Internet, Über alles? | Raucous Caucus | Tom Cushing | |

Local Blogs

By Tom Cushing

Internet, Über alles?

Uploaded: Apr 27, 2015

At first, the new services seemed like a charming idea, colored a slightly subversive shade: why take a surly, tardy cab ride for a bloated fee when Uber or Lyft could get you there more pleasantly, for a fraction of the cost? Why rent a hotel room, even from the likes of first generation tech firms like Kayak or Priceline, when you can couch-surf on somebody's spare furniture ? for next-to nothing?

Such is the allure of the so-called "sharing economy," a romantic-sounding notion that is more re-packaged than it is new. It has been wildly successful, so far, as it has picked-off several tasty low-hanging economic sectors; Uber's current $40B capitalization roughly approximates that of General Motors. But it has multiplied more than matured, and its potential for abuse is being exposed.

First ? how new is this killer app, really? To me, its nature differs only slightly from hoary notions of second jobs, moonlighting, temp work, or, closer to my home, adjunct faculty engagement (or blogging, for that matter). In each case, the transactions between company and worker assume a 'marginal' quality: the price charged assumes that workers' fixed expenses ? like benefits, car ownership or rent, are sunk costs. Therefore, they are irrelevant to rates charged for the work, or the trip, or the stay. The rates are correspondingly lower than if they were fully-costed, especially when labor is generally in long supply.

Second, Uber, and other engagers of personal or professional services, take it a crucial step further: by framing itself as an internet matching service, rather than a transportation provider, it can claim that its drivers are not employees, but independent contractors. Thus, while most temps are at least denominated as employees (of the company or the staffing agency, or both) with legal protections like the minimum wage, overtime, liability protection, and workers and unemployment comp, sharing economy workers are not so classified.

This phenomenon recently started to become obvious to the affected workers ? when they toted up their expenses at tax-time, many discovered that they were not, in fact, earning even federal minimum wage of $7.25/hour (also with no possibility of overtime pay). And some who were unfortunate to have a working injury or claim learned to their chagrin just how financially life-saving those other protections can be.

Now, it's true that independent businesses go belly-up all the time, in good times and bad, for good reasons and bad luck -- and the people involved lose money. Should we really waste any of our limited quotas of empathy on these workers of the world?

That question revolves around whether these drivers and others are properly, legally classified as independent contractors. If so, they're just business people who risk and prosper or fail in the rough-and-tumble of daily transactional life. If not, they're getting royally screwed in the same way other working stiffs were, prior to enactment of those legal protections, a long time ago.

Employee vs. contractor is a matter for both federal and each state's laws to determine. In statutes and court precedents that pre-date the "sharing economy" (although not the concept of greed), two factors are crucial in determining whether a worker is truly an independent business person, or an employee dependent on the job and its employer. They are the "economic realities" of the relationship, and the degree of control over the work that is exercised by the company engaging the labor.

The label used by the parties doesn't much matter. Basically, it's a 'duck test.' That is, if it walks, flies, swims and quacks like a duck, then you can call it an eagle, but it's still a duck.

Uber has been careful to try and create the impression that its role is as a technology company, practically a start-up, which simply matches supply with demand and collects the money. Indeed, their rate structure and perhaps their survival depend on staying as far from the E-word as possible.

That said, a federal trial judge in SF ruled recently that CA state law presumes employee status, and expressed doubt that the company's characterization can pass the Ho-Ho test ? much less overcome the legal presumption. The 'economic reality' is that the drivers depend on the company to locate their fares, arrange the ride and collect their fee-split. They could not do it simply by driving around. And among the many indicia of 'control' that can be examined (the IRS, no fan of contractors, has enumerated twenty in the context of this issue for its purposes), more of them point toward employee classification.

The ruling was on a preliminary motion, and means that a future trial will be necessary to determine the worker classification outcome. My money's on an employment, which would also allow those drivers to organize, if they so choose, and collectively bargain their compensation. Contractors cannot do so.

There is little doubt that the internet opens up marvelous opportunities for efficiency, via elimination of the middle-merchant in search of what Bill Gates called 'frictionless commerce.' In its current stage of development, however, the 'net has also created opportunities for exploitation: file-sharing and the elimination of record companies, for instance, has so-far robbed artists of due compensation for their creations. News aggregators, like Huffington Post, prosper -- while 'the talent' that fills its sections languishes. And now: Uber.

The law will always trail social change, of course, but it has a big game of catch-up to play here. Otherwise, the web will facilitate not so much the 'sharing economy' but, as Robert Reich describes it: the "share-the-scraps economy."