Uber vs. Taxi: The Sharing Economy’s Power over Workers and Liability

Episode Notes

Transcript

Lawyer 2 Lawyer: Uber vs. Taxi: The Sharing Economy’s Power over Workers and Liability – 8/19/2015

Advertiser: Uber says we’re not a transportation company, we’re a technology company and we just have developed technology that helps independent drivers find customers, basically. From the perspective of the worker, an employee is entitled to have the company pay the company share of social security, be covered by unemployment insurance. They are entitled to have expenses reimbursed, they are entitled to minimum wage, in general.

Welcome to the award-winning podcast Lawyer to Layer, with J. Craig Williams and Robert Ambrogi, bringing you the latest legal news and observations with the leading experts in the legal profession. You’re listening to Legal Talk Network.

Bob Ambrogi: Welcome to Lawyer 2 Lawyer on the Legal Talk Network. This is Bob Ambrogi coming to you from just outside of Boston, Massachusetts where I write a blog called Lawsites and I also practice law. Before we introduce today’s topic, I’d like to take a moment to thank, Clio, our sponsor. Clio is an online practice management program for lawyers. You can find out a lot more about Clio at www.GoClio.com. Since its founding in 2009, Uber has become arguably the most well-known and certainly the most well-funded ridesharing service in the world. Sometimes regarded as the cab you can hail with an app, Uber connects private for hired drivers with riders via their mobile devices. There’s no need for talking or carrying your wallet, the app takes care of everything. It even encourages self policing and self rating by allowing both drivers and riders to rate each other. At the same time, not everybody has been so enamoured with Uber. There has been litigation growing on many fronts. There are lots of questions about the extent to which Uber should or should not be regulated. Uber has – in particular – recently fallen under scrutiny for the way it classifies its drivers as independent contractors. And in some cases, it’s been accused of violating even local regulations for taxi services. Some of the most visible challengers to Uber’s ridesharing service are now the taxi cab companies themselves and some of the taxi drivers who are crying foul in major metropolitan areas. So we’re going to talk about some of the legal areas surrounding Uber today with two guests. And let me introduce them and bring them into the conversation. First of all, let me introduce Jonathan Handel. Jonathan  is a transactional enter­tainment and technology lawyer at TroyGould. In addition, he is an adjunct professor at University of Southern California Gould School of Law, as well as a contributing editor for The Hollywood Reporter. He’s also the author of several books, including “The New Zealand Hobbit Crisis”. Welcome to the show, Jonathan Handel.

Jonathan Handel: Bob, it’s a pleasure to be with you, thank you.

Bob Ambrogi: Thank you very much for being with us today. And also joining us today is Matthew Feeney. Matthew Feeney is a policy analyst at the Cato Institute. Before that, Matthew worked at Reason magazine as an assistant editor of Reason.com. He has also worked at The American Conservative, the Liberal Democrats, and the Institute of Economic Affairs. Feeney is a dual British-American citizen and received both his B.A. and M.A in philosophy from the University of Reading in England. He has written and commented extensively in recent months on Uber. Welcome to the show, Matthew.

Matthew Feeney: Thanks for having me.

Bob Ambrogi: There’s a lot going on and a lot I’d like to talk about. I’ve been travelling a lot lately myself and I’ve discovered that if I’m ever in a taxicab and I want to kick up a conversation with my driver, the best thing I can do is ask the driver what he or she thinks about Uber. I would then get an earful all the way to the airport or wherever I’m going. But the drivers themselves, in some cases, haven’t been entirely thrilled with the way they’re dealt with by Uber. In California, recently, there was an action by a driver who brought a matter trying to recover some of the expenses she incurred. And I guess her action also included claims for wages due to her challenging her status as an independent contractor and the California labor commissioner recently issued a ruling that the driver was, in fact, an employee, as opposed to an independent contractor. Jonathan, I wonder if I could talk to you and ask. I guess I just kind of summarized that up but did I get it right and tell us a little bit more about that decision and what its implications were.

Jonathan Handel: Sure, absolutely, and you did get it right. The issue, let’s put a frame around it. What is the difference between an independent contractor and an employee and how do you tell the difference? It turns out not to be an easy question at all. The IRS, for example, has a twenty factor test, twenty different factors that are considered in determining whether somebody is properly classified as an independent contractor as opposed to an employee. And those factors are used in other contexts as well. They’re used in copyright law to determine whether somebody, whether they employer or the company owns what you’ve done. Are you an employee versus an independent contractor, and they’re used by the labor commissioner. Why does this make a difference is perhaps the threshold question. And the answer is that there’s two perspectives. From the perspective of the worker, an employee is entitled to have the company pay the company’s share of social security. They are entitled to be covered by unemployment insurance, by unemployment later if they’re unemployed. They are entitled to have expenses be reimbursed. They are entitled to minimum wage, in general, depending on the level of compensation someone is getting. Some people are obviously more highly compensated and aren’t on an hourly sort of basis. But if you’re talking about someone like a driver, they would be entitled to minimum wage and overtime. Now from the company perspective, from Uber’s perspective, from the perspective of other sharing economy companies like Lyft – the main competitor to Uber, obviously runs a very similar service – from the perspective of companies like Instacart that does grocery delivery and various other companies that are attempting to be information platforms that connect end users with service providers. These companies want to define the boundaries of the firm to exclude the worker and just be information platforms. Now, why do they want to do that? Fundamentally, if you don’t have a hundred thousand employees, all these drivers, but instead have a thousand employees or five hundred employees who are programmers and stuff, you are able to be treated as an information agency company, as an internet company, and the market will value you as such. Uber’s evaluation I think is fifty billion or so, and ultimately when these companies IPO, they hope to be valued in that sort of way.

Bob Ambrogi: It also saves them the cost of employee benefits, unemployment insurance and those kinds of things, as well. Isn’t that part of the reason here?

Jonathan Handel: Absolutely, absolutely, and those things and therefore the profit margins that are available to these types of companies are the reason that they get valued in this way. And the ability of scale more quickly, the ability to insulate themselves to some extent, from liability, from misconduct that occurs from time to time by drivers. If a driver assaults a passenger, if that driver is treated as an employee, there’s much more likely to be liability found on the part of Uber than if they’re an independent contractor.

Bob Ambrogi: Let me bring Matthew into this. Let’s explore some of these things but I just want to bring Matthew into the conversation. Matthew, I know that some of your writings on this, you say that Uber is primarily an information company. It’s not a taxi company or something. Is it fair that these drivers be considered independent contractors?

Matthew Feeney: Well I think it’s certainly right in Uber that left us a service that certainly competes with taxis, but it is, I think, something quite different. When Jonathan says information providers or information platforms, I think that’s basically right. But I also think that the way these companies work means that if they are forced to consider drivers employees, it will have a pretty significant impact on that business. That said, I think the emergence of the self-assuring economy has highlighted that maybe the existing categories we have are a little awkward and don’t quite work. I think Jonathan’s did a good job of highlighting that it’s a kind of complicated issue as to whether you’re a contractor or an employee. I didn’t know the IRS had such a long list of requirements. But more and more people are going to be using these sorts of apps or companies to do all sorts of things. Not just getting rides but also getting groceries, as you mentioned, or getting a room, perhaps via Airbnb. Lawmakers and regulators should probably, I think – if they don’t want to cripple companies like Uber – they should come up with some sort of other solution quickly. And I don’t think the classic contractor or employee designation are particularly useful here.

Jonathan Handel: Matthew just said very good point and in fact, in some countries such as Canada and some Western European countries, there is a third category that sort of compromises or splits the difference between the two. In Canada, they’re called dependent contractors, for example, and it’s a category that has some aspects of both. Matthew mentions the need for the legislature and or potentially at a national level Congress, I supposed, to do something about this. What’s awkward is that the Uber situation is that Uber has appealed the labor commissioner decision into the California court system, and I think it’ll ultimately go to the state Supreme Court. Courts are going to be reluctant to themselves to create a third category. And so that sort of is a function that’s more properly left to the legislature. So you’re going to have a very difficult situation for the very liberal California state Supreme Court that’s going to be torn between on the one hand, its allegiance towards technology. And you have a lot of several new, younger Bay Area based members of the state Supreme Court that governor Jerry Brown appointed who are very tech-savvy, most likely. So on the one hand, they’re going to be tech-oriented to some extent, but on the other hand, of course, being liberal democratic appointees, they’re probably very inherently sympathetic to workers as well. So it’s going to be a very tough an interesting decision when it reaches those levels.

Bob Ambrogi: I would note that in addition, both in California and Massachusetts and maybe elsewhere, there have been class actions brought on behalf of drivers seeking to classify the drivers as employees, not as independent contractors. Uber says, look, we’re not a transportation company, we’re a technology company, and we have just developed technology that helps independent drivers find customers, basically. And it seems that given what you’ve both outlined about the independent contractor law, it seems these lawsuits could pose a real challenge to Uber’s operations in those states.

Matthew Feeney: It absolutely could, and I think what Jonathan has just discussed is with considering very carefully. Because I don’t know if we want to live in a world where courts view their role as trying to solve awkward problems that technology has raised. It seems to me that their job should be – at least in cases like this – to incorporate the law. It might just be the case that we have bad laws that aren’t doing a good job at keeping up with technology. So that’s something that I think lawmakers are going to have to address.

Jonathan Handel: That’s right. The court, when it gets the case, can’t simply punt and say well, we’re not going to make a decision. So perforce, they’re going to have to decide. And as I say, I think they probably won’t create a third category because that would move too much in the direction of writing a law rather than interpreting a law. But how the courts will interpret the existing law is to some extent anyone’s guess. And it’s going to vary by state, it’s going to vary by jurisdiction, by country. Uber operates in three hundred cities and dozens of countries, and in Western Europe, for example, there’s obviously more sympathy, politically, for workers than there tends to be in the US. There is a larger context to this that’s difficult and troubling, which is there is an increasing desire on the part of companies to focus on capital and on machinery and automation and computers and the internet and downplay the role of workers. We have a structural problem here, which is how do individuals survive in a world where you don’t work for one company for the rest of your life, you don’t have a guaranteed pension. Healthcare is something that we’ve finally started to deal with with Obamacare, but it’s controversial for some folks, and that’s not even to point out the fact that this debate about Uber drivers – independent contractors versus employees – is going to seem quaint in five years because the answer’s going to be none of the above. Uber has a self-driving car lab that they’ve established in conjunction with Carnegie Mellon University in Pittsburg and you’re going to have the option five years from now of having a self driving car come and pick you up. And the taxi drivers who have been protesting Uber are going to find Uber drivers at the same abnormalities as they are when they all get disintermediated by self driving cars.

Bob Ambrogi: That’s a fascinating concept. But what about the passengers here? Should Uber be responsible for the safety of the passengers in two regards, really. The safety of the passengers from the drivers themselves, there have been reports we’ve heard, there are lawsuits pending of alleging assaults of various kinds by Uber drivers. And then, what about the liability issue when an Uber car is involved in an accident and a passenger is injured in some way. Matthew, I know you’ve looked at this issue a little bit, have you found something?

Matthew Feeney: I wrote a paper at Cato about this specific issue about safety, because it seemed to be one of the big issues that was raised among critics of this sharing economy. And I suppose there are two broad points that I think are worth mentioning. The first is that, like you pointed out, there are concerns for rivers as well as passengers. So I think Uber has a major incentive to make sure that people involved and the people using their service are safe. Taxi drivers, Uber drivers’ main competitors, have a very dangerous job. But I think that’s at the very high risk of assault and homicides, but that’s oftentimes because they carry cash and the people in the cars are often anonymous. So what makes taxi drivers appealing to people who want to commit robberies is not actually in play when it comes to Uber cars where everyone has an account and the transactions are done automatically. It seems to me if you wanted to commit a crime in an Uber car, you would want to be caught, because there’s information about the drivers as well as the passengers. If you become a driver for Uber, Uber carries out background checks, which oftentimes are much more strict than taxi companies. And of course, passengers rate drivers and drivers rate passengers, so bad drivers don’t last very long on the platform. And it’s not quite the same for passengers but you might find that it takes longer for you to be picked up if you’re a belligerent passenger, you get poor ratings. The insurance side of things has really been among the most difficult and controversial. There was an incident years ago – actually it might not have been that long ago – but an Uber driver in San Francisco hit and unfortunately killed a child. And what made this case rather interesting was that was during a point in the ride where the driver had the app on but hadn’t accepted a hail. So who was liable became an ongoing debate. At the moment, Uber does provide coverage not just for the period when the driver has the app on and is looking for passengers, but also when the ride is actually taking place. Some states have past insurance requirements so that companies like Uber and Lyft have to have certain degrees of coverage already in place. But oftentimes, they match what Uber and Lyft provide already.

Bob Ambrogi: I want to follow up on that but I need to take a short break right now. Stay with us, we’re going to be back in just a few moments to continue our discussion of some of the legal issues based on Uber.

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Bob Ambrogi: Welcome back to Lawyer 2 Lawyer. This is Bob Ambrogi and with me today is Jonathan Handel, a technology lawyer in Los Angeles with the firm TroyGould, and Matthew Feeney, a policy analyst with the Cato Institute. We’re talking about some of the legal issues facing Uberas its business continues to grow around the world. Jonathan, we were just talking about some of the liability issues, both in the part of passengers and drivers with regard to Uber. I just wanted to check in with you on whether you had any perspective on that.

Jonathan Handel: The modern approach to liability and the sensible approach to liability is to think about who is in the best position to assume liability and to internalize these social costs involved with negative incidents. And clearly, the company that’s creating the platform, namely Uber, Lyft, whoever it might be, is in the best position, so it makes sense. Ultimately, the cost gets passed on to the consumer, but the end of the question is in the form of the rates that are charged. But the question is how do we, as a society, make sure that liability is dealt with. I think that Uber initially did not perform particularly stringent background checks, was not great on insurance, and there was pressure from various state legislatures and some of the cities and so forth. They’ve changed their approach to that and I think sensibly so.

Bob Ambrogi: We spoke earlier about the question of to what degree courts should get involved in creating policy around this issue. What about the regulatory side of things? do we need new regulations to address ridesharing services such as Uber, or even more broadly, some of the other kinds of companies and Airbnbs of the world that are coming up in this sharing economy. How should we address them? Should we let them figure this out themselves or should governments be stepping in and trying to regulate these services?

Jonathan Handel: Of necessity, there needs to be an interplay between the development of technology and the regulatory regimes. Because by virtue of being disruptive, and in particular being disruptive of regulated industries, companies like Uber, Lyft, and Airbnb present challenges. In the case of Uber and Lyft, the regulated industry, of course, is the taxi industry, which in many cities, taxi drivers need to buy medallions and only a certain number of taxi drivers are allowed and so on and so forth. The value of those medallions in major cities like New York, Chicago and elsewhere, has plunged in recent years because of the rise of Uber and Lyft. It’s been very difficult, economically, for taxi drivers. Airbnb, the regulated situation in some major cities, is rent control and quality of life and neighborhoods and the availability of rental housing stock and disputes over the degree of which Airbnb may or may not be driving up rental prices and making it harder for people to live in cities. So these things do present challenges and the law evolves slowly. Politics are slow in contentious process on the one hand, and in terms of the legal court system, law is backward looking, we look to the precedent. Technology is forward looking. Technology looks to disrupt and to develop something new, so there’s an inherent tension and it’s going to continue to be very difficult, I think.

Matthew Feeney: I would add that I agree with what Jonathan said when politics are slow and technology is quick. It is tempting, understandably I think, for lawmakers to think in something like the following way, which is, there’s this new industry or new technology that’s come along and it’s competing with taxis or hotels, so we should try to regulate it as if it is a taxi or hotel. It seems to me that that may be tempting, but ultimately, it’s not appropriate because as we discussed earlier, they’re really information providers, not actual taxi companies or hotels. But anyone who is thinking about proposing legislation about this needs to be very careful. Because at the moment, we understand Uber as some sort of competitor to taxi companies, but it is conceivable in the future that they all become competitors to UPS and FedEx. And if you do what California has done and passed a special designation for these sort of companies to call them transportation network companies. Well how does that regulatory designation go to work when Uber decides to move into the logistics industry? Now instead of proposing new kinds of regulations, you could embark on some sort of deregulation regime. You can say, look, maybe we should deregulate the taxi industry to make it easier for them to compete with Uber and Lyft. I do have some degree of sympathy with taxi companies when they say, “Look, for years we thought that being a taxi driver was a safe bet and we invested in the use of medallions and now within a couple of years, all of our prospects have disappeared.” I imagine that’s an unfortunate position to be in, but the regulatory response has to be very careful.

Bob Ambrogi: Although it’s interesting. I don’t know of either of you have had the chance to read through the California labor department opinion, I’m sure you probably have looked at it. But the hearing officer there describes a pretty high level of control that Uber exercises over its drivers. It’s hard in my mind to draw a clear distinction between why this isn’t just another kind of a taxi company. I understand that it’s making better use of technology but that’s competition. Why shouldn’t it be regulated in the same way that a taxi company is?

Matthew Feeney: I think one of the most interesting pieces of that opinion is – and I apologize in advance for maybe butchering it – but it’s something like Uberis involved in every part of the process, and that was a significant part of what helped form the decision. But I do think that a major difference is the following, which is that at least rideshare drivers – so that would be Uber drivers or Lyft drivers – are driving their own cars whenever they want. They don’t have shifts, they don’t have a boss other than themselves. It is true that Uber carries out background checks and it does take twenty percent of the money that these drivers earn. But it seems to me, at least, that that is quite different to someone who is driving a taxi cab with set shifts and set hours. Without technology involved, I imagine if Jonathan came to visit me in Cato and I said I have a friend who will pick you up if you give him twenty bucks, he’ll do it. It seems to me that that shouldn’t cause too much of a regulatory headache, but it’s the fact that it’s done through this app that is causing all those problems. It also doesn’t seem clear to me that I would be too much of a headache to what people understand as taxi cab versus private car. But it’s undoubtedly something that the court is going to have to consider and lawmakers will have to consider going forward.

Jonathan Handel: Well, Matthew, you just stressed the ways in which Uber is different than cabs. But of course, Uber is also very similar to cabs. It is a service that makes cars available for hire on a ride by ride basis to the general public and you can go from whatever point A to point B that you want and you have to pay and you pay by mile and by time. And you said that Uber drivers don’t have a boss, but in fact, that’s actually kind of conclusory. Because if they didn’t have a boss, they could say, “I’ll charge you twenty dollars or I want to charge you twenty five dollars,” like your friend could. But in fact, the Uber drivers don’t have that freedom. They could only charge what Uber says they could charge, they can’t even accept tips. So what I’ve just done now is stress the ways in which Uber is similar to a cab. Uber is both similar to a cab and not similar to a cab, it’s like an optical illusion. Is it a duck or is it a goose? It depends on how you look at it. And that’s why Uber and the number of other sharing economy companies do present a challenge. And the courts and legislatures and city councils can’t help but deal with this because the existing economy, the existing structure, the taxi industry, is regulated already. So it’s not a question of should we leave it unregulated or put regulations in place. We have a new entrant into what is currently a regulated industry, what do we do about it? And that’s why it’s so challenging, I think. And of course, we haven’t been talking about the difficulty for the taxi drivers. Of course, from the consumer standpoint, if you take Uber or Lyft, you pay less than what you pay with a cab, and you often get a better experience with a cab. The drivers in my experience tend to be friendlier. They’re usually pretty knowledgeable, not always, and the app is better. There are some taxicab apps. Hailo and Curb, formerly Taxi Magic, but they have not gained the sort of traction that the Uber and Lyft apps have. So this is a consumer issue as well as a worker and company issue, obviously.

Matthew Feeney: It’s interesting you mentioned Hailo. Last I checked, Hailo left North America and when it did it cited the stiff competition between Uber and Lyft. It is the case that taxi companies could try to come up with their own app, but it seems that Uber and Lyft have sort of beaten them to the punch there. As far as the drivers being nicer, I think that might have to do a lot with the fact that rude drivers on Uber and Lyft don’t last very long. They tend to get poor ratings and you get booted off the platform pretty quickly.

Bob Ambrogi: I know in some cities I’ve been to, Uber and the taxi cab companies are working together. I don’t know how pervasive that is but I know I was in Chicago recently, for example, and you could hail an Uber and the next thing you know, a regular city cab is pulling up to the curb. I don’t know, that blurs the line that much further, I guess.

Matthew Feeney: Well, it is the case where I work in Washington DC. You can also open your Uber app and hail a taxi. For listeners who aren’t familiar, when you open the app you have a selection of options. You can select UberX, which is ridesharing, or you can get a professional who’s driving a black car or you can also get a taxi. And on days during promotions, you can also get ice cream and kittens delivered, it all depends on the day and what’s available in the city.

Bob Ambrogi: Well unfortunately, we’re getting near the end of our time, and I do want to give each of you an opportunity to wrap up the show with your closing thoughts and also to let our listeners know how they can followup with you for further information. Jonathan, why don’t we start with you and get your overall concluding thoughts on Uber and where we’re heading with this.

Jonathan Handel: I wish I could say where we’re headed on this. I think we’re headed towards more flexibility for more casual labor, but also for more disintermediation and disruption of a lot of kinds of professions and it’ll be for both better and worse. We live in interesting and challenging times. Uber has had, in many ways – unlike Lyft – a very bad PR profile. They’ve talked about wanting to set private detectives on journalists and have been sort of arrogant in their public persona. I think that’s probably going to change as they continue to deal with regulators. But this is going to be challenging for the courts and for regulators for many years to come, I think. We’ve only seen the beginning of this and as technology evolves, as mobile evolves, as robotics evolve, we’re going to continue to see challenges for everyone. You can find me at JHandel.com. JHandel.com is probably the best place to go. And thanks for having me.

Bob Ambrogi: Very happy to have had you here. Matthew Feeney, how about your final thoughts?

Matthew Feeney: I think the technology’s here and it’s not going anywhere, but it’s presenting important and interesting problems to do with regulations and the law that are going to be ongoing and will continue to be addressed for the foreseeable future. I do just hope that people who are charged with trying to regulate whatever environment this is, keep in mind the potential for technology to change quickly and for the state of the economy to change quickly. And also to keep in mind the economic potential of new and innovative companies. But as Jonathan mentioned, I think we’ll have to wait and see what comes out. I do think this is something that will be dealt with at the state and local level, we shouldn’t expect anything federally. And we’ll probably – as we often do – in the laboratories of democracies get the good as well as the bad. Anyone who would like to follow up with me can reach me via email at [email protected], or you can tweet me. My twitter handle is @M_Feeney. And I’d just like to thank you and Jonathan for having a chat with me today.

Bob Ambrogi: Thanks for being here, and I would add, Matthew, another little plug for Cato, I guess, just from my own researching this. I came across an issue of Cato Unbound Journal put out by Cato just online on public policy for the sharing economy and you contributed a lead essay and there were several other essays on it that were really informative and interesting in terms of shedding some light on the larger issues surrounding some of the sharing economies. I’m sure readers might want to watch out for that. Thanks again for our guests, we’ve been talking with Jonathan Handel, a technology transactional entertainment lawyer at TroyGould in Los Angeles and an adjunct professor at the University of Southern California’s School of Law. And with Matthew Feeney, a policy analyst at the Cato Institute. Thanks very much to both of you for taking the time to be with us today.

Jonathan Handel: Thanks for having me.

Matthew Feeney: Thank you.

Bob Ambrogi: And that was another episode of Lawyer 2 Lawyer, we will be back next time with another interesting topic. Remember when you want legal, think Lawyer 2 Lawyer. See you next time.
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