The UK tribunal ruling against Uber is unworkable. Here's why.

Profile picture for user gonzodaddy By Den Howlett October 30, 2016
Summary:
Uber's losing at an employment tribunal in London is a temporary setback for the company. Here's why.

uber

My colleague Stuart Lauchlan has covered the basics of the ruling rendered at a London Industrial Tribunal last week against Uber. In a unanimous verdict, the judges found that Uber operates as an employer in two cases brought on their behalf by the GMB, a trades union. As such, and assuming the verdict stands, Uber will be compelled to pay the UK minimum wage along with statutory sick and holiday pay to those two people. Uber is appealing the verdict.

As Lauchlan correctly points out, the ruling has ramifications for numerous people who work in the so-called gig economy although it is important to realize that every case has to stand on its own merits. Personally, I find the Uber ruling bizarre. Here's why.

Before Uber came on the scene, Hailo existed as an aid to help drivers get rides. This is what The Economist had to say back in 2013:

At its launch in November 2011 Hailo had 500 London drivers signed up. It now has almost 13,000 of the city's 20,000-odd black-cab drivers on its books. The app they use costs nothing, but they must pass on 10% of any fare they receive to Hailo...

...In London, it is helping black cabs to fight back against the minicab operators such as Addison Lee, which have booking apps of their own. If passengers can use an app to hail a black cab, goes the Hailo thinking, many will do so in preference to booking a minicab, because the black-cab driver—who must pass onerous exams—knows London better and has all the historical, visitor-friendly associations of a trade body first licensed in the 17th century.

 It seems to me that Uber has merely followed in that tradition but stepped it up a notch to reflect changes in technology that work on both the buy and sell side of the transport industry. But then I also note that Uber is the only company being targeted in this tribunal case. Are they so different? I don't think so.

The Tribunal held that:

The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common ‘platform’ is to our minds faintly ridiculous.

How is that different to Hailo or Addison Lee, the London based mini-cab service?

The pay problem

A key part of the ruling centered on the claim that in one month, an Uber driver earned £5.03 per hour after expenses, below the then minimum hourly rate. That figure was calculated after deducting expenses. The same driver has consistently claimed that Uber continues to eat into driver income through different ways. Here is a graph he produced that supports his case:

farrars-earnings

And here is a calculation he made for Uber's claimed top drivers:

uber-net-pay

On its face, these arguments look compelling and, when you look at data I analyzed for top US states, then empirically, you can see that labor rates have fallen.

txi-and-limo-ave-annual-eanrings

But there are problems attached to this set of calculations. The car rental number assumes the driver does not have a car in the first place or, if he/she does, then it is under lease. Is that the case for every Uber driver? If not then how does Uber calculate the cost of car usage (depreciation and maintenance) in such a way that it is fair?

One quick way for Uber to solve the pay per hour problem is by adjusting the commissions it deducts from driver income. The problem is that in order to do so, Uber will need to make massive changes to its underlying computing architecture and applications in order to capture the costs that will need to be applied in order to arrive at the minimum wage number. The graph produced by Farrar above demonstrates the obvious problem.

My bigger concern is that once Uber makes those calculations, there is little incentive for them to pay more than the minimum wage. Therefore, the idea that someone working for Uber has unlimited potential to earn moves away from the kinds of fare they can get - through things like surge pricing and other incentives - to number of hours worked. Even then hours worked is a poor measure because not every one of those hours is productive. What happens then? More to the point, is the Tribunal expecting us to believe that a business is, in an extreme case, prepared to pay its people for every hour they are available for work? If so then that runs counter to anything I've ever seen in law.

To my mind, these factors make this ruling unworkable, something that must have escaped the judges.

The control issue

The way this was spun for the Tribunal makes sense on its face.

Uber runs a selection program - as it must to comply with the law - no different to anything else although the Black Cab drivers have to comply with other regulations and are subjected to advanced driving tests.

Uber sets the rates - as do the meters in any cab.

Uber doesn't tell the driver where they're going before pick up. Black Cab drivers don't know where they're going until the person tells them.

So where are the essential differences here? I don't get it.

My take

Those who support the status quo are delighted. They think they've won a victory. My guess is that on appeal, Uber's lawyers will make a much better case than the one they made in front of this tribunal and will prevail. However, there is a good argument for Uber playing more nicely with its drivers and it has plenty of levers that it can pull if it so wishes.

Many of those commenting on this case are woefully ill informed about Uber. Check this garbage from The Guardian's Aditya Chakrabortty:

For the likes of Uber, self-employment is hugely profitable. The giant company has 40,000 drivers working for it in Britain – and as long as they are self-employed they are almost cost-free. On that basis, Uber can keep on adding to its fleet of drivers for next to nothing, and thus rack up ever more passengers and squeeze out competitors.

Even the most superficial of fact checking would have informed this idiot that Uber doesn't make a profit. Neither does his commentary take account of the fact that Uber holds all the aces in this game of poker because if Uber determines that the cost of doing business in the UK is too high. then it will simply shut down. And then what for the 39,998 drivers who have not sued Uber but are presumably happily plying their trade?