Seattle’s fight for driver unionization and an antitrust battle in New York may dramatically alter the way the gig economy is regulated.
Seattle’s long and contentious battle with the gig economy won’t be going away anytime soon.
Last week, a federal judge put an indefinite hold on a Seattle ordinance that gives for-hire drivers used by Uber, Lyft, and other ride-sharing apps the right to vote to unionize for collective bargaining, even though those drivers are categorized as independent contractors and not traditional employees. Unless it is appealed by the city, the hold is likely to last as long as a United States Chamber of Commerce antitrust lawsuit challenging the ordinance remains ongoing, according to Seattle University law professor Charlotte Garden.
In December 2015, Seattle’s city council unanimously passed an ordinance giving all for-hire drivers in the city the legal right to join a union, in response to concerns raised by the local App-Based Drivers Association about some drivers allegedly earning less than minimum wage, without benefits. Supporters holding cards that read “Driver Unity” erupted in cheers as the ordinance was passed, but for Uber and Lyft, the ordinance was a headache in the making. An Uber spokesperson in Seattle told Pacific Standard, “We share the concerns about the legality of the ordinance raised by the Chamber of Commerce in their lawsuit.”
Uber’s massive, rapid growth in the past few years has been aided in part by its ability to operate in the grey areas of many traditional regulatory mechanisms. If this ordinance is upheld — and concessions to unionized drivers follow — the increased costs have the potential to constrain the ride-share giant’s sprawling growth, especially if similar laws follow across the country. On top of Uber’s campaign urging drivers not to unionize, several legal challenges have been mounted to the Seattle ordinance. The most notable of these is the U.S. Chamber of Commerce’s federal lawsuit against Seattle, alleging unionization of non-employee drivers to be price-fixing, an antitrust violation.
“Seattle’s unprecedented attempt to permit independent contractors to organize a union is clearly inconsistent with federal antitrust and labor laws,” says a spokesperson for the U.S. Chamber. “If adopted more broadly, Seattle’s approach would lead to a morass of inconsistent state and local regulations that would stifle innovation and undermine economic growth.”
Concurrently, Uber is facing a separate federal antitrust suit in the Southern District of New York, in which Uber is charged with fixing the prices its drivers can charge. If its drivers were employees, this would be legal, businesslike behavior. But since Uber insists that its drivers are independent contractors, the suit argues, Uber is forcing drivers to conspire to fix ride prices. Both of these cases may prove to be watershed cases that clarify the complex and possibly contradictory regulatory framework around Uber and other gig economy companies.
Several lawsuits have argued that Uber drivers are not independent contractors (as Uber claims), but employees, who would unambiguously be afforded many labor protections, including the right to legally unionize and collectively bargain. Uber has paid hundreds of millions of dollars to settle these lawsuits and keep drivers classified as independent contractors. The question of employee status has not yet been resolved in court, and more suits of this type are likely to present future challenges for gig economy companies. However, the Seattle and New York cases do not broach the question of employment status. Instead, they call into question Uber’s (and similar companies’) relationship with the market between drivers and riders, and ask how our regulatory mechanisms should understand each actors’ ability to affect competition.
The area of antitrust law most relevant to the cases at hand concerns price fixing, made illegal in 1890 by the Sherman Antitrust Act, which attempted to reign in the unchecked power of Gilded Age corporations. As antitrust law was first being developed in the U.S., the independent entities that were perceived to pose the biggest threats to competition were corporations, not employees.
Central to the progressive era’s check on corporations was the codification of workers’ right to unionize. This was made possible by the Norris-Laguardia Act of 1932, which exempted employee unions from antitrust regulation. It may seem strange to consider collective bargaining by workers to be price-fixing (especially given the problems that antitrust legislation was attempting to address), but a union is essentially worker collusion, an agreement to sell their labor at a fixed price of wages, benefits, and working conditions. In other words, by guaranteeing things like better pay, unionization prevents companies from being as competitive as possible. Since antitrust law is often supportive of competition, Norris-Laguardia made it clear that employees could impede competition through unionization.
Uber’s massive, rapid growth in the past few years has been aided in part by its ability to operate in the grey areas of many traditional regulatory mechanisms.
Norris-Laguardia allowed employees to form unions, but never explicitly addressed the unionization of independent contractors, and whether they are an antitrust violation. Although the case law on the subject has resulted in somewhat divergent verdicts depending on the specific circumstances of each case, the last half-century of antitrust litigation has not been especially kind to independent contractor unions. In Federal Trade Commission v. Superior Court Trial Lawyers Association, the Supreme Court found it to be an antitrust violation for a group of independently contracted public defenders to band together in a boycott asking for higher wages. An earlier case, National Society of Professional Engineers v. United States, declared a professional trade group’s ethics requirements (concerning when clients and engineers could discuss prices) to be also a breach of Sherman. The Chamber of Commerce cites both these cases in its suit against Seattle.
However, according to Sanjukta Paul, a lecturer at the University of California-Los Angeles School of Law, drivers’ material circumstances are different enough from those of a lawyer or engineer that the precedent set by FTC and Engineers does not apply here. “None of the cases the Chamber of Commerce cites involved gig economy workers, anything like that,” Paul says. “They involved independent professional service providers, who had some kind of political and economic power.” A more relevant comparison might be within an industry that has relied on independent contractors since before Uber CEO Travis Kalanick was born: trucking. There are a handful of examples of non-employee truck drivers attempting to unionize over the past half-century, all of which have generally been quashed after the threat of an antitrust lawsuit has materialized.
For instance, in the late ’90s, the FTC began investigating a nascent movement to unionize port truckers. With blue-collar workers facing the expensive threat of an antitrust lawsuit, again and again, these attempts to unionize independent contractors in the trucking industry were scared into submission. As Paul writes, “The constantly looming specter of antitrust liability powerfully structured the strategy that port truck drivers pursued in their attempt to improve their working conditions and to gain a collective voice in the workplace.” Still, there has never been a court decision regarding truck driver unionization, and the Seattle case has the potential to set a definitive precedent for the question of the unionization of blue-collar independent contractors in several different industries.
Despite the differing circumstances, FTC and Engineers do Seattle no favors in its fight save the ordinance. However, it is by no means clear that the driver unionization is illegal. According to Garden, Seattle’s best defense of its law may be the state action doctrine, also sometimes called Parker immunity, which stems from another Supreme Court precedent. “This is an important wrinkle in Seattle’s defense,” Garden says. “It’s very likely that it’s what the antitrust claims in this case will turn on.” According to the state action doctrine, anti-competitive behavior is not an antitrust violation when given the state’s legislative blessing (or a municipality’s, with the state’s authorization). That means if Washington has given its cities the authority to regulate ride sharing in this way, then federal antitrust law doesn’t apply, and the ordinance lives on. Thus, the question will likely come down to whether Washington State has given its cities the ability to regulate taxi services in this way, or for these ends. Anticipating this defense, the Seattle ordinance cites two longstanding Washington state laws that give local municipalities the ability to regulate for-hire drivers in the service of “the safety, reliability, and stability” of the industry.
While the question of driver price-fixing is being litigated in Seattle, Uber is fighting an ongoing federal class action lawsuit in the Southern District of New York centered on allegations that the company engages in price-fixing. The New York antitrust suit, brought on behalf of everyone who has paid for an Uber, claims that Uber has “conspired with Uber drivers to use Uber’s pricing algorithm to set the prices charged to Uber riders.” Although Uber claims that it is possible for drivers to depart below the app’s set prices, in practice, drivers seem unable to do this. And while it is largely legal and uncontroversial for a company to set the prices it charges for its own services, the issues at the center of this case stem out of Uber’s continued attempts to present itself as merely a platform and market mediator, rather than a transportation company that sells rides to customers.
As the lawsuit argues, if Uber is merely selling an app that allows independent drivers to find customers, then it is a violation of the Sherman Act — price-fixing — for Uber and its drivers to implicitly conspire to charge certain prices. It remains to be seen whether the federal courts will agree with this interpretation of the pricing system, but according to Paul, when viewed together, the New York and Seattle lawsuits may highlight a contradiction in how Uber and other similar companies are currently regulated.
“The regulatory structure in which in Uber and other similar ride-services firms currently operate enacts an inconsistency,” Paul writes. “It permits Uber to engage in price coordination of ride services and bars Uber drivers from engaging in price coordination of the very same commodity.” Uber thus benefits from the ability to fix the prices drivers charge, while drivers are unable to benefit by fixing the prices they charge Uber for their labor.
Paul argues that if our government hopes to regulate the price-fixing of ride services with consistency, then it must decide if both Uber and its drivers can fix their prices, or neither. “Seattle’s ordinance would effectively undo the inconsistency by extending the right to engage in price coordination to Uber drivers,” Paul writes, “and the antitrust lawsuit against Uber would undo the inconsistency in the opposite direction — by eliminating Uber’s ability to engage in price coordination.”
So while it remains unclear how the courts will ultimately decide the New York and Seattle antitrust cases, the outcomes of these cases may help to standardize the patchwork regulatory system that currently governs Uber and other ride-sharing platforms. It’s also possible that the courts will find a way to further compartmentalize their understanding of antitrust law in order to maintain the status quo. Either way, these cases promise to have a dramatic effect on the future of the gig economy for consumers, workers, and companies alike. The cases will also help determine whether antitrust law might recall its original raison d’être — protecting citizens from powerful corporations — or if it will move even further toward a fetishization of competition at all costs.