UK Uber ruling shows old labor regs don’t fit today’s workforce

After five years of legal battles, the United Kingdom’s Supreme Court has issued a final ruling: A group of drivers on Uber’s platform should have been classified as “workers,” not “contractors,” and were entitled to benefits such as minimum wage and paid leave. But U.S. labor activists fighting similar battles – through California’s messy Assembly Bill 5 or the proposed federal PRO Act – should put the corks back on the champagne. 

The UK decision also managed to highlight how drivers are not “employees.” Workers, it turns out, is a middle-ground legal category enjoying only some of the benefits mandated for traditional employees. The ruling may also have limited applicability if Uber continues to adjust its platform to accommodate the judges’ findings. 

American judges, who don’t have access to a third classification, have expressed frustration that Depression-era labor regulations are ill-equipped to deal with the diversity of modern work opportunities. 

U.S. District Judge Vince Chhabria, who presided over the Cotter v. Lyft lawsuit, wrote, “At first glance, Lyft drivers don’t seem much like employees … But Lyft drivers don’t seem much like independent contractors either.” He stated that the test “developed over the 20th century for classifying workers isn’t very helpful in addressing this 21st century problem” and that the jury would be “handed a square peg and asked to choose between two round holes.”

These cases illustrate how modern work is rapidly outgrowing its old regulations. America’s dichotomous worker classifications were first created by landmark legislation in the 1930s. The independent contractor classification was intended for individuals in business for themselves, free from the direct control of an employer, like a plumber or electrician hired by a restaurant.

Workers on the other side of the spectrum are employees. Employers directly guide and control most of their activities, like the restaurant’s cooks and cashiers.

Today’s independent workers fall somewhere in the middle. Online platform economy workers (like Uber drivers) enjoy greater freedoms than typical employees. They have control over when, how long, how often and where to work, and whether to work for competitors. But their activities are also more integrated with the platform firm’s operations than a traditional independent contractor’s would be. 

For example, Uber requires that drivers meet certain standards in order to use the platform. These include vehicle requirements (newer cars, clean interiors), high user ratings and low cancellation rates, as well as legally mandated criminal background checks, driver safety checks and  immediate suspension if riders report harassment or intoxication. These standards help provide a safe and reliably high-quality ride.

It also means Uber must exert some degree of control over the activities of its drivers. In fact, one of the main complaints in the prominent O’Connor v. Uber Technologies, Inc. case was that Uber deactivated drivers with low ratings, which was cited as exerting “control” over their work activities. 

Similar to legally mandated taxi fares, Uber does not allow drivers to determine the price for each ride. An algorithm charges passengers based on the current supply of drivers and demand. Dynamic pricing helps ensure a reliable supply of rides for passengers, but limits driver entrepreneurship.

If Uber removed these procedures, drivers would indeed have full entrepreneurial freedom and there would be no question that they are contractors. But this approach would transform Uber’s brand and business model into an “eBay of transportation” — an app that merely connects potential riders and drivers without the quality assurance, predictable pricing and instant matching.

Presumably, the majority of Americans don’t want to bargain shop from a rainy street corner. The time and hassle of searching for available and safe rides, and haggling over the price, defeats the purpose of an “on-demand” ride. The same is true for the other side of the market. Without instant matching, idle drivers face longer wait times and less motivation to offer services.

Changes are obviously needed, but is adding a UK-style third employment classification the right path forward?

Another option could be to end employment classification altogether. Doing so would enable the labor market to evolve with the economy, allow more employers to provide fringe benefits and provide the flexibility that many modern workers have grown to love. It may, however, require reforming many employee benefits programs implemented through labor regulations into direct-provision government programs. This would arguably be a better, more equitable, and more transparent way of providing a safety net.

Binary U.S. worker classification rules were developed in a manufacturing-focused economy when cradle-to-grave employment was common. It was easier to classify workers into either contractors or employees in that paradigm. But the 1930s are far behind us. The future of work is waiting for us to let go of the past. 

Liya Palagashvili is a senior research fellow and Michael Farren is a research fellow with the Mercatus Center at George Mason University.