Sharing Economy

Lawsuits, Legislation Threaten the 'Sharing' Economy

California legislators want to create union privileges for independent contractors, like Uber drivers.

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As an occasional cab rider in Sacramento, I've noticed something that isn't always a given: fleets of newer cabs, polite drivers and the use of modern credit card machines. This is a city where the cabs can be so shabby, the City Council two years ago passed new regulations that require drivers to have a rudimentary understanding of local geography and English, to drive non-jalopies and "be hygienically clean."

"The ordinance was written in response to reports of fistfights among cabbies, rude exchanges with customers and high-speed rides," according to the Sacramento Bee. But few would credit the new rules for a quickly improving cab-riding experience. The credit properly goes to Uber and Lyft—those ride-booking services that introduced competition.

In San Diego, pressure from these upstarts caused the city to deregulate its "medallion" system that imposed a limit on the number of cabs in the city. Because of the cartel, operating permits cost more than $100,000, which forced cabbies to work long hours (earning only $5 an hour, according to one study) paying off the cab owners' medallion fees. Now anyone who meets some basic standards is free to buy and operate a cab.

This is how markets work. The results are good for almost everybody. But there's always a market for grievances, too. Hence, some disgruntled drivers and allies of California's unions want to take away the ride-booking services' competitive advantages. A recently settled lawsuit against Lyft set out exactly what's at stake: the survival of these fledgling services. Newly proposed legislation likewise threatens to destroy the nature of the companies.

"According to newly published court documents, Lyft would owe its drivers $126 million in reimbursement expenses for the last four years if the ride-hail service classified them as employees rather than independent contractors," according to a recent article in the Verge. One could almost hear the sense of entitlement, as the article pointed to court documents that "provide a rare glimpse into the huge amount of cash that companies like Lyft and Uber save by refusing to classify their drivers as employees."

Of course, these businesses' model is based on contracting with independent drivers, who pay to access to an application that hooks up riders with drivers. Drivers can work hours that suit them, but they obviously don't get all the perquisites that come with being an employee. It's so expensive these days to hire permanent employees that contracting is a key way to build a new enterprise. No one forced any drivers to accept the terms offered by the companies.

Drivers would have "recouped about $835 each, if the company applied the standard mileage reimbursement rate set by the U.S. government," according to the article. "Leaked financial documents obtained by Bloomberg last year show that Lyft is struggling to make money: the company lost $127 million in the first half of 2015 on $46.7 million in revenue."

The irony is obvious. How would adding another $126 million in expenses help the company sustain itself? In the long run, drivers don't benefit by threatening the profitability of the company that pays them. Lyft settled the lawsuit with a more modest $12.25 million payment. But the same writer noted that "[t]he bullet that Lyft just dodged is still coming for Uber," which faces a class-action lawsuit that gets underway in June. It never stops.

Even before the suits are settled, these companies must avoid a legislative bullet by Assemblywoman Lorena Gonzalez (D-San Diego) that would give independent contractors the right to bargain collectively for benefits, as if they were full-fledged employees. It would challenge federal antitrust law, which views collective bargaining among contractors as price-fixing. Her proposal takes aim at ridesharing companies, but it would apply to other industries, as well.

Assembly Bill 1727 "would establish for eligible groups of independent contractors the right to organize and negotiate with hosting platforms." It wouldn't unionize the workers, per se, but would create associations supervised by state officials. Gonzalez says it would improve working conditions for "gig economy workers," but really, it would undermine the flexibility, cost-savings and worker independence at the heart of these platforms' success.

Many in the taxi industry would love to use the political system to hobble competitors. It's easier than outperforming them on the streets. If they succeed, however, consumers can go back to the days of lobbying city councils to pass rules requiring cabbies to dress appropriately and learn their way around town.

Competition works best. Wouldn't it be nice if California, for once, resisted the temptation to worsen its business climate?

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  1. “California legislators want to create union privileges for independent contractors, like Uber drivers.”

    LOL

    1. Are California lawmakers forced at gunpoint to join and pay dues to a looters’ union?

  2. The problem is when the graft from the cab companies dries up California legislators will need a new revenue stream to replace it. And a cab driver union looks appealing.

  3. Lol. The bullies are on the street with baseball bats swinging at all sorts of bad pitches.

    Uber and Lyft and other innovative companies have the parasite class scrambling to figure out ways to skim off them.

  4. In all fairness, Lyft and Uber probably should recompense it’s drivers for wear and tear on their vehicles.

    However, it’s equally clear that no one is forcing a person to work for those companies; so if you’re dumb enough to not realize what depreciation on your vehicle is per mile, that’s on you not the company.

    On top of that, if your income doesn’t beat the paltry amount of depreciation per mile than you should definitely not be driving for a ‘living’. That’s the thing about being an ‘independent contractor’, you need to do your own thinking and budgeting.

    1. In all fairness, Lyft and Uber probably should recompense it’s drivers for wear and tear on their vehicles.

      Why? In all fairness, Uber hasn’t shanghaied anyone and made them drive their vehicles without that sort of compensation, have they? These people have accepted the terms of contracting with Uber in exchange for things like shift hours they get to determine on their own.

      1. It is possible to say that Lyft and Uber SHOULD recompense the drivers for wear and tear on the vehicles without it being done by force.

        That is to say, it is in the best interests of Lyft and Uber to VOLUNTARILY pay a rate high enough for their drivers to repair their vehicles to reduce driver turnover. Ultimately, Lyft and Uber benefit from curating a group of highly-rated drivers with tons and tons of previous rides and ejecting only the problematic drivers (such as rapists or rude or unreliable drivers). They can’t expect to build such long-term relationships if their drivers are destroying their vehicles over the long term and are unable to repair them and still turn an acceptable profit.

        Consider what BYODB said to be advice to Uber and Lyft and not a call for gov’t regulation.

    2. The government’s Profit/Loss from Business or Profession tax form does allow at least two methods of deducting expenses, wear and tear on your car. It’s not the same as being reimbursed, but you get robbed and beaten less by the IRS after ruining your car to make them a living.

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  7. RE: Lawsuits, Legislation Threaten the ‘Sharing’ Economy

    To share is to care.
    Just ask anyone fro Cuba or North Korea.

  8. Lyft is losing gobs of money? Color me shocked!

    Of course, it just goes to show that Uber and Lyft’s competitiveness over taxis is the result of venture capital firms willing to pour mountains of money into an “idea”; I highly doubt they’d be all that competitive if they had to actually show a profit to survive.

    1. They might also be better able to turn a profit if they weren’t paying out settlements for lawsuits intended solely to drive them out of business.

      1. Yes, the way the Nixon anti-libertarian law was intended solely to drive the Libertarian Party out of business.

  9. The thing very few people seem to be talking about is that these suits and draft laws are making venture capital firms pull back funding from new ventures, because the potential doesn’t look as good as it once did. This is costing the country 10s of 1000s of new jobs and squelching future innovation in buisness. Everyone is losing.

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  14. In exactly the same way, the Libertarian party has been forcing the repeal of bad laws through the miracle of third-party spoiler votes. Ram Johnston, antiabortion Republican for Congress lost his seat to a pro-choice Democratic party suffragette. Newspapers show Ram that could have been his hand in the till, but some individual-rights libertarian got the 5% of the vote Ram needed to get on the Congressional payroll.
    The libertarian offered to stand up for the 2nd Amendment, but also offered to free everyone jailed under victimless nonsense laws, and to vote to repeal taxes every opportunity. Ram’s only hope for getting elected is to forget all about trying to coerce and bully pregnant women, hippies and brown people, so his party changes the laws after he pistol-whips the platform committee with a long-barreled .44 magnum. That is an example of how losing is winning every time it forces useless parasites to change idiotic laws. That’s competition!

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  17. I really wish Uber and Lyft and other companies in similar situations had the balls to simply boycott bad jurisdictions/regimes.

    If Uber/Lyft were to say, to hell with you, Calif., we are going to simply exit the Calif. market until you drop this legislation/regulation, there would be a whole helluva lot of angry voters watching other states enjoy the use of Uber/Lyft.

    Of course, it’s sort of a prisoners’ dilemma where if Uber boycotts Calif., Lyft will be tempted to stay in order to extend its monopoly and vice versa. But the result is like that of the prisoners’ dilemma: both end up worse off than if they had both left. I guess this would be considered illegal price collusion (boycotting together by agreement).

    And of course, companies DO exit markets once regulations get too onerous, like the many health insurance companies leaving Obamacare because they can’t turn a profit. But this bar is very low, and this boycott is far too late. The health insurance companies would’ve been better off boycotting Obamacare before it had passed, but their greed at potentially profiting from the mandated participation got the better of them, and they dived right into bed with the gov’t. So I guess they are getting what they deserve now.

  18. Gosh, seems like the only part of the economy that the government isn’t threatening is the illegal drug trade.

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