Where There’s Smoke There’s Fire


Joe Kefauver

Live by the Sword, Die by the Sword. This oft-used phrase could accurately describe the rise and potential fall of one of the most transformational companies in recent memory. Uber, the ride sharing company, has essentially revolutionized the taxi for-hire industry in this country in a very short time. But one man’s revolution can become another’s disruption. And in fact, that is what Uber has done to the traditional model of taxi for-hire across the country. They have been so effective that the word Uber itself has not only become a synonym for transportation, it essentially functions as a noun and a verb. How many times have we heard someone say, “oh, we’ll just get an Uber”, or “I’ll just Uber my way over there”. It has literally changed the face of an established industry and added new words to our transportation lexicon – all in a matter of three years!

But its revolutionary approach – and /or its disruptive impact – has been felt in other areas as well. When it comes to public policy, Uber has become similarly notable. Across the country, states and municipalities have been legitimately debating how a new, successful and popular business model is appropriately incorporated into a long established regulatory scheme designed to protect passengers and drivers as well as ensure that the taxi industry is fairly compensating those same localities for the pressure it is putting on roads, existing infrastructure and the environment. Uber contends that since they are merely a ride sharing technology application and not a transportation company that these regulatory frameworks don’t apply to them and they tell their drivers to simply ignore them. Essentially, while their business approach extends a welcome hand to passengers, their government relations approach extends a middle finger to regulators, elected officials and other policy makers. Yet again, a truly revolutionary approach from the company. However, this little innovation may cost more than a six-dollar fare.

Because Uber has been so flippant and heavy handed in their approach, they have caught not only the eye but also the ire of some pretty powerful political players – most notably organized labor. The unions in general, and the SEIU in particular, are rightfully concerned that Uber’s model (just like AirBnB’s, Task Rabbit and all the other technology platforms) leverages (and in their mind exploits) independent contractors to actually perform the services, and as such, Uber contends that they are not actual employees of Uber and therefore not eligible for benefits or protected by workers compensation and other safety nets. The unions have long been trying to reverse the tide of employers’ use of independent contractors in part to protect those workers but mostly because their independent status makes those workers impossible to unionize. The surging sharing economy, led by the innovative business models of Uber and others, threatens to exponentially grow and institutionalize the use of independent contractors and thus would be a death knell for the unions. Accordingly, the unions have called in the cavalry and like Sherman marching through Georgia, they have responded – this time in the guise of the California Labor Commission.

Since the unions control many of the levers of California state government, it was only a matter of time before they teed up sympathetic policy makers to intervene. This week, the Commission ruled that Uber drivers should not be classified as independent contractors but as employees, leaving the company potentially liable for billions of dollars of unpaid wages, benefits and workers compensation contributions. This has huge ramifications, and not only for Uber. The entire emerging sharing economy is fundamentally predicated on leveraging independent contractors as the defacto workforce and if this decision gets momentum in other states and federally at the NLRB, it could forever alter the course and direction of the sharing economy. Additionally, it could undermine existing traditional business models in all segments of the economy that leverage independent contractors.

This ruling is not only a massive inflection point in the lifecycle of these types of emerging companies and the entirely new segment of the economy they have fostered, but could significantly alter thousands of existing businesses. And at its core, it’s all because Uber just couldn’t help themselves. They just couldn’t play by the rules.  They wouldn’t play by any rules, even their own.  They have simply been unwilling to work honestly or collaboratively with governments to come up with modern regulatory protocols that foster their business while protecting consumers and drivers, even when it means more for themselves!

They had to stick their middle finger in the eyes of anyone paying attention. Now those same fingers may be getting used at the ATM as they pay billions of dollars in back wages. The Sharing Economy needed Uber’s brashness to blaze a new path. But the path is now clear and Uber is still laying flame to the landscape. When was the last time “workers” in New York, Texas and Florida were talking about news from the California Labor Commission?  When have taxis companies pulled for teamsters and service employees touted the rules employed by hotel chains?  Yes, everyone has been watching as Uber burns through workers, regulatory schemes and resources. However, their arrogance and hubris have equally been on full display and they, along with the rest of the sharing companies, may get swallowed up in the same bush fire they created.  Maybe its time to take the flamethrower away from Uber.