Economy

The Uber Revolution Hinges On One Key Question

CREDIT: AP Photo/John Locher

A driver waits to pick up passengers at an Uber and Lyft pick up area at the Bellagio hotel and casino in Las Vegas.

Lyft drivers have been shorted about $126 million in pay over the past four years, according to documents released Friday as part of a lawsuit against the company.

The massive back-pay estimate is based on a federal standard for per-mile reimbursements, but the alleged underpayment really centers on a much more fundamental and complicated question: Are people who drive for companies like Lyft and Uber employees, independent contractors, or something in between?

The cab-killer apps treat their drivers as contractors to save tremendous amounts of money by evading the legal protections that employees enjoy. Employees are entitled to reimbursements for expenses, like the $126 million in estimated back-pay for Lyft drivers, as well as to overtime pay, minimum wage protections, unionization, and unemployment insurance. Contractors get none of that, which makes them much cheaper — and in turn allows Uber, Lyft, and others to radically undercut traditional competitors.

Prominent figures have been arguing about the employment law questions that prompted massive lawsuits against the cab-killers for years now.

Fans of the so-called “gig economy” argue the drivers’ broad autonomy over their hours means they function more like small businesses than cogs in the Uber machine. The companies argue many of their employees who aren’t bringing suit agree with that entrepreneurial portrayal of the work. But by the standards of traditional labor law, these workers look a lot more like employees than contractors.

Introducing The ‘Independent Worker’

Some influential voices say that gig economy work is so unique that the country ought to add a third in-between category of worker-employer relationship to the law.

The argument is that these apps represent such a dramatic innovation on traditional commerce that rules designed for the industrial age don’t fit. Talk of disruption in the early days of the Uber revolution turned quickly to talk of deregulation.

But how novel is Uber’s structure, really? What if it isn’t innovating commerce in the style of Henry Ford’s production lines and Toyota’s just-in-time inventory practices, but merely innovating the even older art of tunneling underneath the walls of the legal system to escape rules that protect the masses from the powerful?

Those broad questions may come down to something very straightforward: The measurement of time. In December, center-left economists Alan Krueger and Seth Harris published work arguing a third employment category is essential specifically because gig economy work is impossible to measure with a clock. Drivers can be doing things other than actively ferrying a passenger while the app is running, they argued, so gig economy jobs are incompatible with the pay laws at the heart of employer-employee relationships.

The paper dubbed its new legal category the “independent worker.” Independent workers would get no overtime, unemployment insurance, or minimum wage protections, and would have only a limited ability to organize and bargain collectively.

Fortunately for drivers, however, that appears to be bullshit.

“[Workers’ time] is so far from immeasurable that they measure it down to the minute,” the Economic Policy Institute’s Ross Eisenbrey told ThinkProgress.

In their own new paper, Eisenbrey and colleague Larry Mishel seek to deflate the notion that Uber is forcing a revolution in the laws governing sweat-for-money exchanges throughout the economy.

Uber generates an enormous amount of data about rider and driver behavior. It has a quite specific grasp of various issues related to the hours that are supposedly immeasurable. The company knows how many hours its drivers work (fewer than 10 per week for most), the median wage for a driver who works between 35 and 50 hours in Chicago ($16.21 per hour), and how many of its drivers work more than 50 hours per week in New York (7 percent). Those stats come from a paper Krueger himself wrote using Uber’s exacting driver-hours data.

The argument for a third class of worker laws, then, is not really about Uber being unable to gauge the hours people are “on the job” with precision, but about which seconds during that “on the job” time should cost Uber money and which should not.

15 Seconds

It all hinges on the time that passes while an Uber driver is waiting for a ride request to buzz on her dashboard. If drivers are free to spend that time however they like – making a grocery run for example – then perhaps it is distinct from real working time.

In reality, Mishel and Eisenbrey point out, drivers do not have that liberty. “Uber monitors each driver’s acceptance rate [of ride requests], reports it to drivers weekly, and dismisses drivers who do not maintain a sufficient rate,” they write. The exact threshold for dismissal based on acceptance rates varies a bit from city to city, but is generally about 80 percent. Ignore more than one in five pings while the app is running, and you’re fired.

“You have 15 seconds to respond,” Eisenbrey said.

Ride Hailing Apps

CREDIT: AP Photo/Jeff Chiu

The policy coerces drivers out of the freedom that Krueger and Harris imagine them to have in between rides. Traditional labor law draws a distinction between time spent “waiting to engage” with a work task, for which one can’t demand to be paid, and time spent “engaged to wait” for a work task to materialize, for which one must be paid.

According to the high-minded vagaries that came before Krueger and Harris made a formal argument for an “independent worker” legal structure, gig workers are liberated entrepreneurs. They’re free to make a few bucks Ubering someone to the beach and then get out and enjoy the sand themselves, before flicking on their phone and picking up a shift walking somebody else’s dog on the boardwalk.

But that picture doesn’t fit the reality of gig workers’ experiences, as Uber’s acceptance rate policy illustrates. The company needs lots of people out there, swiping fingers cocked and loaded, so that riders experience a seamless and constant access to quick pickups.

“It’s not like you’re sitting around cooking pea soup while you’ve got your apps on,” Mishel said. “You’re there waiting to do your work, and that’s what Uber wants you to do.”

Uber’s popularity, and the wealth that accrues to a handful of early investors and insiders from that popularity, owes in part to drivers committing that in-between time to the app. To say they are not “undeniably working” in that time means that they shouldn’t get a wage-based cut of the wealth that time helps create.

Same Old Mistakes

Technology has rewritten the day-to-day experience of work for many thousands of Americans in a very short time, but it doesn’t necessarily follow that America should rewrite the laws of work in response.

As President Obama noted at the White House’s Summit on Worker Voice in October, such rewriting could be immensely destructive. While open to exploring the idea of creating a new legal class that would let Uber sidestep the raft of driver lawsuits that threaten its empire today, Obama worried we’d get “a watered-down version of the protections and rights that a union provides.”

Independent contractors are specifically forbidden from organizing unions. Such collaboration in the context of contractors would amount to collusion, with contractors forming loose cartels to prop up prices in violation of antitrust law.

Krueger and Harris imagine that their third category of workers would enjoy collective bargaining rights. But they acknowledge those rights would be watered down, particularly because such independent worker collectives would not be able to use the National Labor Relations Board to adjudicate disputes as traditional employees and unions do.

And besides, the EPI economists said, there just isn’t a good reason to carve out special treatment for these apps anyhow.

“Every argument for special treatment in Washington starts out with, ‘The world has changed, therefore do what I want you to do,” said Mishel, who’s worked in the capital city for decades.

“I remember Amazon claiming in the 1990s that you can’t possibly want Amazon to have to pay sales taxes because they do it over the internet, they’re different, they’re innovative.”

Just as the sales tax fight was central to Amazon’s success, today’s dispute over labor law is vital to Uber, Lyft, and their ilk. That $126 million estimated reimbursement hit for Lyft is just the tip of an iceberg that could include years of back payroll taxes, overtime, and minimum wage payments.

Uber was able to draw tens of billions of investor dollars in large part because it treats drivers as contractors. The choice lets Uber drastically undercut the unit cost of a ride in a traditional taxi whose driver is paid like an employee. Losing that price position in the cab market would probably also mean losing a lot of the cachet that drew investors in.

Working-class interests shouldn’t let Uber’s possible collapse scare them into buying the same pie-in-the-sky arguments Amazon used to win their sales-tax exemption, Mishel said. After all, states lost tens of billions of dollars per year in revenue from Amazon’s big win. The two-decade rise of Jeff Bezos’ empire coincides with a drastic decline in state spending on education and other services.

“Looking back on that now,” Mishel said, “it seems silly, right?”