditional employee nor contractor status seems to fit this new situation. We need to create a compromise class of workers for these types of companies, with some of the rights and responsibilities of both contractors and employees. As the Times points out, however, any compromise won't be easy to pull off, requiring participation from the IRS, the Department of Labor, and other regulatory agencies across multiple states. 

That won't happen fast, but until it does, Uber will face continuing fallout from these kinds of cases, and shouldn't be surprised if it doesn't like the outcome. Uber and other sharing-economy companies are creating genuine innovation opportunity, and that should be encouraged. But that doesn't mean they should get to pick and choose the regulations that suit their interests while rejecting those that don't. Uber and its ilk would do better to help move the process of compromise along instead of always insisting on the right to do whatever it wants.

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