In today's Finshots, we talk about how the UK Supreme court might fundamentally change the way the likes of Uber works.


The Story

The UK Supreme Court ruled on Friday that Uber drivers ought to be classified as “workers” and entitled them to minimum wage and holiday pay. And this changes everything. Until now, these drivers were classified as independent contractors in most places. They had the flexibility of working any hours they saw fit, but they never had access to insurance and all the other benefits accorded to full time employees. But right now, with the latest ruling, that premise may no longer be tenable, at least not in the UK.

However, the question here should be rather straightforward — Why not just treat drivers as regular employees? What would Uber lose?

Well, for starters, it would fundamentally alter how they do business. After all, offering employee benefits isn’t exactly cheap. And the only way to compensate for the increase in costs is by pushing ride charges higher. Last year, for instance, when Uber tried to approximate the price increase for California, they believed it would need to increase 25%-111% across different parts of the state. And bear in mind, this impact wouldn’t be uniform. In large cities where demand isn’t a problem, Uber can commission more trips and offer a better price for its patrons. However, in places where demand isn’t booming, the price increase might be so prohibitive, that it wouldn’t even make any sense to ply an Uber. What happens to residents in these areas? Well, they’ll either have to pay through the roof or simply seek alternatives. In effect, Uber believes there will be a net decrease in demand if their costs blow up. And with a decrease in demand, you’ll see fewer riders employed. So there is a possibility that this might negatively impact the very people these laws try to protect.

However, not everybody is convinced this is how things will play out. The earlier projections come from Uber — specifically from an Economist at Uber. Critics believe that Uber will never let demand crater. They will eke out inefficiencies. They will cut spends elsewhere. Prune costs across the board and still manage to keep the growth engine running at full steam. Will this mean they’ll pay drivers less each time they ferry a passenger? It could happen, but multiple states are already mulling setting up a minimum wage to prevent the likes of Uber from fleecing their drivers. So it’s possible that Uber is just resorting to scare tactics here.

But that doesn’t mean they aren’t reconsidering their position either. The UK Supreme Court might have been the first institution to fully recognise the rights of gig workers, but regulators across the world are also actively looking at protecting these people. In fact, this latest ruling will only provide them with further ammunition. Uber knows this well. So they’re trying to stay ahead of the curve.

For instance, a few months back, the CEO of Uber wrote an Op-ed in The New York Times, suggesting that there was a “third way” to solve the problem — an approach that involves offering some benefits while maintaining drivers as independent contractors. He wrote —

I’m proposing that gig economy companies be required to establish benefits funds which give workers cash that they can use for the benefits they want, like health insurance or paid time off. Independent workers in any state that passes this law could take money out for every hour of work they put in. All gig companies would be required to participate, so that workers can build up benefits even if they switch between apps.

Had this been the law in all 50 states, Uber would have contributed $655 million to benefits funds last year alone. Taking one example, we estimate that a driver in Colorado averaging over 35 hours per week would have accrued approximately $1,350 in benefits funds in 2019. That’s enough to cover two weeks of paid time off, or the median annual premium payment for subsidized health insurance available through an existing Uber partnership.

So yeah, they are trying to find some middle ground.

Meanwhile in India, the government only recently formulated the Social Security Code 2020 to recognise the role of unorganized and gig workers in India. We still don’t know how things will play out. But we hope that things improve for these people at the aggregate level. Sure, coronavirus hasn't been kind to the likes of Uber and Ola. But it has been rather devastating for the drivers that work with these aggregators. So hopefully, things start looking up for India's gig workers soon.

Until then...

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