30 Oct

Avakian flags down Uber’s drive into the new economy

Brad Avakian better hope he never needs a ride anywhere.

Nobody wants to see Oregon’s labor commissioner standing forlorn on a street corner sticking out his thumb.

This month, Avakian challenged Uber, the iPhone app that became a $50 billion business featuring free-lance drivers summoned via iPhone using their own cars to carry off paying customers, with Uber setting the rules and then taking a piece of the action. Avakian is pursuing the labor law question of defining the drivers’ technical relationship with Uber, and whether in the new sharing economy the whole issue of legal responsibility is what you might call virtual.

Last week, Uber fired back at Avakian, arguing that we are in a whole new free-lance world where such questions are as outdated as a dial telephone. The issue is likely to be eventually resolved in the courts – and, of course, the streets, where the ride services are becoming more prominent. As Elliot Njus reported in The Oregonian last week, the Portland Department of Transportation reported that Uber and its competitor Lyft now have 60 percent of the city’s rides-for-hire business, outdistancing the market share of full-time taxicabs.

The stakes are rising faster than a taxi meter. The Uber and Lyft cars may not be carrying Avakian, but they’re carrying a whole new economy.

Issuing an advisory opinion, not spurred by any particular case but suggesting how he might rule on one, Avakian considered whether Uber drivers were actually Uber employees, which would raise questions such as minimum wage, worker’s compensation and insurance coverage. By his thinking, “the rigorous hiring process, the highly controlled directions as to how work is to be performed and at what price, the expectation of long-term employment, the insignificant investment of the driver when compared to the massive infrastructure provided by Uber and the integral nature of the driver’s work to the business are all characteristic of an employee relationship.”

In other words, no drivers, no Uber, and the equation makes the drivers employees.

Last week, Uber’s regional general manager for the West, William Barnes, honked back at Avakian, saying “the findings fail to acknowledge that about 50 percent of drivers using Uber drive less than 10 hours a week, less even than a typical part-time job. These are people who value their flexibility and independence: the ability to work whenever and wherever they choose.”

They are, in fact, “enterprising and entrepreneurial drivers,” and “Uber has created a new way for people to work on their own terms. People choose to drive with Uber because of the flexibility it provides, and the dignity that comes with being their own boss.”

Far from being by-the-book employees, argued Barnes, Uber drivers are more like wandering craftsmen, whose interests sometimes intersect with Uber’s. He noted that labor agencies in Colorado, Florida, Illinois, California and New York “have concluded that drivers are independent contractors.”

But last month in California, in the midst of a worldwide expansion, Uber encountered what you might call a speed bump. Federal judge Edwin Chen ruled that Uber drivers who met certain requirements qualified to be part of a class-action suit claiming employee status. (Uber both said it would appeal, and also questioned how many drivers would actually qualify.) A few days later, a state administrative judge found that a former Uber driver met the requirements for an employee and so was entitled to draw unemployment compensation.

These are both early and small indications, but – like Avakian’s advisory opinion – they directly challenge Uber’s business model. Right after the California news, Stephan Grendel calculated in Forbes magazine that if Uber drivers were treated as employees – and the company had to cover costs like Social Security, unemployment compensation, medical insurance and mileage expenses – it might cost Uber around $4 billion a year, a considerable hit for a company with annual revenues of $10 billion and so far no actual profits.

It may be that none of these arguments matter, that we’re in a new economy – or at least riding toward one – where workers are increasingly independent contractors, where fewer are employees and many more are brands. As Uber points out, many places have endorsed its model, and the new economy takes in ride-sharing, sleeping arrangements like AirBnB, and maybe all the people who allegedly make a living selling stuff on eBay.

On the other hand, a lot of our support structures – such as unemployment insurance and often health insurance – are based on an employee connection. We’ll have to rethink a lot of things for the new economy man.

The Uber mensch.

NOTE: This column appeared in The Oregonian, 10/25/15.