Uber Drivers Just Killed All the Parts of the Job They Supposedly Liked the Most

At the behest of a group of Uber drivers, the California Supreme Court has ruled that Uber drivers are Uber employees, not independent contractors, under California law:

In a ruling with potentially sweeping consequences for the so-called gig economy, the California Supreme Court on Monday made it much more difficult for companies to classify workers as independent contractors rather than employees.

The decision could eventually require companies like Uber, many of which are based in California, to follow minimum-wage and overtime laws and to pay workers’ compensation and unemployment insurance and payroll taxes, potentially upending their business models.

I believe that this will pretty much kill Uber (though it will take some time to bleed out) for reasons discussed here.  Rather than discuss consequences for the company (everyone is finally doing this, following the general media rule I have stated before that it is OK to discuss downsides of new government regulations only after the regulations have been passed and become essentially un-reversible).

People don't always seem to have a good grasp of cause and effect.  I don't know if this is a general problem programmed into how humans think or one attributable to the sorry state of education.  My favorite example is all the people who flee California due to the high taxes, housing prices, and stifling regulation and then  -- in their new state -- immediately start voting for all the same things that caused them to flee California.

One of the aspects of being an Uber driver that supposedly attracts many people to it is the flexibility.  I summarized the advantages in an earlier post:

Here are some cool things about working for Uber:

You can work any time you want, for as long as you want.  You can work from 2-4 in the morning if you like, and if there are no customers, that is your risk

You can work in any location you choose.  You can park at your house and sit in your living room and take any jobs that come up, and then ignore new jobs until you get back home (I actually have a neighbor who is retired who does just this, he has driven me about 6 times now).

The company has no productivity metrics or expectations.  As long as your driver rating is good and you follow the rules, you are fine.

This all ends with the California decision.  You drivers are all thinking you won this big victory because you are going to have the same job you loved but you will just get paid more.  This is not going to happen.  As I implied above, in the long-term this job will not exist at all, because Uber will be dead.  But in the near-term, if Uber tries to make this work **, Uber is going to excercise a LOT more control of your work.

That is because if Uber is on the hook for a minimum cost per hour for your work, then they are going to damn well make sure you are productive.  Do you enjoy sitting around near your suburban and semi-rural home at 3AM waiting to get some business?  In the future, forget it, Uber is not going to allow this sort of thing now that Uber, rather than its drivers, is carrying the risk of your being unproductive.  They are going to take a lot more control of where and when you can drive.  And if you do not get with the program, you are going to be kicked out.  It won't be three months before Uber starts tracking driver productivity and kicking out the least productive drivers.

Congratulations Uber drivers, in the quest to try to use the power of government to extract more money for yourselves from the company, you just killed your jobs as you know it.  You may have had freedom before but now you are working in Office Space like the rest of us.

This whole case just goes to support my frequent contention that the only labor model the US government will fully accept is an hourly worker working 9-5 punching a time clock.  Every new labor model that comes along eventually runs head-on into the government that tries to pound that square peg into the round hole of a time-punching factory worker.  The Obama administration even did its best to force a large number of salaried workers into punching a time clock.

 

** If I were the leader of Uber, I would announce today that we are exiting California.  This is an existential issue and the only way to fight it is right now on your home turf.  Any attempt to try to muddle through this is going to lead to Uber's death, and would thus be a disservice to its shareholders.   Whether this happens will be interesting.  Uber is owned by a bunch of California VC's who generally support exactly this sort of government authoritarian interventionism.  It will be interesting to see if a bunch of California progressives let $50 billion in equity go down the drain just to avoid offending the sensibilities of their fellow California progressives.

43 Comments

  1. kidmugsy:

    I agree wholeheartedly. Well said, Mr Coyote.
    California here I come -> California there I go.

  2. Jaedo Drax:

    the important part:
    "Such incentives include the unfair competitive

    advantage the business may obtain over competitors that properly classify similar

    workers as employees and that thereby assume the fiscal and other responsibilities

    and burdens that an employer owes to its employees. In recent years, the relevant

    regulatory agencies of both the federal and state governments have declared that

    the misclassification of workers as independent contractors rather than employees

    is a very serious problem, depriving federal and state governments of billions of

    dollars in tax revenue and millions of workers of the labor law protections to

    which they are entitled"

    wouldn't want to deprive the "federal and state governments of billions of dollars in tax revenue ... to which they are entitled"

    this also effects Fedex ground services among others.

  3. Hell_is_Sartre:

    I'm still unfamiliar with the increasingly cited "neat-o" exception to statutory law invoked here (as it is over at Reason Magazine and elsewhere).

    Under the objective tests established by the IRS, the Department of Labor -- and apparently the State of California -- rideshare drivers are employees. It's not even close.

    So the proper indignation is with the very concept of these tests, just as one should be indignant over, say, minimum wage laws and such. But saying "Uber is different" is not only wrong as law and fact, it is also, quite frankly, intellectually sophomoric.

  4. David Neylon:

    Golden egg. Goose. Dead.

  5. Jaedo Drax:

    Could you cite the statutory law that you claiming says ride share drivers are employees? the expansive USDoL guidance from 2015 was withdrawn in 2017. The tests themselves include a large amount of gray, with very few bright lines that force it one way or the other.

    I would argue that Uber and it's contemporaries could be constructed as a company that employs a large number of independent contractors, but may not be right now under the existing tests.

  6. joe - the CPA:

    As employees, the unreimbursed business expenses are not deductible (beginning in 2018 through 2025.) under the 2017 tax act.

    Now as employees , the Uber drivers will be paying tax on their gross income, not on their net income. Pre 2018- The typical uber driver had taxable income due to the overall cost of operating the vehicle exceeded the revenue.

    What dumb-axx lawyer decided it was a good idea to treat the uber drivers as employees.

  7. Curtis:

    So, given **para, Uber is doomed since, as you say, they will never eliminate their business in California. Short sightedness is king among American entrepeneurs.

  8. Variant:

    ... except Uber drivers *are* contractors -- by law. Even in New Jersey.

    Sophomoric indeed.

  9. jdgalt:

    This is disingenuous, and I hope it will be appealed to a federal court. Uber (and similarly Lyft, etc.) is not in the taxi business; they merely provide software apps that independent drivers can use to operate businesses. If their corporate form is not structured that way, perhaps they should replace it with one that makes that clear -- perhaps even a non-profit.

    The underlying problem, of course, is the same bureaucratic greed which underlies NLRB's attempt to force restaurant franchise-chains to negotiate with unions as if they directly employed all their franchisees' employees. (I'm surprised Trump hasn't intervened to undo that piece of Obama's bad legacy yet, or at least appointed a secretary of labor who will.)

  10. glenraphael:

    It might *look* like “a group of uber drivers” - in that they’re the group with legal standing to sue - but there has to be a baptists/bootleggers dynamic behind it where money/energy behind this suit ultimately comes from traditional taxi unions and related companies who *want* it to kill Uber. Doesn’t it?

  11. randian:

    I'd say that's very likely. It would be interesting to know if the drivers that were the face of this suit were ever employed by taxi or limousine companies.

  12. hcunn:

    The flexibility of the contractor model is ideal for the part-time driver who makes some extra money at times (especially peak-demand times) of his choosing. But I get the impression that most Uber rides are given by people working full time.

  13. hcunn:

    Rather than dropping 1/8 of the national market immediately, Uber might rebrand operations in "employee" jurisdictions as "Taxi-Uber." Both passengers and drivers would be alerted to expect different working conditions and pay structures from the regular "Uber" experience. (But that might heighten questions whether they should be forced into restrictive city "medallion" systems.)

  14. hcunn:

    I believe that States have some discretion to set labor laws more strict than the Federal standard.

  15. Terry5008:

    Wouldn't surprise me if SEIU had a hand in it. Those people are pure evil.

  16. MSO:

    Seems as if Manafort's taxi medallions may be worth something after all.

  17. Wulf2000:

    To the best of my knowledge, taxi companies hire drivers and consider them as independent contractors. To drive for a taxi company, the individual must pass a criminal background check, must pass a physical to prove he or she is alive and not a druggie, and the individual has to pay all these fees out of his own pocket. Since transportation companies have huge upfront costs such as vehicles and permits to the various local governments, I bet it was the transportation companies and local governments that pushed it all the way to the supreme court. After this ruling, will the state force the taxi companies to consider their drives as employees and not as contractors?

  18. irandom419:

    Or just fire everyone and buy a fleet of pedestrian killing self-driving cars for their California operations.

  19. sean2829:

    Two thoughts.
    First, the target may be Uber but look at how the higher education system has evolved. Tenure track faculty have been replaced by adjunct professors, often working for two or three separate colleges to avoid paying benefits. I suspect there are a more adjuncts than Uber drivers and the colleges and universities have really been treating these people horribly for a long time.
    Second, how much of this about the cost of employment that gets funneled through to the government? Most independent contractors are likely not factoring in the fact that a third of more of an employee's (or independent contractor's) earnings never make it into their pay check.

  20. marque2:

    Here is the problem. As a California resident whom am I going to listen to, you or the California Supreme court?

  21. Magua1952:

    I never drove a cab but have talked with some drivers. It appears to be a job where one can make $200 per day if one works 14 or 15 hours. That can modestly support a family. The typical driver is an immigrant with limited English but they are able to learn the map. Almost all of them move on to something else if they can.

    The Uber drivers have absolute flexibilty just like the cabbie. The only problem is that hours not worked means no income. Uber drivers have difficulty exceeding the cost of driving and maintaining a car. If one already has a car it can be run onto the ground for a short time. Eventually the car breaks down and that is the end of the Uber career. I have met several who went this route.

    Cutting into the very modest earnings of cabbies is a great business model for someone but not the Uber or cab drivers. Ultimately people want to pay as little as possible for driving services. Who can blame them.

  22. JTW:

    In Europe several countries have decided that Uber drivers are employees not because the drivers wanted it, but to destroy Uber in favour of taxi companies who didn't like the competition.
    By declaring Uber a taxi company and their drivers employees the drivers now need to buy taxi licenses, which in say Amsterdam can cost upwards of 100.000 Euro and are extremely limited in numbers (one of the reasons they're so expensive, taxi companies and drivers buy them as an investment to sell at a profit).
    As no Uber driver is ever going to make that much money, it effectively makes it impossible for Uber to operate. Add the extra cost of operating as a company with employee drivers, and it's even worse, so Uber shuts down and the taxi companies and their cronies in local governments making millions off of fleecing taxi licenses keep their monopoly situation.

  23. JTW:

    They do, lots of states for example require licensing for the weirdest occupations, none of which exists at the federal level.

  24. JTW:

    I'd believe most anyone over the California supreme court...

  25. theBigLip:

    Stop on the "short sighted" comments, since they are themselves, short sighted 🙂 Does anyone understand the long term model for Uber? All the drivers (whether you categorize them as employees or contractors) are going to be replaced by driverless cars. Uber cannot just shut down because they need to keep their business intact until that time comes. So this is not a bad move by the drivers. Again, lots of hate thrown at California by people that don't understand the full issue.

  26. The_Big_W:

    Communists NEVER learn.

  27. Not Sure:

    Don't you think that description might be insulting to evil people?

  28. Not Sure:

    What do customers want? This seems to be a question that nobody cares much about.

  29. JK Brown:

    Their cars only kill pedestrians because their fancy avoidance systems don't operate anywhere near as well as installed systems on production cars. Intel showed their chipset used in the production of that car could have seen the person at least 30 seconds earlier using the oddly bad video released, but Uber disabled the stock systems.

    That's why they settled so quick. Any media/court wrangling would move this to documented fact.

  30. JK Brown:

    Wind energy will be economically viable before self driving cars can operate in a stochastic environment safely.

  31. sweetsuzee:

    I love how people opine and don't have a clue. Uber and Lyft had absolutely nothing to do with this lawsuit. The fact that some bloggers decided to write articles implying same is just your typical FAKE NEWS of today. However, this decision will most surely affect ALL "gig workers" including Uber and Lyft. The suit was brought about by drivers of a package and document delivery company called Dynamex Operations West, They claim Amazon as one of their clients and their drivers cut their noses to spite their faces because they are no longer independents and now will have to face the music of an employee. I suspect that Uber will close shop under the circumstances. However, this will most assuredly put the damper on taxi companies as well. They will now have to treat their "IC's" as employees with taxes duly withheld if I read the case correctly.

  32. marque2:

    Hilarious, but just about anyone can't enforce laws that can put me in jail. Whether you like the law or not, the Supreme court of CA just gave the state power to fine / arrest / jail me, if I engage in the activity they just declared illegal.

  33. egg0:

    Wind energy is economically viable on Martha's Vineyard and Hawaii. Local NIMBY lords say it's "aesthetic pollution."

  34. William Woody:

    This whole case just goes to support the idea that the only labor model the US government will fully accept is the feudalistic model of workers as serfs working full time for employers who are then fundamentally responsible for lives of their workers in the same way feudal lords were responsible for the serfs working their land.

    I mean, consider the justification for all of the modern labor movement demands: demands that health care be paid for by employers, demands that employers grant employees family leave, demands that employers pay their employees a living wage. Without realizing it--perhaps without even intending it--the modern labor movement is seeking to turn the employer/employee relationship into the single most defining relationship in the lives of workers, with the employer being essentially the caretaker of the employees.

    Which, of course, must come at the price of the employees being monitored to the nth degree--exactly as a feudal lord would monitor the behavior of his serfs.

    I can't help but think that the Left is trying very hard to roll back the clock--to roll back progress--and are inadvertently creating the feudal system they then complain about when they complain about wealth inequality.

  35. mlhouse:

    While you would think hip urban dwellers would be big fans of Uber, the real issue is that "Progressives" oppose progress if it eliminates the ability for graft, kick backs, payoffs, and political corruption. That is what taxi "licenses" are for, a way for the local politician to have his hand out. If something comes along that destroys that process, it will become a target to be destroyed.

  36. Maximum Liberty:

    +1 for excellent historical perspective.

  37. Maximum Liberty:

    An obvious follow-on is that, if Uber drivers are "employees," the very first thing that Uber will do is ban them from working for Lyft while on the Uber clock. Since many drivers do both in order to get the driving orders, I imagine that will be the end of Uber and Lyft in any jurisdictions that do the same.

  38. rick:

    "Stochastic environment" sounds cool. I'm gonna go look that up, see if I want to operate in one. BRB!

  39. John_Schilling:

    This is not an existential issue for Uber. The existential issue for Uber, is replacing the drivers with robots ASAP. They can't make a profit with human drivers, whether as employees or contractors, 9-5 or gig work, and they've known that from the start.
    If the robots work out before the money runs out, they're going to want to keep their California market share locked in and ready, so I expect they will suck it up and play by California rules for the next few years. If the robots don't work out, Uber is going down regardless.

  40. Mike Powers:

    buhb uhb uhb uhb buh uber is like BETTER AND STUFF, also LOTS AND LOTS of MONEY, like, seriously, we're talking about a *SHITLOAD* of money here, therefore uber doubleplusgood. Do I have to draw you a *diagram*, here?

  41. Bruce Zeuli:

    I agree. The Royalty want to define, manage, license and tax a small group of lords. The lords are then responsible for managing the serfs, and for defending Royalty against the encroachment of potential new lords offering a better deal to the serfs. And just as in feudal times, it is the labor of the surfs that actually pays for every benefit supposedly provided by the lords or Royalty.

    That most serfs prefer it this way seems unchanging.

  42. Bruce Zeuli:

    Employment wise, taxi drivers appear to be independent contractors in CA, just like Uber drivers. So why target Uber? Well because there are two kinds of independent contractors. independent in name only and independent in reality. To be clear, cabbies are independent in name only.

    Most everything about a Cabbie's work is controlled by government through their licensed cab company agents. While at Uber, most everything is controlled by the drivers. Government hates Independence. It has nothing to do with protecting the drivers or customers. It's about taxes and control.

    Cab companies have evolved over the years to provide a revenue stream and influence to government officials. They control a fleet of cabs using various Government licensing schemes. And they manage a voting block of independent contractors who are beholden to the Cab companies for their livelihood. It makes perfect sense that government would work to protect this structure.

    Uber either didn't recognize this, or thought they could ignore it. I believe that Uber will adapt to provide the control and revenue stream Government demands. If tomorrow Uber started collecting taxes from every transaction, Government would start punishing taxi companies who didn't do the same.

  43. slocum:

    I agree. If they don't get a stay pending appeal, I think Uber has to exit California -- not its corporate HQ necessarily, but it needs to shut down it's ride-sharing operations there. I also don't see any way the model can work with W2 employee-drivers.