If Uber Drivers Become Employees, Can Uber Escape That? Plus How Employees Compete With Robocars

A law making its way through the California legislature would require certain “gig work” companies to treat their gig workers as employees rather than independent contractors. Most people think the law is aimed squarely at Uber, Lyft and the like, but Uber claims it won’t apply to them, and there is skepticism of that.

If the gig workers are employees, a fair bit changes. They become subject to a lot of employment laws, including minimum wage laws, employee rights and benefits. They might have to be paid for the time they sit idle waiting for a ride. They might no longer have the right to refuse rides or set their own hours. Employment taxes (social security etc.) would have to be paid on their wages. The might get benefits And many more different treatments.

A source from Uber speaking to “The Information” claimed this could raise Uber’s costs by 20%. It is unclear if that means all of Uber’s costs (which is to say the 75% of ride prices they pay drivers plus the driver incentives which today exceed what Uber brings in) or just the “driver” part of the cost which could be much less. If there is a 20% increase in the full cost of a ride, this will eventually be passed to customers.

There is an irony in that when it comes to robotaxi service. People frequently wonder about what the employment consequences of robocars are, and what happens when they displace people who drive for a living. One can understand the drivers wanting to make more money and get more rights. Ironically though, this will hasten their replacement as the price difference between a robotaxi ride and a human driven ride increases. Robots certainly won’t demand higher pay, rights and benefits.

In another irony, for a large fraction of Uber drivers, it truly is gig work, done part-time, on an opportunistic basis, when the driver does not have other things to do. Many drivers are pleased at a job where they set the hours, where they can clock out to pick up a kid from school or work another job with no time conflict. I’ve met Uber drivers who were startup entrepreneurs, who spend some of their day on their startup, and then drive to get money to eat.

There is also less pain if robots displace a part-time task based job compared to displacing a full-time occupation. The harsh reality is that no kid ever said that they dreamed of being a cab driver when they grow up. This is a job people take for other reasons, and not a career — at least for most.

Today, Uber pricing is based on several factors. There is a basic ride fee, then a cost per mile, and then a cost per minute. That’s the core formula, but now that Uber and Lyft quote rates up front, they alter this with surges, and must estimate the time the ride will take considering traffic. They also are rumored to adjust pricing based on who is paying and other demand factors, and I have seen them cheat drivers by charging the rider one thing and paying the driver far less than their agreed percentage.

If we consider the fare for UberX in their hometown of San Francisco, it’s $2.70 plus 91 cents/mile and $23.40/hour In LA it’s $2.30 0.80/mile and $16.80/hour. Trips in LA tend to be longer than in SF.

In the event Uber has to treat drivers as employees, they will return to making this pricing visible, allowing them to have one cost that is the driver’s wage, and the other cost that is the cost for renting the driver’s car for the ride. The extra employee costs will apply only to the hourly wage. If you have a private car you also use for your personal driving, the incremental cost of a mile can be in the range of 35-40 cents/mile. If you buy/lease a car just for Uber, the cost is closer to 50-60 cents. Either way, Uber has room to tweak how much of the driver’s payments goes to car rental and how much to hourly wages to make the numbers better for them.

Being an app

Uber says the rules will not apply to them because they are not a transportation company, they are an app. Their customer, they claim, is the driver, not the passenger. From the outside, it doesn’t appear that way. It appears like the passenger buys a ride from Uber. But I think Uber could, reluctantly, change things to look much more like an eBay of rides and thus not subject to the law.

They could make it clear that your relationship is with the driver. They could even quickly change the display to say “Mary’s ride service” once they connect you with Mary, and with work, even have that appear on credit card statements. They could offer Mary lots of services beyond hooking her up with a passenger, including insurance and the billing service.

They could even let drivers set prices. In fact, the now-defunct “Sidecar” service which provided UberX and Lyft service before Uber and Lyft did it, worked that way. When you asked for a ride you were shown a set of drivers and their prices for your ride. In that era, only Sidecar asked for your destination, but now everybody does. While this complexity was probably not loved by riders, there are ways to improve it and remove some of the visibility of that complexity.

(It turned out to be a useful complexity. Sidecar drivers who, after taking a long ride away from their home, could set a lower price on routes that took them back where they wanted to be, to be sure to get the business. Sidecar drivers who commuted from far away set very low prices on the path home at the end of the day, better than riding empty as they often do with Uber or Lyft.)

Even though drivers could set their prices, Uber could also try to standardize them to some degree and still keep the drivers as contractors.

It may also be the case that Uber offers drivers the choice of being employees or contractors. Employees would be made to follow some strict rules about following specified hours. They would never get surge prices or incentives. They could never drive for a competitor during their shift. They could make them wear a uniform and standardize their vehicles. Those who didn’t want to take the employee offer would work through another Uber brand even, and be constrained on their maximum hours and forced to follow other rules to assure they are classified as contractors.

Would Uber choose this for itself? Probably not. I am sure it, and customers, prefer the simplicity of the current style of operations. But neither of those want to pay 20% more. None of the companies want to put big extra burdens on drivers, since recruiting drivers is a high goal for them during their growth period, particularly in new markets.

Robotaxis vs. Human Drivers

When robotaxis arrive, the “cost of goods sold” for rides is just the cost of operating the vehicle (30 to 60 cents/mile) as well as cleaning, parking and occasional assistance from remote operators and customer service agents. Of course, there are huge development costs to be amortized but early offerings will prefer growth over paying that off. As such, it will be hard for human-driven offerings to compete on price. Robots don’t need pay to sit around waiting and they are always ready to take a ride. They don’t have a home to get to at night.

In the early days of robotaxi service, companies will be experimenting with pricing, including per mile prices and subscription fees. In these early days, each town will have only one robotaxi company, so there will not be head to head competition on pricing — robotaxis will compete with human-driven cars, transit and mostly with people driving themselves. Prices will undercut the $2/mile price of human taxi (or the $2.50/mile price of employee-driven taxi if that comes to pass.) I’ve been predicting $1/mile but it might go to $1.50. On the other hand, since personal driving is the main competition, I suspect prices will go lower to see what happens when you get to a price level that clearly beats owning your own car.

Because robotaxi services will not serve every address for a very long time to come, people who do give up car ownership for robotaxi service will need to get human-driven rides some of the time. These rides might cost more, or be subsidized to encourage that “give up the car” decision. That decision is the most important one for a robotaxi service. To earn the trillion-dollar prize, robotaxis must replace car ownership for many customers, not just take over on a few rides.

(In some cases, rides outside the service area will be handled by having a robotaxi take you to the edge of the service area where a car is waiting, either with a human driver, or for the passenger to drive like a rental car when it’s a round trip. The latter will be fairly reasonable in price.

Some of the people driving Ubers today might find work in this business, as remote operators (which help cars out of complex situations they can’t immediately figure out) or in service depots — and driving those routes outside the service area.

The battle over how gig work drivers are paid and classified is far from over.

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