Too many U.S. companies are building empires on the backs of low-wage workers. It’s a mistake to let it continue.
California, for one, is fighting back. It sued Uber Technologies Inc. and Lyft Inc. in state court on Tuesday, contending that the ride-hailing companies violated a new state law by improperly designating drivers as independent contractors rather than employees to save on labor costs. The law in question is Assembly Bill 5, which requires companies to classify workers as employees unless they can establish that the work is outside the company’s usual course of business and that workers are free from the company’s control, among other factors.
There’s a lot riding on the distinction. Employees are entitled to minimum wage, overtime pay and other benefits, whereas contractors are not. Multiply the difference in cost by millions of drivers and the savings add up to a huge competitive advantage. So it’s not surprising that Uber is doing everything possible to bolster the case that it’s not responsible for drivers. Since California enacted the law, Uber has experimented with letting drivers set their own fares to demonstrate their independence. Its chief lawyer even claimed that “drivers’ work is outside the usual course of Uber’s business.”
Those efforts to disown drivers are laughable. Uber and Lyft are ride-hailing companies. Without drivers, there are no rides. Uber and Lyft also exert significant control over drivers, despite Uber’s assertion that it merely provides technology to “independent, third-party transportation providers.” The companies determine who has access to the technology. They dictate the kinds of cars drivers can use. They require vehicles to pass their detailed inspection. They impose an encyclopedia of terms and conditions on drivers concerning fares, tips and general conduct. Does that sound like technology or a boss?
Aside from the fact that drivers are clearly employees by any reasonable application of California’s law, there are important public policy reasons why Uber and Lyft should be required to look after drivers. Labor is a big line item on many companies’ income statement. Those that neglect workers are able to undercut competitors, much the way Uber and Lyft are squeezing cab companies. And once they dispose of competition, it becomes difficult to dislodge them because they quickly amass market share and with it the power to dictate wages and discourage new entrants. What’s left is an industry with a small number of powerful firms in a sea of working poor.
The retail industry is well on its way. Amazon.com accounts for 55% of the S&P 500 Retailing Index by market value. The second-biggest company in the index, Home Depot, is a distant second at 14%, and the rest of the field is miles behind. Amazon’s hostile takeover of the retail industry wouldn’t have been possible without its army of low-wage workers. The median total compensation for U.S. full-time Amazon employees was $36,640 in 2019, according to the company, which is roughly half the amount realistically needed to raise a family in the most affordable towns in America. But good luck persuading Amazon to pay workers a living wage now that it has a firm grip on the retail industry. That’s a preview of life with Uber and Lyft if left unchecked.
It’s not just drivers who have a stake in their employment status. If the question is left open, Uber and Lyft would have an incentive to relax oversight to fortify their position that drivers are independent. While it would undoubtedly give drivers more autonomy, it would also most likely mean loose standards for drivers’ qualifications, the reliability of their cars and the number of hours they can safely work in a day, all of which would endanger both riders and drivers.
Some will say this isn’t the time to take on ride-hailing companies. Uber announced on Wednesday that it would eliminate 3,700 jobs in response to the coronavirus shutdown, with more cost cuts to come. Forcing ride-hailing companies to absorb additional labor costs could result in further job losses, but there are ways to help workers during this downturn without compromising their future. Fiscal stimulus can be used to bolster workers’ incomes in the near term while keeping the pressure on ride-hailing companies. Otherwise, the longer ride-hailing companies are permitted to shortchange drivers, the harder and more costly it will become to secure drivers a fair deal.
And if giving drivers the protections afforded to employees would sink ride-hailing companies’ business model, as some contend, then investors would be wise to acknowledge that reality before they absorb further losses. Uber’s stock is down 38% since its initial public offering last year and Lyft’s stock is down 64%.
I like cheap rides and free two-day delivery as much as anyone. But if we continue to let companies take over whole industries by abandoning workers, everyone will eventually be poorer for it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Kaissar is a Bloomberg Opinion columnist covering the markets.