Friday, September 18, 2015

Does the Uber Case Show that Employment Law is Outdated? An Invitation

    There’s now a lot of commentary about the Uber case and the “shared economy”—most of it on the role of the “employee/independent contractor” distinction (see, e.g., here).  Some of it goes further and takes the Uber case as an exemplar of what’s wrong with labor and employment law generally.  Take a recent example: In his New York Times “Deal Professor” column, Steven Davidoff Solomon criticized California’s employee-independent contractor test for likely classifying Uber drivers as “employees”, because that result “doesn’t work with the shared economy.”  He reasoned in part:

 Do [Uber drivers] really want to have less flexibility about who they work for? Do they want the inability to work for other people or to preselect their rides? And ultimately, given their ability to quit at any time and go to a competitor or even start their own service, do they need protection? Maybe, but probably not.

 He added that the Uber case “highlights the outdated nature of workers’ laws in America, not just around what it means to work for someone, but also what benefits and protections American workers need whether they are a contractor, employee or provider of services.”

             So, is that right?  The strongest version of this view: Labor and employment laws now cause a net decrease in social welfare or efficiency (however defined) for Uber drivers in particular or American workers generally, and are therefore “outdated” for today’s labor markets.  This isn’t so much a legal question, but a judgment about what’s good social policy.  And what you think about this policy question may strongly affect who you think should win the Uber lawsuits, regardless of the precise legal doctrines that apply.   To be fair (to Solomon and others), views on what’s good policy are easy to offer up but harder to actually unpack or back up in the space of a newspaper column or blog post.  Still, good policy arguments still need evidence and candor about tradeoffs—by how much will some people be better off, and some people be worse off, as a result, and why those tradeoffs are or are not okay.    

     So, dear reader, here’s an invitation.  Post in the comments section or email me your best policy argument (or parts thereof) about why Uber should win or lose in O’Connor v. Uber Technologies and similar lawsuits.  Make it short (500 words or less), but also point to evidence, identify the tradeoffs (the winners and losers), and justify them.  (If I get a lot of these, I’ll write them up in separate post.)

     To get you started, here are two observations.  First, on what Uber drivers need: Yes, in theory, Uber drivers can “quit at any time and go to a competitor or even start their own service.”  But in reality, labor markets are not perfectly competitive.  In any labor market—not just the “shared economy” (however defined) — a worker can quit, and thereby use the prospect of exit as leverage for higher wages or better working conditions.  But, a worker’s ability to do that depends in large part on how much an employer has to lose if the worker leaves to join a rival firm, how easy it is to do that, or how easy it is to set up shop on one’s own.  That ability varies a lot by type of work and where you work, among other things.  (See, for example, this report on differences between Uber and Lyft in average gross earnings per trip in different US cities.)  A complication here: According to this study (paid for by Uber), most Uber drivers have day jobs, and work for Uber on the side.

     Second, on what Uber drivers want: Labor and employment law often sets minimum standards, i.e., it removesfrom the bargaining table the option to bargain for conditions below those standards (or at least drives it under the table).  That’s why an employer who pays a worker below minimum wage or doesn’t provide her adequate safety equipment violates the law even if the worker would agree to work under those conditions.  To be sure, minimum standards entail tradeoffs.  There’s a social cost for a minimum wage--- employers may hire fewer workers --- though the best evidence suggests that the size of that effect is small, and a lot of folks think any such tradeoff is worth it.     

     In O’Connor, the plaintiff-workers want their “tips” and certain expenses reimbursed as California law requires of employees in general.  If plaintiffs win and Uber does nothing, Uber’s per-driver labor cost goes up.  How will Uber react?  Maybe Uber will respond by giving their drivers in California less on the items that they can bargain over—for example, by increasing Uber’s cut of each fare—and the drivers will be net worse off as a result.  Maybe.  Or maybe Uber won’t do that, lest drivers defect to Lyft or to other part-time work, and drivers will as a result earn more per ride without losing out on much else.  Maybe Uber will do very little, on the premise that a plaintiff victory here doesn’t mean that they’ll also get overtime pay (for more on this, see here).  Or maybe Uber’s response will vary by city, because in some cities, Uber lacks monopsony power, whereas in others, it’s really the dominant buyer of freelance-drivers’ labor.   Before we assign probabilities to these and all the other maybes out there, it might be nice to have some evidence about each one and then some reasoning about whether we should accept the resulting tradeoffs.



  --Sachin Pandya

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The evidence you seek does not exist. I do not share your regulator's perspective. At one time it was more obvious that society is largely indifferent to drivers' terms and conditions of employment so long as they were voluntarily negotiated in meaningful bargaining and exceeded a minimum. The obvious legal problem is that such collective negotiations are never conceded voluntarily by employers and are legally compelled only for statutory employees, which begs the question. Lawsuits are not a substitute, as this litigation shows. A skilled mediator should be able to forge a compromise in which drivers get much of what they really want (no tips stolen; perhaps a drivers' council) while Uber keeps its exemption from overtime rules or guaranteed compensation. However no such mediator exists and neither side seems actively to be seeking one. I would prefer to encourage negotiation of this type than to substitute some new boundary between employed and self-employed, or some new category, either of which would immediately be used strategically and thus create new problems.

Posted by: Alan Hyde | Sep 19, 2015 7:49:43 AM

As I presented at COSELL earlier this month, perhaps the best answer is to add a third category: the dependent contractor. With some adaptation (as I explain in more detail in the linked blog post), this middle ground that many European countries use with success could address this situation. It's not Uber that gets hurt here--it's the co-ops and sharing parts of the economy that get swept up into this, too. If I use a rideshare co-op app to create a co-op carpool, the DOL would sweep this non-economic activity up and make it collateral damage in the fight against gig economy employers. The extra dependent contractor category protects the "sharing" part of the sharing economy.

Posted by: Doug Hass | Sep 23, 2015 8:11:01 AM

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