A jury will now have the chance to decide once and for all whether 160,000 Uber drivers in California are independent contractors, as the company contends, or traditional employees, as the plaintiff in a California class action suit argues. It took less than a month for a federal judge in California to allow the case against the company to proceed as a class action suit. The ruling has wide implications not just for Uber’s future, but for the labor model upon which much of the sharing economy rests. From the NYT:
The case, filed in 2013, presents challenges to Uber’s business model. Classifying workers as contractors lets the company keep its labor costs low while recruiting scores of people who use their own cars to ferry passengers around more than 300 cities worldwide. Uber’s rapid growth in just five years has given rise to a new service economy applying a similar contract-worker model across multiple sectors, from house cleaning to grocery delivery […]
The class-action certification may also set a precedent. Lyft, a competitor to Uber that has also raised venture capital, faces a similar class action.
Indeed, an estimate referred to in the FT predicts that “the labour costs for most sharing-economy companies would rise by between 25 and 40 per cent if they were forced to switch from being simple marketplaces to full-service companies.”
Uber, and the sharing economy at large, relies on a labor model characterized by low barriers to entry. UberX, Uber’s largest and most controversial offering, allows individuals without special certification—often those with other full or part-time employment—to register as drivers and pick up fares at their own convenience. For this large swath of drivers, the money made from driving is a very welcome supplement to their main source of income. Yet, when the company must begin sponsoring health insurance and retirement plans, this notion of the casual driver seems less tenable. In such a case, is classification as an employee indeed in the best interest of the driver?
Ultimately, policymakers will have to get creative in finding ways to accommodate this young and booming segment of the economy, to balance fair worker treatment with a regulatory framework that fosters the service and sharing economy (0ne key shift here has to be thinking through ways to delink benefits like health care from employment in the first place). We might not yet know what form that will take, but the answer isn’t to regulate new industries with outmoded classifications. Freelance work is not just an integral component of the new service economy; it also gives workers autonomy and encourages entrepreneurialism.