A while back I wrote a long article about all the ways the government is making it nearly impossible to employ low-skilled labor. I worried that because it is getting harder and harder to profitably employ low-skill labor, the country would soon sort itself into those with skills and jobs and those on government assistance, with little or no opportunity for people in the second category to move to the first.
As part of that article, I observed that much of the capital in this country is flowing to new business models that use minimal numbers of employees. I wrote:
Is it any surprise that most entrepreneurs are pursuing business models where they leverage revenues via technology and a relatively small, high-skill workforce? Uber and Lyft at first seem to buck this trend, with their thousands of drivers. But in fact they prove the rule. Uber and Lyft are very very careful to define themselves and their service in a way that all those drivers don't work for them. I would go so far to say that if Uber were forced to actually put all of those drivers on their payroll, and deal with they myriad of labor compliance issues, their model would fall apart.
The California labor commission has ruled that an Uber driver qualifies as an employee, not a contractor, of the company. As a result Uber will have to reimburse a driver for expenses accumulated in the line of duty. That includes $256 in tolls and the IRS rate of $0.56 per mile for use of a personal vehicle for business purposes.
The actual issue in this case of reimbursement of expenses is pretty narrow, and actually kind of stupid. Uber is already paying drivers effectively by the mile by giving them a percentage of the mileage-based fee customers pay. All this will do is cause Uber to reduce the share of revenues drivers get by something like 56 cents a mile and then hand the $0.56 to them in a separate check. Its an extra accounting and paperwork hassle, but business people deal with mitigating such government-imposed stupidity 10 times a day.
No, the real danger of this ruling lies far beyond expense reimbursement. A few top of head thoughts
- This would obviously make Uber drivers subject to minimum wage. How does one even figure that out? Now that there are local minimum wages (e.g. LA soon to be $15 an hour) how do you compute minimum wage for a trip that begins outside of LA but ends inside the city? Or vice versa?
- Uber drivers currently only get paid for transporting passengers, but what about their time driving around waiting for a passenger? Will that be classified as standby time for which the employer must pay for? You can expect the standby time class action in California in 3..2..1..
- This changes the whole relationship between Uber and its drivers. Currently, Uber does not have to worry about driver productivity or work ethic, as long as they get good customer ratings when they do drive. Why? Because Uber is not paying them except when they haul a passenger. Now, if they have to pay them by the hour, Uber suddenly must police them for productivity and set minimum revenue generation targets for drivers. The flexibility that drivers love will be gone.
- And then there is Obamacare. If drivers drive more than 29 hours a week, Uber would have to provide health care or pay really expensive penalties. Will Uber find it necessary, as my company has and many other service businesses have, to cap driver hours at 29 hours a week max?
- What about California break law? Employers have an affirmative duty to make sure employees take a 30 minute unpaid meal break after X hours. And just allowing for it (ie allowing drivers to put themselves in unavailable status) is not enough - employers have to have processes and documentation in place to make sure the employee takes their break (I kid you not).
- What about CalOSHA? Is Uber suddenly responsible for working conditions and safety in the vehicle? And how does it do that if it does not own the vehicle?
- Every employee is essentially his or her own manager. Does that now make Uber subject to ensuring every driver has all state-mandated manager training, such as sexual harassment training?
- Employers are typically liable for actions by their employees, even if those employees are breaking the rules and ignoring the employer's wishes. Is Uber now liable for a driver who, say, verbally harasses a passenger? In the past, that gets sorted out pretty fast by the rating system, but does Uber have to take a more direct hand now do avoid a deluge of lawsuits?
- As of July 1, California employers must provide paid sick leave to employees. They must provide unpaid leave under the family and medical leave acts. In fact, California requires employers provide and track literally dozens of forms of mandatory paid and unpaid leave (including leave for victims of stalkers, just as one example of the scope of these requirements)
- The taxes and required fees owed by employers for each employee are myriad. State and Federal income tax must be withheld, Social Security and Medicare taxes paid, California state disability tax paid, unemployment tax paid, and workers compensation premiums paid.
- Unemployment could be real nightmare. Can drivers choose to drive for a while, then take unemployment for a while, maybe while tourist season in San Francisco is slow, then go back to driving? You think that can't happen? A number of my seasonal employees work in the summer, then take unemployment all winter despite having no intention of trying to find work in the winter. I pay 7% of wages in California as unemployment taxes and would pay more except that scale is capped and I can't get in a worse category than my current F-.
- Then there are a myriad of smaller issues that probably can be solved but consume bandwidth of a company's management that would otherwise be innovating. As one small example, one has to post about 20 different state and Federal labor posters in CA where all employees can see them. Where would that be for Uber drivers?