Making drivers Uber’s employees hurts innovation

By: |
March 1, 2021 7:15 AM

The UK SC ruling could spur other countries to take a similar line, making the models of apps like Uber/Airbnb unviable

In such a scenario, it is unlikely a Proposition 22—this California referendum allowed Uber and Lyft to successfully avoid regulation that would have classified drivers as their employees—would influence policymakers.In such a scenario, it is unlikely a Proposition 22—this California referendum allowed Uber and Lyft to successfully avoid regulation that would have classified drivers as their employees—would influence policymakers.

The UK Supreme Court ruling that grants drivers associated with app-based ride-hailing services the status of the latter’s employees—over-ruling the apps’ classification of drivers as independent contractors—has worrisome implications for the flow of disruptive innovation. To be sure, this is not the first instance of such a view being adopted by an arm of the state in a jurisdiction; a French court did this last year. But, the latest ruling means the precedence for other nations, like Germany, Italy, Spain and the US, that are dealing with similar questions on the rights of app-using service-providers, lines up in favour of ‘drivers are employees’. In such a scenario, it is unlikely a Proposition 22—this California referendum allowed Uber and Lyft to successfully avoid regulation that would have classified drivers as their employees—would influence policymakers.

The UK SC judges ruled that even though Uber claims to be technology-platform, it behaves like an employer by settling rates, assigning rides and using a rating system to discipline drivers. Juxtapose this with the freedom drivers have in terms of refusing rides, switching between competing apps, disabling an app at will, etc. Although Uber has expanded protections for drivers—in 2018, it said EU drivers will be given medical benefits and sick leaves, and assured British drivers that they wouldn’t be charged for cancelling rides and would instead be shown fare and destination for each ride—it has been under pressure to classify drivers as employees, which means more onerous asks on drivers’ social security, insurance, compensation, removal, etc. Besides, such classification could also entail having to ensure the hourly minimum wage for drivers.

Uber had recently circulated a paper for European policymakers, which talked of pooled eligibility benefits to ensure better earnings while maintaining the drivers’ status as independent contractors. In India, too, new rules have talked about employers footing the bill to create a social security net for platform/gig workers. However, forcing platforms to treat them as employees, on a par with traditional services, will push up costs that could make their model unviable. And if such platforms are lost, both consumers and service-providers using these will lose. Such platforms have created considerable economic value in terms of livelihood opportunities and productivity gains through time saved. Cost-savings for users have also contributed to rise in demand for the services; for instance, Uber and Ola in India have fostered ride-sharing as a service, delivering value to both drivers and passengers, apart from the environment in terms of reduced traffic emissions. Airbnb has made lodging cheaper by giving consumers home-stay options while helping homeowners unlock the value of idle space/properties. Imposing the same rules that apply to hotels to Airbnb would only push up costs for the latter. Similarly, setting base fares and minimum wage rules will make commute using taxis more expensive, ultimately hurting demand for the services. While policy worldwide should work to ensure that such companies offer better value and quality to consumers and service-providers using their platform, shackling them with the employer-obligations of the old economy will simply kill innovation that relies on modulated regulation. Some may argue the traditional players these platforms compete against will suffer, but the way out could be light-touch, only-essential regulation for the older players rather than onerous burdens on the new players.

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