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Turning Back The Clock
Why The Uber Ruling is Bad News

A California Labor Commission ruling is casting uncertainty over the sharing economy’s business model. The ride-sharing company, Uber, which is valued at more than $40 billion, claims to only be a provider of the technology that connects ride-hailers to private drivers. However, the Commission’s ruling has challenged that assessment, ruling in favor of the plaintiff, Barabara Ann Berwick, who has sued the company for over $4,000 of expenses, claiming that she operated as an employee rather than as an independent contractor as Uber claims. The commission stated that the company is “involved in every aspect of the operation”, from “vetting drivers and terminating their access if their approval ratings fall, to setting minimum standards for their cars,” and as such does not merely act as a lead generator and middle-man. The Financial Times:

“It’s a big deal in the sense that it is the first measured decision to apply the traditional test to a company of this consequence, size and growth,” said Bill Gould, Stanford Law School professor and former chairman of the National Labor Relations Board.

“It is clear that a major element in this business model for this employer was depriving these individuals of employee status. That advantage, if the courts uphold the commissioner, is gone.”

Prof Gould added that the issue is also the subject of a class-action lawsuit in California and the Labor Commission’s “well-reasoned” decision could prove “instructive” to that case.

The decision may be “instructive”, but we worry that attempting to force the freelance model into the old employment template is bad for everyone.

One part of the problem is that our entire system—from health insurance to retirement and other benefits—was set up for a time when long-term steady employment was everywhere. That world, we are afraid, is just not coming back. We will never again be a nation of Ford factory workers doing steady full time jobs for thirty years and then retiring on a defined benefit pension.

The other part is bureaucratic path dependency. The laws favor a traditional employment because government finds it easier to control and tax people on payrolls. But the country should not be stuck with an out of date employment model because it is more convenient for the IRS.

One can already see a future emerging where people make a living by doing a combination of things: driving for Uber, doing temporary office work, running a freelance design studio from their home, and using Airbnb to rent out a spare room or couch. We need a legal and tax system to match that reality, a system that encourages freelance and part time work. We need a regulatory framework that supports this kind of individual entrepreneurialism.

Smart, forward-looking politicians should start looking hard at how to help the country transition into the future rather than trying to turn back the clock.

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  • fastrackn1

    And a decision like this coming from old blue Cali is such a shock….

  • f1b0nacc1

    While I am sympathetic to the overall point made in this piece, the truth of the matter is that by any reasonable reading of EXISTING law, the California board made the right decision. Uber clearly met the existing test for an employer, however much they may claim that they are not.
    Now, with all of that said, the obvious next move is to change the law to move towards the model that the author recommends. I suspect that this will be far easier said that done, however, but until it happens, the Ubers of the world are going to have to adjust.

  • FriendlyGoat

    Employees have some rights, some leverage and some protections that contractors don’t. That’s why everyone from Uber to TAI wishes to make people into contractors who make ends meet with a driving gig, a temp job, a freelance something or other and a renter in the bedroom—–all at once, all the time, forever. It all sounds so “family friendly”, you know?

    THIS, so Uber can be worth $40,000,000,000——BECAUSE it match-makes with no real responsibility to anyone. How sweet for traders of an idea. “We’ll just keep and trade that “valuation” stuff, and YOU, dear driver need to enjoy having a renter in your bedroom.”

    As for TAI being “afraid” that a world of decent employment is “just not coming back”, well, that depends on how stupid voters can be made to be with help from spin like this. California was right to find the way it did on this matter.

  • Boritz

    Yeaaaaaah. I think we’re gonna have to go ahead and have employees file their TPS reports with the new cover sheet retroactive to the first of the month. Failure to file with the proper cover sheet could lead to delays in payment. Mmmmkay? Greaaaaat.

  • JR

    The real test is whether the aggregate income earned by Uber contractors will be higher or lower than the aggregate income of Uber employees. Of course, we will have to take into account the difference in the cost of fares for consumer. The idea that we are dealing with management vs. workers is silly. The ultimate arbiter of a business strategy is the consumer paying for the product.

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