The Government vs. Uber

Capitalist cronies in government, old-model cab companies, and their unions have been attacking Uber, Lyft, and their ‘ride sharing’ business model since the Internet gave them birth, in hopes of squelching the new competition. It’s a lot easier when government heads off your new, high-tech competitor than it is when you have to do it by actually competing. Thus, with help from the State of California, a potentially landmark labor case is proceeding against Uber in Federal District Court in San Francisco.

Demands from old-style cab operators that their licensing cities, states etc. stop the upstarts had at first only minor success; Uber et al pointed to their operations as an internet app, not a cab company. Uber simply provides a website where a passenger can hook up with someone who owns a car and is ready to provide a ride for a fee. The driver accepts the passenger and transports him, Uber collects the fee via credit card and pays the driver his share. Simple, and it has become easier to find rides in many places. It can be cheaper too, at times.

Uber, Lyft and the others have expanded worldwide, vastly annoying the old cabbies with their government-bestowed monopolies, relatively high costs and compared to Uber, sometimes limited service. The cabfolk’s prior attacks having failed to banish ride sharing, the cabbies this time have allies in a handful of Uber drivers in a new court case.

The drivers began by complaining to the California State Labor Commissioner that Uber should treat them as Uber employees. Employees are entitled to minimum wages, overtime, and sick pay, unemployment coverage, and usually other benefits; the drivers claimed that Uber’s view of them as self-employed small businessfolk receiving a contractually agreed share of actual fares was illegal under California labor law. The traditionally pro-labor state’s commissioner agreed with the drivers and their complaint is now going national in Judge Edward Chen’s Federal District court, where Judge Chen has just awarded the plaintiff drivers the right to class-action status, allowing them to proceed in the names of all 16,000 California Uber drivers and thereby raising the financial stakes hugely for Uber. A court award of back pay and benefits for all 16,000 could add up! And it’s reasonable that a win will ultimately include all U.S. ride sharing drivers. Even if Uber and its imitators can find that money, it’s not certain that their internet business model will survive such an escalation of cost. But the case is controversial.

It appears that longstanding labor law may be falling to political needs. The boundary between an employee and a self-employed ‘independent contractor,’ the status of present Uber drivers, was traditionally set by issues of control and risk: If a worker was supervised on the job or did not risk losing his own money, he was employed. Contrariwise, a seamstress who sewed for anyone who needed it was an independent contractor, not employed. She ran her own shop and risked her own money to do it. But under pressure from unions and pro-labor politicians and judges, that line has been blurring.

Uber believes that its drivers are in business for themselves, since they supply and pay for their own car, pay their own business expenses, and work when they wish. There is no one to supervise them and they can lose money doing the work. However, the other side points to the qualifications required to drive for Uber plus the background check, the need to have the car approved and Uber’s setting of fares and control of cash and the website. The court will have to sort it out. Ultimately, that could be the Supreme Court.

That’s because these labor laws affect not only Uber et al but many other users of labor. In ice rinks, figure skating teachers are frequently considered self-employed. So are many outside salespeople, truck drivers, and plenty of others. The impact of a major shift in this bit of labor law could affect the American economy dramatically. That the case is receiving so little attention seems downright strange in an already challenged economy. And the Uber case is not alone.

The National Labor Relations Board recently ruled that workers employed by McDonald’s franchisees are also ‘jointly employed’ by McDonald’s parent corporation in a very controversial ruling. The intention is to make the parent corporation liable for the labor practices of the franchisee, a great help for the fast-food unions pursuing an industry-wide labor contract. If it holds up, it could put Ford Motor Company on the hook for workers at Ford dealerships, along with a lot of others in franchised industries. Again, a bone for the unions that may wish to organize dealerships and others similar.  

Obviously both Uber and McDonald’s cases will, if Uber and McDonald’s lose, add greatly to labor costs that will be covered by price increases or by ceasing business. With those will come a higher cost of living and fewer workers; perhaps that’s a reason for both these cases’ paucity of media attention?

The U.S. government knows that high labor costs have exported much American employment to India, China, and Mexico while encouraging robotic workers. Still, the government facilitates foreign-born guest workers who lower American wages against union wishes, perhaps these new cases will provide some balm for those wounds… It was recently reported that foreign-born workers hold 16.7% of U.S. jobs. That makes U.S. labor policy seem a mite hypocritical or at least, confused.

With these actions, government is selecting economic winners and losers using political criteria. Is that a way toward a prosperous economy? The cases are good politics: they appease unions, protect long-time contributors and mandate jobs and benefits for voters. If you are a politician, what’s not to like?

An economist might be less thrilled. The new ride sharing advance in public transport may or may not survive. Franchising may or may not serve to support rapid growth of new enterprises as it has done. The added labor costs may prove unaffordable, leading to layoffs and replacement by robots. And consumers will pay more for the affected goods and services. Good politics is too often bad economics to support confidence in government as an economic manager.

Nevertheless, government has appointed itself that task and as the Uber and McDonald’s cases proceed, we will see who pays for the result. 

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