Uber drivers may lose option of working for rival platforms
The Court of Appeal is trying to decide whether Uber drivers count as contractors or employees.
I certainly cannot weigh in on the legal technicalities – I’m an economist. But the common law is meant to facilitate workable outcomes, or at least avoid perverse ones. So, let’s consider some scenarios.
Currently, drivers can keep many apps open at the same time: –Uber, Lyft, Ola and others. If none are offering fares a driver wants to take, the driver can wait. When a promising fare shows up, the driver can grab it – regardless of which platform it’s on.
A driver can take fares through multiple apps in the same hour – an Uber fare followed by one with Lyft, then another Uber, then one from Ola.
That works well when drivers are contractors. They can pick and choose rides as and when they wish. The platforms can set payment schedules to try to encourage drivers to take fares, but the choice remains with the driver. The platforms have to compete for drivers and passengers in real time.
If drivers were considered employees, a few difficulties immediately arise.
A platform required to pay an employee-driver at least the minimum wage is unlikely to be happy if that driver took a fare with another platform at the same time. If I took a job with another platform while on the clock for my main platform, I’d effectively be stealing from my employer.
Platforms would quickly require drivers to enter into exclusivity arrangements, at least when they’re on the clock with that platform. It would be possible for drivers to be part-time with several platforms, but not at the same time.
Picking and choosing the best jobs across different platforms would no longer be an option. Instead, drivers might choose different shifts with different platforms.
Drivers would also likely lose the option to pick and choose fares. Platforms would more likely start dispatching drivers to specific fares.
Why? Suppose a driver has had one short fare this hour, and sits idle while choosing among fares. The minimum wage will apply even if the driver chooses to take none of those fares.
It would look more like a traditional taxi company’s dispatch model rather than a platform model. A platform simply couldn’t afford to let drivers sit around and choose the fares they wanted to take if the driver had to be paid while sitting around. So, the flexibility to multiplatform and to choose attractive fares would quickly be gone.
But so too would another important kind of flexibility.
More than a few times when I’ve booked an Uber on a weekend evening, my drivers have been otherwise retired people who grab fares when they’re in the neighbourhood and the price seems right. They can have the app open at home while watching a movie. If a fare seems worth taking, hit pause on the movie. Otherwise, enjoy the popcorn.
That flexibility works under a contracting model. If the potential driver sees no fares worth taking, there is no skin off the platform’s nose. If the platform cannot get enough drivers to cover demand, it can implement surge pricing – charging customers extra to encourage more drivers to get off the couch.
And it works. The platforms don’t have to run complicated rostering arrangements or designate who is on call on which nights. It just sorts itself out – albeit with a lot of complicated modelling on the platform’s side.
But if the driver were an employee, that would have to change.
Employees must be paid “reasonable compensation” for being on call. The option to have the app open while watching movies, just in case a good fare comes up, would be gone. No platform is going to be able to afford to pay people to do that.
Instead of surge pricing to encourage drivers to take fares at peak times, platforms would have to use rostered shifts. And flexibility would disappear.
That flexibility matters. Last year, Uber contracted Ipsos to survey its driver and delivery partners. Answers were anonymised, and only aggregate data was reported up to Uber, which should mean respondents could provide honest answers. And drivers reported that that flexibility was important.
Ninety-one percent of those surveyed said “they would not keep driving or delivering if it didn’t offer flexibility”, 69% preferred independent contractor status, and 79% would prefer an option maintaining independent contractor status while providing “some benefits and protections typically associated with being an employee”.
Unfortunately, providing benefits to independent contractors increases the risk that a court would reclassify those contractors as employees.
If the Appeal Court decides that Uber’s drivers count as employees under current employment law, those drivers will lose something that they value. And Parliament would then have to decide whether to update the law to meet modern requirements.
Dr Eric Crampton is chief economist at the New Zealand Initiative and a regular opinion contributor. The NZ Initiative is a research group funded by a range of corporates and other organisations, including Uber.