This June, Uber lost an important lawsuit over whether their drivers were independent contractors or employees of Uber. Uber argues their app is merely a platform through which drivers and passengers connect, but some disagree, saying the company acts like an employer does.
What’s the difference?
The IRS says “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
On the other hand, they define a common-law employee as “anyone who performs services for you if you can control what will be done and how it will be done.”
The crucial difference is whether the employer can control how the work is done, which the plaintiff argued Uber is able to do with its drivers with their background checks, approval rating standards, and pricing structure.
Why does it matter?
Because drivers are independent contractors, they’re responsible for costs such as gas and repairs. They also don’t receive the benefits common-law employees enjoy, such as job security, benefits, or reliable pay.
“Companies like Uber and its rival Lyft , and Instacart , a grocery delivery service, have long faced questions about whether they are creating the right kind of employment opportunities for both the economy and for workers,” writes Mike Isaac and Natasha Singer for the New York Times .
The ruling isn’t binding; it was made by the California Labor Commissioner’s Office, and it only applies to the plaintiff, Barbara Ann Berwick. But it’s the biggest battle Uber has lost, and it could spark many more lawsuits nationwide over whether Uber should be reclassifying their drivers.
The “sharing economy”
Uber’s rapid growth has been at the forefront of today’s new “sharing economy,” an economy in which a wide range of services can be accessed by downloading an app and clicking a button. Today, consumers can access dry cleaners, doctors, florists, groceries, and more at the tips of their fingers. UK employees can have beer delivered to their office through DeskBeers. Peerby helps people borrow things from their neighbors.
The “sharing economy” has also been called the “peer economy,” “collaborative consumption,” and the “on-demand economy,” and each term has its own nuances. But every company in the new sharing economy connects consumers with the services or goods they need – no middleman required.
The power of Uber
These businesses have multiplied exponentially in cities like San Francisco, Los Angeles, and New York, but Uber has been by far the most successful. Since launching in 2010, Uber has expanded to more than 200 cities worldwide, and they have estimated that 25,000 New Yorkers take their first Uber ride every week.
Uber has been able to sustain this rapid growth primarily because their costs and risk are low: as a technology platform and not an employer, they avoid the labor laws and costs most companies have to grapple with. They aren’t liable for a driver’s individual actions because the driver is a contractor, not an Uber employee.
What this could mean for employment
Uber’s growth over the past five years, as well as the success of other sharing and on-demand services, reveals a massive base of consumers who want services at their own convenience and accessed with ease. Some have theorized that this growth also mirrors a growing base of workers who also want the freedom and independence that working for a company like Uber or Instacart offers. Indeed, many Uber drivers are fervently supportive of the company and their treatment of drivers. Consulting firm MBO Partners estimates there were 2.7 million people participating in the on-demand economy in 2014.
But not every worker driving a Lyft or delivering laundry is doing so because they love the independence: as of this May, 6.7 million people are employed part-time involuntarily, which means they would prefer to work full-time but either can’t find a fitting job or had their hours cut.
Sharing companies hail these workers as the future of work, but what will that future look like? MBO Partners state 44% of the on-demand workers are between the ages of 21 and 33, meaning many of them likely aren’t supporting families, mortgages, and heavier healthcare bills… yet. The study also finds workers participating in the on-demand economy tend to earn less than other independent workers, even after adjusting for age and experience.
It’s too soon to know the implications of the California Labor Commission’s decision against Uber. But the future of the sharing economy could hang in the balance, and with it what the future of our workforce could look like.