By on August 19, 2020

California took on the gig economy by passing updated labor laws (Assembly Bill 5) mandating companies treat contractors more like regular employees. Some predicted this would be the death knell for ride-hailing firms like Uber and Lyft, who are entirely dependent on them for their daily operations. Worse still, these companies remain unprofitable despite most of the the physical expenses being pushed onto drivers — who remain responsible for the upkeep of their own vehicles after receiving their cut of the fare.

Earlier this month, Uber CEO Dara Khosrowshahi published an op-ed in The New York Times suggesting contractors deserved better, but current circumstances dictated that the situation remain largely unchanged. He later suggested the service might have to leave California as it restructured its business model to appease new rules, saying it had to reclassify drivers as employees with all the accompanying benefits (paid leave, minimum wage, unemployment insurance, etc). San Francisco Superior Court Judge Ethan P. Schulman said that would be fine last week when he ruled that Uber and Lyft drivers were essential to operations and could not be treated as tangential to the business. He wanted to be absolutely clear that exemptions would not be made for ride-hailing firms, stating that it was “high time that they face up to their responsibilities to their workers and to the public.”

Uber lost $8.5 billion in 2019, making it difficult to envision a future where it can begin offering more to its drivers. But it also doesn’t want to lose out on market share as the industry jockeys for position. There needs to be another solution.

What about moving to a franchise model?

Reporting from Bloomberg and The New York Times both suggest the matter is being considered by Uber’s top brass. Licensing the brand to independent operators would create a legal buffer zone between itself and drivers, potentially avoiding any illegalities without having to classify them as fully fledged employees.

From Bloomberg:

Uber said the model would look similar to its black-car operations in the early days. “Drivers would likely earn a predetermined hourly wage for their time on-app, but in exchange, fleets would likely monitor and enforce drivers’ activity and efficiency, for instance by putting drivers into shifts, dictating where and when they drive, and enforcing trip acceptance criteria,” Matt Wing, a spokesman for Uber, wrote in an email. “We are not sure whether a fleet model would ultimately be viable in California.”

The internal discussions were reported earlier Tuesday by the New York Times. The newspaper also said Lyft was exploring a similar model. A spokeswoman for Lyft said the company has looked at “alternative models” but declined to comment on the deliberations.

Some changes have already been made. Uber previously gave drivers more autonomy in how they operate their end of the bargain in a bid to make it clear they’re contractors. But, since the contractors don’t get to set their own rates, it’s unlikely the courts would side with the company — and not just in California. While drivers take advantage of the platform to find customers, Uber sets the fares and decides how much to give back.

Frankly, this is an issue the gig economy has come up against across the board, with many accusing various businesses of using contracting as a predatory tactic to low ball employees into working for less without benefits. It’s also taken heat for giving some businesses an alleged unfair advantage by not compensating employees as much others in better accordance with the law. We’ve seen legal suits springing up as part of a national backlash, too.

Despite these looking like a major victory for workers, serious problems could arise in the short term. Many fear that companies will simply pull up stakes in markets like California, as Uber has suggested. Transitioning to a franchise model would undoubtedly increase pricing and probably limit the areas Uber could realistically service.

[Image: Jonathan Weiss/Shutterstock]

 

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23 Comments on “Uber Considers Franchise Model After California Cracks Down on Contractors...”


  • avatar
    DenverMike

    This is the Taxi Lobby at work (and California corruption).

    Next they’re go after the disposable scooters. Taxis are circling the drain and this just amounts to rearranging the deck chairs on the Titanic.

    • 0 avatar
      ect

      It’s not just the taxi lobby Food and other delivery services, among others, have also tried to build on the “independent contractor” model and have been criticized for it. For a lot of 20-somethings, this is a big issue, and should not be underestimated.

      It’s easy to throw out a “corruption” accusation without any supporting evidence. I’ll only observe that Uber and Lyft probably have far deeper pockets – and a willingness to dip into them – than local taxi companies.

      • 0 avatar
        DenverMike

        They meet the “Independent Contractor” legal definition 100%. Do you really think Uber and Lyft never consulted a lawyer?

        “An independent contractor must be able to determine when and where work is performed, be able to work for others, provide own equipment and other factors which are indicative of true independence.”

        • 0 avatar
          ect

          From your comment, you’re clearly not a lawyer.

          The common law distinction between employees and independent contractors is not a “bright line” rule. It must be resolved on the facts of each case, and involves considering a number of factors, many of which are swept up in the “other factors” reference in whatever writing you quote.

          The case of Uber and Lyft in California is not governed by the common law rule. In this case, California passed a specific law that introduced a statutory definition of how workers must be categorized for purposes of state law. The court found that, under this law, Uber and Lyft drivers are employees. So, Uber and Lyft are sponsoring a referendum question seeking to change that law.

          And by the way, I have not researched this case, so have no opinion on whether the court decided the matter correctly or not.

          • 0 avatar
            highdesertcat

            “The common law distinction between employees and independent contractors is not a “bright line” rule. It must be resolved on the facts of each case, and involves considering a number of factors”

            That’s true. For more than 30 years of self-employment I hired Independent Contractors who employed illegal aliens. I never hired Employees.

            One thing I always insisted on in writing is that the Independent Contractors would assume responsibility in case someone got hurt or otherwise damaged. (As when one of the tile cutters cut off his fingers with the diamond-tipped circular tile saw.)

          • 0 avatar
            DenverMike

            @ect, could you run a business without knowing what employees were showing up that day, nor at what time, if anybody, and may clock-out after an hour when the do?

            As long as a driver can turn on their “app” and work as little as once a month, or once a year, and for one hour each time…

            If one of these “cameo appearance” employees worked for you, how long would you keep her/him around? 20 years?

          • 0 avatar
            DenverMike

            We know enough about the case and the rules/code involved to conclude some dark political forces are at play.

            You don’t have to be a lawyer. And what does that guarantee anyway, especially for government work?

          • 0 avatar
            DenverMike

            You would’ve still been held liable if the illegal alien wanted to press the issue. Of course it became a tax payer burden.

            Yes I’ve hired (bartered) an unlicensed handyman, not an illegal alien, but I knew what I was up against if there was an injury.

          • 0 avatar
            ect

            DenverMike, the point here is the California passed a law, which Uber and Lyft spent millions opposing – obviously, without success.

            AB5 redefined the definition of employee to capture gig workers, such as Uber/Lyft drivers. Uber and Lyft have tried to ignaore it, so California is enforcing it.

            And now, Uber and Lyft are spending millions more to back a Proposition question that would overturn the new law.

            I can also tell you that Lyft is spending a lot of money on TV ads in the DC market, so there may be similar legislative initiatives in one or more of MD/DC/VA

            The treatment of gig economy workers is a real issue, which is legislatures are under pressure to address. This is not about “dark forces”, it”s about the normal political process.

    • 0 avatar
      Ol Shel

      I agree with you. The last thing this country needs is the protection of fellow American workers. The only way ‘disruptors’ can become billionaires is by taking industries that provide stable living wages, and to strip them of salary, protections, and benefits, and What’s more American than that?!

      You’re not an Uber driver, and I’m not a Lyft driver, so screw them!

  • avatar
    R Henry

    The explosion of “ride sharing” was driven by the fact that fares were lower than taxis and limos, yet provided better service than public transport like buses and subways.

    If gig workers who make it all work receive higher levels compensation (either by governmental action or unionization) fares will necessarily increase markedly.

    These facts illustrate the insanity of believing Ride Sharing is economically viable.

    The cold, hard truth is that transporation services are very expensive to provide, and that low-fare (below cost) options like Uber and Lyft are the result of irrational exuberance in Private Equity. Investors in these firms well and truly deserve the haircuts they will inevitably receive.

    • 0 avatar
      dwford

      Ride share has always been subsidized by private equity investors and by the drivers.

    • 0 avatar
      volvo

      I don’t disagree with your overall argument. But price of the ride was only one, and maybe not the primary, factor.

      Uber/Lyft was successful due to a number of factors you did not cover.

      1. Clean vehicle with pleasant driver
      2. Prompt response to request for ride with ability to track the car on it’s way.
      3. Price transparency with modern day payment system

      I will consider them to be positive because they brought competition to what was otherwise a pretty closed taxi monopoly. In some US cities taxis are modernizing and even can be hailed using a phone app but without the price transparency.

      And buses/subways in most american urban centers (unlike Europe and Asia) can put you in with a pretty rough crowd.

      In San Francisco for example unless you have a pass or discount a bus ride for 2 from point a to point b can cost as much as an Uber and may take much longer if it involves a transfer.

      Buses and other public transit options, IMO, have unnecessarily high equipment, operation and employee costs especially outside the urban cores. Where I live it is the norm to see 50 passenger buses carrying less than 10 people. Perhaps smaller equipment could meet the need.

      • 0 avatar
        Scoutdude

        In most areas where taxis are regulated the price is very transparent, posted right on the side of the vehicle and every taxi is the same. Unlike Uber where trip cost can vary depending on demand at the time.

        • 0 avatar
          ktm

          Uh, the Uber app tells you what the ride will cost before you even order the ride. How is that not transparent?

          Also, you are forgetting convenience. Let me know the next time you call for a taxi to take you to the airport and it arrives in 10 minutes. Most times you call, are told it will be 2 hours, and you HOPE they arrive.

        • 0 avatar
          volvo

          In my experience the only transparent taxi prices are when fixed prices are offered between the urban core to an airport outside the urban core.

          Otherwise it is based on time and distance neither of which you know until the meter is shut off.

          In San Francisco cabs are metered at $3.50 pick up, $2.75/mile moving and 0.55 per minute waiting for traffic. The IRS says business use of a car is $0.58/mile which covers fixed and variable costs for the vehicle. I don’t know what salary a cabbie is paid or what the city government charges for the cab permit but it seems like there is quite a bit of cushion in there for the cab company.

          I will say that in NYC or Chicago the cab experience is not too expensive and usually a good ride.

      • 0 avatar
        R Henry

        @volvo

        Thanks for your thoughtful response. I combined your numbered elements within the general “better service” umbrella term.

        As for “price transparency” I believe such a thing is difficult, particularly in urban environments, where a jouney may take 14 minutes one day, and 28 the next day, due to traffic, construction, weather, etc. Fact is, the exact cost of a trip cannot be calculated until it is complete. In this regard, I believe the traditional taxi “meter” provides the most reliable (for passenger AND service provider) form of fare calculation. The key, of course, are the fees associated with the meter!

        As for public transit, never forget that in USA, the vast majority of public transit operators are working from Federal dollars. Those buses may have been purchased by local transit agencies, but they got their money from the Feds. Federal dollars are, by definition, political in nature, are used as tools in hidden agendas, and are generally magnets for corruption and abuse.

        A local transit agency in my area (Ventura County in SoCal) runs interurban commuter bus service. Using the agency’s own publically avaiable ridership and budget data, I calculated that each passenger is subsidized to the tune of $8200 dollars annually to ride that bus. At that price, why not simply lease and insure new cars to each rider???

        Public transit labors under all sorts of political forces–environmentalism, equality, unionization, traffic reduction…each with its own demands…demands which politicians are all too happy to address!

  • avatar
    dwford

    Couldn’t Uber just switch to a subscription model? Charge the drivers a flat rate per month, and then the drivers keep 100% of the fares.

    • 0 avatar
      jmo

      Uber’s revenue would be a lot lower. Their current take is 25% but that’s only if you’re making money. For a subscription to work you’d need a complex pricing model so someone who wants to drive just on Sunday mornings or after work from 7-9 could opt for that. Someone who wants to drive Friday and Saturday night from 5pm to 3am would have another much higher pricing structure.

  • avatar
    whynotaztec

    I have owned a franchise and I can tell you this – in many, many cases the whole thing depends on minimum wage employees, who then seek assistance through SNAP and government subsidized health care. Gov spending is essential to keep the whole thing afloat.

  • avatar
    CKNSLS Sierra SLT

    You call a taxi and you don’t know what it’s going to cost.
    You call an Uber and you get a pretty good idea of the cost.

    Yet-Many business here where I am located pay a minimum of $15.00 an hour to start-$18.00 if you stay. A better wage (by most examples) than what you make as an Uber/Lyft driver-after auto expenses. But the ride share companies are not making any money.

    The whole situation seems odd.

    • 0 avatar
      Ol Shel

      Self-driving cars was (and is) their goal. They currently run a taxi service with wages and benefits reduced from the jobs at licensed providers. Their goal is to eliminate the entire profession. Only by destroying jobs can they ‘disrupt’ their way to profitability.

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