This will be a big year for the gig economy. Uber and its rival Lyft are barrelling towards initial public offerings, with the former reportedly hoping for a $100bn valuation. We have spent years debating whether gig platforms — which deploy workers to serve customers without employing them — are reshaping the world of work for better or worse. But the IPOs raise a more prosaic question: is the business model sustainable?
Using an app to hail a ride has become so commonplace, it is natural to assume gig platforms are raking in profits. But Uber and Lyft customers are heavily subsidised by investors: both companies are still losing money. And while IPOs do not necessarily result in sober valuations based solely on the facts, the process will at least expose the sector to closer scrutiny.
Take Uber, where two court cases in London last year revealed the tension at the heart of the company. First, the company narrowly avoided a ban on its right to operate in the city. The licensing authority had refused to renew the company’s licence in September 2017, saying it was not a “fit and proper” operator, but in an appeal Uber convinced a judge it had changed its ways. In the interim, it had made various changes to improve safety, like a new limit on the hours it allows Uber drivers to work.
The second case ended less well for Uber as it lost another appeal against a 2016 legal defeat: judges yet again rejected its claim that drivers were “independent contractors” rather than “workers” to whom it owed the minimum wage and holiday pay. Uber’s problem is that the more it does to satisfy increasingly assertive regulators that it is providing a safe and reliable service, the more control it must impose on drivers (such as limiting their hours). This makes it ever harder to claim they are truly self-employed.
The issue was not lost on the two out of three Court of Appeal judges who ruled against Uber. “For Uber London Limited to be stating to its statutory regulator that it is operating a private hire vehicle service in London, and is a fit and proper person to do so, while at the same time arguing in this litigation that it is merely an affiliate of a Dutch registered company which licenses tens of thousands of proprietors of small businesses to use its software, contributes to the air of contrivance and artificiality which pervades Uber’s case,” they wrote. Uber now plans to appeal for a third and final time. But in the UK and elsewhere, it is hard to believe the company will be permitted to wear two hats — “responsible transport provider” and “customer-worker matching algorithm” — indefinitely.
There is a way out. Last year, a Danish gig economy company called Hilfr, which sends cleaners to private homes, signed an innovative collective agreement with the 3F union. After 100 hours of work on the app, Hilfr workers become covered automatically by the agreement, which gives them a minimum wage, sick pay and pension contributions. If they prefer, workers can opt out and continue to work as freelancers. This solution might not be directly transferable to other labour markets. But it is a reminder that the benefits delivered by gig companies — speed, flexibility, transparency — are not incompatible with giving workers employment protections.
The catch, of course, is that it costs money. Uber losses have already reached about $1bn a quarter, even without the expense and tax bill that comes with being a big employer. Raising prices will be hard, since competition is fierce in markets like the US. Switching costs are extremely low and many customers and drivers have both Uber and Lyft apps on their phones. Offering employment benefits to drivers might well help to snap up the best workers and hang on to them. But if customers were not to shoulder the cost, investors would have to. There is a road to a sustainable future for the gig economy, but it is not paved with gold.