Does Uber Have Employees?
Is an Uber driver an employee, as the California Labor Commission has ruled, or an independent contractor, as Uber maintains?
You don’t have to be a lawyer to have an opinion, and now that school’s out, I asked two associates who happened to be with me as I was reading the labor commissioner’s decision. The 8-year-old said that Uber isn’t supervising the driver, so Uber isn’t the employer. The 9-year-old said Uber can fire the driver if the driver’s rating gets too low, which sounded more like Uber was the boss.
The latter argument appeared in the labor commission’s opinion; the former didn’t. What I deduce from that isn’t that my older child could serve on the commission, or that the younger is a better lawyer than the ones who work for the California Labor Commission. Rather, the fact that schoolchildren can come up with entirely credible arguments, pro and con, counting an Uber driver as an employee or as an independent contractor shows you that, strictly speaking, there’s no objectively correct answer to the question.
Indeed, a close reading of the commission’s decision shows that its ruling -- which Uber is appealing -- was almost entirely arbitrary. To be sure, California precedent provides a series of bullet points that help to decide if a person is an employee. But the bullet-point factors are far from determinative.
Those include, for example, such vague questions as whether the person performing the services is in the same business as the principal or in a different business. Uber says it provides a platform and the drivers do the transporting, while the commission said that Uber is in the transportation business. Who’s right? I defy you to give a better answer than a kid in elementary school can. The truth is, it all depends on how you define the business.
Another question, which sounds more specific, is whether the worker’s opportunities for profit and loss depend on his or her managerial skills. The commission said that an Uber driver’s profits don’t.
But that’s only one side of the equation. A driver who chooses to hang out where there are no customers isn’t going to make a profit -- and the decision of where to wait for passengers belongs entirely to the driver. That’s why the 8-year-old was correct to say that there’s no one supervising the driver.
The most telling sentence in the commission’s decision comes when it acknowledges that it relied upon a legal presumption in favor of deeming a worker to be an employee. Legal presumptions are the secret powerhouses of legal reasoning: When the issue can’t be determined on its own terms, the decision maker can default to the presumption and let it do the work. Yet a general presumption in favor of employment seems at least a little bit implausible when addressing a business designed specifically to disaggregate and disrupt an existing industry.
And therein lies the rub for the court that will have to decide whether to overturn the commission’s decision. The essence of the Uber model is that it intends to change the basic structure of employer-employee relations. The company frees itself from holding assets (such as cars) and from employing workers (such as drivers). In exchange, the drivers get almost unlimited flexibility in setting their work hours and designing their strategies for getting customers.
That means the matter before the court is a profound question of public policy: Do we want disruption of this kind? In cities around the world, concerns about the effects of Uber on existing taxi drivers have led to regulatory pushback.
I think we can conclude pretty easily that large taxi companies that own fleets shouldn’t be protected from Uber disruption. They are capitalists of the familiar sort, whether small or large, and should be subject to Schumpeterian forces of creative destruction.
The real concern is for the status of workers. Are drivers better off as employees or as contractors? This is a delicate policy question that’s not easy to answer. If drivers were members of unions with good benefits and regular hours, it could well be the case that contractor status would represent a demotion in working conditions and income. Where taxi drivers aren’t organized and are exploited or poorly paid, becoming contractors might actually be a benefit. 1 Where drivers already function as independent contractors, the change might not actually be all that significant.
But the major policy question isn’t even about drivers -- it’s about the other industries that might potentially be disrupted by Uber-style platforms. Consider me skeptical of some of the grand claims that have been made about the capacity of Uberism to transform scores of different service industries. But at least some businesses may well be disaggregated in the future; whatever policy decision is made in regard to Uber will affect those industries.
Asking whether we want disruptive businesses that appeal to consumers helps answer the question about what the courts are likely to do. Imagine a court agreed that Uber drivers in California were employees. Uber might well have to stop doing business in California. That would be bad for Uber -- but it would probably be worse for California, taking away a service that people value and creating efficiency and jobs in states that would respond by making sure that Uber was safe there.
It’s pretty safe to conclude, then, that Uber drivers ultimately won’t be counted as employees under California law. But the reason won’t be language or formal logic. It’ll be public policy -- of the kind best performed by legislatures, not commissions or courts.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
It's worth noting that contractor status could also change who can be a driver, because Uber drivers must own a new or newish vehicle, whereas taxi drivers often do not.
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