Briefly last July, a hack opened a window into Uber’s passenger ratings that left some people nervous.
Others were just disturbed with a less-than-perfect rating.
Equipped with the power to review riders, the new driver is not your typical cabbie. We know she is different, but does government?
A Government Catch-Up
Referring to Uber competitor Lyft, one federal judge said labor laws were passed to protect workers who had little bargaining power. Righting that imbalance somewhat, the laws mandate unemployment insurance, a minimum wage, overtime constraints, perhaps payment for employee expenses and Social Security.
By contrast, when a firm temporarily hires someone for a specific task, that individual has more leverage. Equipped with a skill the firm wants, that person can function successfully as an independent contractor. As a result, government need not intervene.
And therein lies the dilemma.
Government says it has to decide whether the sharing economy driver is an employee or an independent contractor. However, I suspect that they are asking the wrong question. Combining employee and independent contractor characteristics, drivers are both and they are neither. Maybe we have a hybrid.
In a case involving Lyft drivers who claimed they were employees, a California federal judge said he was being asked to fit a square peg into one of two round holes. His problem? “The test the California courts have developed over the 20th century for classifying workers isn’t very helpful in addressing this 21st century problem.”
Our Bottom Line: Externalities
When a driver is classified as an employee and the firm’s expenses rise, its incentives change. It could hire fewer drivers, pay employees less per ride, offer less flexibility. On the other hand, as independent contractors, drivers are vulnerable to the requisites of a powerful business.
Perhaps the answer is a third worker category that generates positive externalities for businesses and drivers, but retains the incentive to evaluate riders.