Will and Pavan presented an Uber as the company of the week during the kick-off event on the 10th of September. A Google search on “Uber lawsuit” shows that Uber is being sued all over the world, mostly from taxi companies that claim they are stealing the business of licensed taxis. However, one on-going lawsuit really piqued my interest.
To summarize, the lawsuit presents whether Uber drivers are to be regarded Uber employees or independent contractors. Currently, Uber has a “Be your own boss” business model – drivers are classified as independent contractors, liable for maintenance, mileage and gas. In return, they get to use Uber’s technology to look for people who are in need of a ride. Drivers, however, claim that Uber acts more like an employer, so they should be entitled to expense reimbursements.
The distinction between an employee and an independent contractor is crucial because employees are entitled to a levy of benefits such as expense reimbursements. This lawsuit has heavy implications on the transportation industry and the wider sharing economy as a whole.
The lawsuit will force Uber to assume added costs for its employees, which will be passed on to the consumers. This will change the dynamic in the taxi and ride sharing industry. This will cause Uber to lose an important competitive advantage – lower prices. Also, if taxi companies around the world could improve their technology with regards to vehicle utilization through a more digitized, app-based service, they could eliminate another one of Uber’s competitive advantages – convenience. They could potentially gain market share they lost to Uber in the near future.
Secondly, this could raise concerns for other semi-independent work arrangement companies such as Airbnb and TaskRabbit. The distinction between employee and contract worker has major implications on their business models. We may very well see a shift in the dynamics of these tech powerhouses, which may pave the way for the operations of future start-ups.
In conclusion, the taxi industry may not be as doomed as we initially thought. Maybe there may be no more reason for taxi drivers to go on strike about Uber. What implication has this ruling on the $50 billion valuation of Uber? We may actually see a similar ripple effect with companies with the same business model.
- Ryan Lee