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The Uber Strike: What it Means for the Future

A GLOBAL STRIKE

On May 8, 2019, Uber drivers in the U.S., U.K., Australia and South America participated in a work stoppage in order to send a message to Uber executives and potential investors ahead of the IPO scheduled for May 10, 2019 in the U.S. The global strike aimed to call attention to the plight of the drivers for the ride-hailing service, and garner support for their list of demands which includes job security, earning a livable wage, a transparent and speedy appeals process for deactivation of drivers, and the election of a driver representative to the company’s boards.

Uber, and its smaller rival Lyft, are part of the so-called gig economy. Like many gig economy companies, their business models depend on the often-criticized and troublesome classification of its workers as contractors rather than employees. This classification allows Uber and Lyft to avoid providing any benefits to the drivers—such as healthcare, workers’ compensation, disability, etc—or even paying minimum wage. In fact, more than half of Uber and Lyft drivers earn less than the minimum wage in their states. This low hourly wage is due to the companies changing their commission; one of the demands of the drivers is that companies’ commissions be capped at 10%. Currently, it is estimated that 40% of Uber drivers qualify for Medicaid and 18% qualify for food stamps. So while Uber executives and investors stood ready to make millions and even billions from the impending IPO, the government—taxpayers—are paying the labor costs of the company.

THE LEGAL COSTS OF DOING BUSINESS

Uber drivers have challenged their status as contractors by suing the company. In a class action lawsuit filed in U.S. District Court for the Northern District of California (San Francisco), the court held that only those drivers not bound by the arbitration clause in their contracts could be part of the lawsuit. This ruling reduced the class from hundreds of thousands of drivers to approximately 13,600. The case was settled in March of this year for $20 million.

Not only has the dubious classification of drivers as contractors allowed Uber to avoid paying benefits, it has also allowed it to limit its liability. However, this has not stopped passengers from suing the company when its drivers are responsible for safety violations and crimes. Uber has been the subject of multiple, high-profile lawsuits by passengers who have been raped or assaulted, and by the families of murdered passengers; these lawsuits allege that Uber’s background checks are insufficient and its claims regarding the checks are fraudulent. In a now famous expose by CNN in 2018, 103 female passengers came forward to make accusations of sexual assault against Uber drivers. Additionally, local governments of areas where Uber operates have sued Uber over its safety record. The cities of San Francisco and Los Angeles sued Uber in 2014 over its claim that its background check was the “gold standard;” the lawsuit settled in 2016 for up to $25 million in penalties and changes in Uber’s vetting of its drivers and its language regarding its practices. Another lawsuit over Uber’s “Safe Ride Fee” was settled for $28.5 million and a similar change in marketing.

AN UNSUSTAINABLE BUSINESS MODEL?

The most anticipated Silicon Valley IPO since Facebook did not meet expectations; Uber shares fell 8% after its IPO. Lyft shares have fallen 27% since its IPO in March (Lyft lost 1.1 billion in the first quarter of 2019). Uber reported an operating loss of 3 billion in 2018, with an accumulated deficit of nearly 8 billion. A full decade after its founding, Uber has still not made a profit. Seven years into its operations, Lyft has not made a profit either. Is their business model fundamentally flawed?

Beyond the thorny issues of driver classification and vetting, experts wonder whether Uber and Lyft will be raising ride prices soon. Now that both companies are publicly traded and earnings reported quarterly, focus has shifted from capturing market share and revenue to profitability. Waiting for self-driving cars to reduce operating costs and increase profits is not a viable strategy because the technology is too long into the future. In addition, investment in both the autonomous vehicles and the software will be expensive.

Therefore, profitability most likely will occur by higher ride prices and/or a higher commission going to the company. The latter strategy has already begun to be pursued, and this has caused the widespread driver dissatisfaction noted above. In the papers it filed for its IPO, Uber predicted that driver dissatisfaction was likely to increase in the near future, indicating that Uber would be implementing a business model even less favorable to drivers in an effort to keep investors happy.

CONTACT YOUR ATTORNEY

If you or someone you know has been injured while riding in an Uber or Lyft, contact Dave Thomas at The Thomas Law Firm for a free consultation regarding your legal rights.

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