Is Uber a marketplace for transportation services or a high-tech taxi dispatcher? It's a question with big implications for the $40 billion startup and for many of its peers in the world of on-demand, and the answer may not be the one any of them are hoping for.
For months, Uber has quietly been strategizing about what to do after a ruling by the California Labor Commission, which determined that those who drive for the service should as a matter of law be treated as employees, not independent contractors. The ruling, laid down in March, remained under wraps until this week, when Uber filed an appeal.
It's probably too strong to call it a disastrous outcome for Uber, which has raised more than $4 billion in venture capital and debt financing, and is relatively well positioned for any kind of adversity. But if the California ruling gets treated as a precedent in other jurisdictions, as seems likely, it certainly calls into question the $50 billion valuation Uber is said to be seeking in its next funding round.
It could be very bad indeed for other on-demand companies, especially those that are already operating at a loss in a bid to attract customers and contractors. For firms like Lyft, TaskRabbit, and Postmates, having to pay Social Security and unemployment taxes on wages changes the math in a way that will hurt their ability to compete in a crowded marketplace.
In amassing a work force of more than 160,000 drivers, Uber has been careful to avoid some of the practices that signal an employer-employee relationship, such as telling drivers what hours to work or where to drive. Some on-demand companies haven't been so cautious; Instacart and Homejoy, for instance, both give their contractors T-shirts to wear on the job.
But as Uber wages overlapping PR campaigns to win over drivers, customers, and regulators, its own communications at times have undermined its claim to be a neutral platform upon which third parties can transact as they like. When touting data showing how much drivers can earn through its app, for instance, it has tended to focus on drivers working 40-plus hours per week. For Uber to hold out a driver working 60 or 70 hours a week as representative of the class and then in the same breath claim that driver is not an employee is a straddle regulators will rightly find unconvincing.