Imagine a job where you only need to show up for work when you feel like it, and when you do show up, you can refuse to do any task you don’t feel like doing, and even abruptly change your mind and back out on one you’ve agreed to. A job where nobody would ever penalize you for this behavior. Would you consider this arrangement an example of a traditional employer-employee relationship or something different?
That was the question before a tribunal of judges for the New York appellate division last week. You might be surprised to know they decided it was the former, upholding an earlier ruling requiring the app-based rideshare company Uber to pay unemployment insurance to its drivers. The judges said the drivers were traditional employees, not independent contractors as the company claims. It is a potentially serious blow to Uber and any other “gig-economy” company, whose business model depends on contract labor.
The judges acknowledged in their own ruling that an Uber driver “has no set schedule and may log on [to the company app] as often or as little as the driver chooses.” They noted that drivers can refuse to pick up passengers and “are not penalized for refusing a customer’s request.” Drivers can even “cancel the trip without penalty at any time.”
Nonetheless, the judges ruled that the rideshare company exerts enough control over other aspects of the work to count as the drivers’ employer. They noted, among other points, that drivers “may choose the route to take in transporting customers, but Uber provides a navigation system.” Well, there you go.
Such is the tortured logic used by the courts, politicians, regulators, and labor unions seeking to bring gig economy companies to heel rather than acknowledge that they represent a new form of enterprise. At the forefront of this struggle is Uber and its fellow the app-based rideshare company, Lyft. They had a major win in November in California when voters rolled back the main part of the state’s anti-gig economy law AB5. Things haven’t gone as well for them in New York.
The New York ruling is significant because the state and federal laws regarding unemployment, overtime, health insurance, and so on only apply to employees, not contractors. Legally speaking, a contractor — basically, anyone who does freelance work — is an independent business. Politicians such as California governor Gavin Newsom and New York City mayor Bill de Blasio claim that classifying workers as contractors is just a way for businesses to dodge their responsibilities, such as providing health and retirement benefits. But the relationship between Uber and its drivers is fundamentally different from those between traditional employers and their employees for the reasons stated at the top.
Labor leaders hate gig-economy companies because they compete with unionized businesses but aren’t legally required to collectively bargain themselves. The New York Taxi Workers Alliance was behind the case against Uber in New York.
The rideshare companies argue that the flexibility that comes with classifying their workers as contractors is crucial to how they operate. Only 9 percent of Uber’s drivers in California, for example, use its app for 40 or more hours a week. These full-time drivers only account for a quarter of all Uber rides in the state. The remaining 75 percent of rides are handled by drivers who work less than 40 hours. Two-fifths of Uber drivers in California work 25 hours or less for the company — a side hustle to earn extra money when they need it.
Those drivers will lose the opportunity to earn extra cash if they must be classified as employees. Uber said earlier this year that if it was forced to treat its 1.2 million drivers as full-time employees, it would have to drop about 75 percent of them. It just isn’t worthwhile for the company to keep people who drive limited hours if it must also comply with regulations for overtime, unemployment, and the rest. That was true before the COVID-19 crisis but is even more so now. The rideshare business has taken a serious hit because of reduced travel and commuting. Uber’s revenue dropped 18 percent from last year, while Lyft’s fell 48 percent.
The workers who would stay on as full-time drivers would likely lose flexibility because the company would have to set their schedules. Overtime and unemployment rules are based on the number of hours worked.
In the end, New York would make Uber look a lot like a traditional taxi company. The irony is that Uber exists to provide customers with a better option than taxis.