On Aug. 10, Uber CEO Dara Khosrowshahi published an op-ed in The New York Times with the headline "Gig Workers Deserve Better." While admitting Uber's "current employment system is outdated and unfair," Khosrowshahi wrote that the company's hands were tied when it came to offering drivers benefits as well as flexibility. A few hours later, morning on the West Coast, San Francisco Superior Court Judge Ethan P. Schulman ruled that Uber and Lyft had to reclassify their drivers as employees within 10 days.
Despite the sympathetic posturing of Khosrowshahi, Uber’s business model is still premised on underpaying its drivers.
Two days later, Khosrowshahi responded with an ultimatum: If Uber had to abide by California labor law, it would require a business model change so extreme the entire company would have to pull out of the state until November. That's convenient, since the company's had since September 2019 — when the law was updated — to establish a new system. Losing Uber (and Lyft) would inconvenience some Californians, but with ridership way down because of the pandemic, the impact would likely be limited. State leaders should have no reservations about calling these companies' bluffs.
Despite the sympathetic posturing of Khosrowshahi, Uber's business model is still premised on underpaying its drivers. When they're classed as independent contractors, drivers have few of the protections of an employee: no minimum wage, no benefits and few avenues to challenge their employer if they feel they're wrongfully terminated or mistreated.
The company used to boast that drivers could earn a lot of money — an average of $90,000 per year in New York City — but those numbers left out a lot of additional costs, including Uber's own cut of fares. Drivers themselves tell a different story — one of low pay, wage cuts and little power to demand better conditions. Even as Uber has increased fares, drivers say the company didn't pass those increases on to them. Independent research has backed up their claims, with Ridester, a publication that focuses on the ride-hail industry, finding that half of Uber drivers are likely to make less than $10 an hour after costs are subtracted.
During the pandemic, things have become even worse. The CARES Act extended unemployment benefits to gig workers, but some Uber and Lyft drivers said their payments were held up because the company wouldn't provide the necessary information. Uber and Lyft also don't pay into unemployment insurance. A UC Berkeley report estimated in California alone they evaded $413 million in state unemployment insurance taxes from 2014 to 2019 by misclassifying drivers as contractors, while New Jersey is suing Uber for $650 million in unpaid unemployment and disability insurance taxes.
It's no surprise that Uber is trying to ensure drivers don't have the power to push back. The company continues to lose billions of dollars — $8.5 billion in 2019 alone — and as I previously explained for NBC News THINK, there are few costs it can conceivably cut other than what it pays to drivers. (It also isn't a friend to cities, having increased congestion and reduced transit ridership.)
Since California's updated labor law took effect at the beginning of 2020, clarifying what defines an employee following a 2018 California Supreme Court decision, companies operating in the gig economy have refused to comply and taken the matter to court. Wednesday's ruling is the latest attempt to force these companies to follow state law. In his ruling, Schulman wrote of Uber and Lyft, "It is high time that they face up to their responsibilities to their workers and to the public." He rejected the argument that Uber and Lyft are simply technology companies, asserting "drivers are central, not tangential, to Uber and Lyft's entire ride-hailing business."
That claim is core to Uber's argument, including the notion that contractor status gives drivers freedom and flexibility. But Alex Rosenblat, author of "Uberland: How Algorithms Are Rewriting the Rules of Work," disagrees. She found that Uber drivers don't have nearly the freedom that Khosrowshahi would like people to believe they have because they're controlled by algorithmic bosses. She also doesn't believe that employee status naturally means drivers can't have flexibility — a view echoed by California's attorney general, who called it a "bogus argument."
That claim is core to Uber’s argument, including the notion that contractor status gives drivers freedom and flexibility.
Uber is presenting the choice as benefits or flexibility because it serves the company's interests. It's trying to delay any change until November because it joined with other gig companies to put millions of dollars behind a ballot measure that would allow them to keep treating drivers as contractors. Proposition 22, which Uber has claimed is a "new progressive framework," has been decried by labor groups and driver organizations as creating "a permanent underclass of workers."
Under Prop 22, drivers would be paid 120 percent of the local minimum wage, but only for "engaged time" — that means the time between when they accept a ride and complete it. Since as much as 37 percent of drivers' time is spent waiting, the National Employment Law Project found this would actually be a further pay cut for many drivers.
The NELP found that health benefits promised in the bill are also based on "engaged time," meaning the 25 hours required for reimbursement of "100 percent" of premium expenses would actually be closer to 39 hours. And, based on definition of premium expenses in the bill, the payout would actually cover just 82 percent of the average for the lowest-cost plan on the Covered California exchange. There are a number of other issues, including weak discrimination protections.
Instead of inventing a convoluted system that contains a lot of clever language to create loopholes, Uber, Lyft and the other gig companies should simply be forced to abide by California labor law and reclassify their drivers as employees. That would give them a minimum wage, sick leave, unemployment benefits, access to workers' compensation and many other protections.
California shouldn't give into the threats of Uber and Lyft to leave the state. If they won't treat their drivers with dignity, they shouldn't be welcome. Plus, losing Uber and Lyft doesn't have to mean losing access to ride-hailing services. Like in Austin, Texas, it's likely that alternatives would spring up — alternatives that actually follow the rules and try to do right by their drivers.
Researchers found that traffic moved faster in Austin once Uber and Lyft were kicked out. With the increased focus on alternatives to cars in light of the pandemic, the absence of Uber and Lyft could also provide state and city governments the opportunity to promote e-bikes and transit services, especially if officials make an effort to explain that mass transit isn't as unsafe right now as some people think.
Two years ago, it looked like Uber might finally face the music when a litany of scandals forced the resignation of then-CEO Travis Kalanick. His successor, Khosrowshahi, claimed the company would change under his leadership, but the campaign against employment rights for drivers in California undermines that promise.
If Uber won't follow the rules, it should move over and make space for companies that will. After all, gig workers deserve better.