Commentary

CA Uber Ruling Is a Worrying Sign for Sharing Economy Fans

Earlier this month the California Labor Commissioner’s Office ruled that a former Uber driver is owed around $4,000 in expenses because she was, contrary to what Uber claimed, an employee rather than an independent contractor. The ruling could have potentially devastating implications for the rideshare company.

Uber claims that the ruling, which it is appealing, is non-binding and only relates to one driver. Regardless, many in Uber’s San Francisco headquarters will undoubtedly be concerned about what the ruling means for the future of the company. If Uber is eventually required to consider all California drivers employees it will drastically change its very popular business model, as it will have to offer drivers a range of benefits it currently does not provide.

To treat Uber drivers and other sharing economy providers as if they are employees is a categorical error that will harm a popular sector of the economy.

Uber’s ridesharing service works by connecting passengers and drivers, who use their own vehicles and drive whenever they want. Uber does provide drivers with technology, carries out background checks via a third party, and requires that a driver applicant’s vehicle is not too old.

According to the California Labor Commissioner’s Office, Uber is “involved in every aspect of the operation.” But this is an overly broad understanding of the word “every” considering that Uber drivers set their own schedules and are using their own vehicles.

The ruling highlights how lawmakers and regulators have struggled to keep up with technological changes. Uber and other sharing economy companies don’t fit well into many regulatory regimes, which are often designed for market incumbents and sharing economy competitors such as taxi companies and hotels.

Taxi companies might not be happy with the rise of Uber, and hotels might prefer for Airbnb to close shop, but Uber is not a taxi company and Airbnb is not a hotel chain. Instead of thinking of sharing economy companies as if they are the same as their competitors they ought to be understood as means by which to solve information problems.

Many people have skills and assets that are not used to their fullest extent. A full-time baker, accountant, software engineer, or airline pilot might want to rent a spare bedroom or provide rides on weekends, but potential customers need information about where these people are. Companies like Uber and Airbnb make finding this information very easy.

It is the case that Uber, as well as sharing economy players like Lyft, Airbnb, EatWith, and TaskRabbit carry out a vetting process before letting providers onto their platform. But the vetting process and the fact that these companies allow consumers and providers to use their technology hardly warrants classifying sharing economy workers like Uber drivers as traditional employees.

The sharing economy is here to stay, but its growth could be hampered if companies like Uber are required to classify drivers as employees. To treat Uber drivers and other sharing economy providers as if they are employees is a categorical error that will harm a popular sector of the economy.

Matthew Feeney is a policy analyst at the Cato Institute.