Uber Goes Back to Basics: Violating the Law
California’s AB5, a much-anticipated bill that would reclassify gig economy workers as employees, passed both chambers of the legislature yesterday, and arrived on the desk of Governor Gavin Newsom, who is expected to sign it into law. While the price of passing the bill included several short-term exemptions for various occupations, including psychologists and newspaper carriers, notably absent is any exception for ridesharing companies like Uber and Lyft, which have expended considerable resources in a drawn-out fight to keep the proposal from passing.
Many of the mantras that have sprung up around Uber’s ascent to becoming the largest ridesharing company in the world—“move fast and break things”; “ask for forgiveness, not permission”—have implicitly been in relation to the company’s long-standing dedication to violating the law. Indeed, the company blithely disregarded state and local laws of all types, paying wrist-slapping fines, threatening to blacklist cities and then leaving them altogether, or trying to use their hefty war chest of venture capital money to simply rewrite those rules they were in breach of ex post facto.
In the wake of the bill’s passing of the state Senate, Tony West, Uber’s chief legal counsel, released a statement that harked back to the company’s lawless origins. In a news conference, West stated that the ride-hailing company would not, in fact, treat its drivers, who are independent contractors, as employees under the California bill, despite that being the very crux of the legislation. Instead, he insisted that drivers were not a core part of Uber’s business and could maintain their independent status when the measure goes into effect as state law on January 1. Uber’s business, Mr. West said, is not providing rides but “serving as a technology platform for several different types of digital marketplaces.”
That refrain should sound familiar. Uber has long claimed it’s a technology platform, not a cab company, a hard-to-believe sleight of hand. Ridiculous as it may sound, it’s an old legal argument that Uber has deployed to argue it is a platform, not a transportation service; therefore drivers can’t possibly be employees, because they are customers.
Of course, Uber has also flipped back and forth, calling its drivers employees when it suits them in litigation, and denying that they’re employees when it doesn’t.
According to West, Uber, which had been fighting this legislation tooth and nail, and threatened to put $30 million into a ballot initiative to repeal it, will not be complying with AB5, on the grounds that the drivers do not represent a core part of the ridesharing company’s business. Merely classifying its California drivers as employees, while leaving the rest of the fleet as contractors, would kick off a wave of lawsuits that would inevitably result in other states following suit. So rather than contenting themselves to wait out what will certainly be a lengthy court battle over the law, and perhaps hoping for help from the Supreme Court down the line, Uber has chosen the old Andrew Jackson approach: The law does not apply to us and we will not follow it.
That wasn’t the only bad legal news Uber got on Wednesday, as a Third Circuit appeals court in New Jersey made a ruling in favor of a case that seeks the right of Uber drivers to be paid overtime for working in excess of 40 hours a week, and against the company’s use of forced arbitration, among other things.
That desperation approach may indicate just how central the misclassification is to the company’s business model. Uber isn’t simply proposing to ignore the laws in a state without a strong track record on issues like this, as it did in Pennsylvania in 2016. Rather, the company is choosing to flaunt the law within the jurisdiction of a court that just over a year ago emphatically redefined the standards for classification of contractors.
In the Dynamex case, settled in April of 2018, the California Supreme Court reinterpreted the standard for determining whether workers should be classified as either employees or independent contractors, coming down decidedly in favor of a worker-friendly standard. The court instituted a standard presuming that all workers are employees instead of contractors, essentially creating an opt-out model, where any entity classifying an individual as an independent contractor is charged with actively proving that they’re not an employee, instead of the other way around.
Uber, through West, has said it’s “no stranger to legal battles.” But an attempt to defy such a clearly and recently defined legal standard shows that AB5 may really be an existential threat for the company, whose existence is perilous as it is. In ten years of operation, they’ve never once turned a profit, a trend that reached an all-time nadir last quarter, when they reported roughly $5 billion in losses, despite paying many of their workers sub-minimum wages.
Of course, it’s possible that Tony West simply doesn’t have a particularly firm grasp of the law. As a top ranking member of the Obama Justice Department, West was the point person inside the Justice Department for the JPMorgan, Citigroup, and Bank of America fraud settlements in the wake of the financial crisis. With him running the show, the Obama administration managed to wring just $11.5 billion in penalties out of those three most flagrant transgressors, before West left the DOJ in 2014. Citigroup, the smallest of these three banks, recorded a profit of $14.39 billion in 2013; its share of the penalty was $3.5 billion. So suffice it to say that West wasn’t particularly pugnacious in his use of the available legal statutes as a public servant, an impulse he may well have brought with him to the Valley.
For West, and for Uber, it’s back to belligerent basics. Despite the deposition of founder Travis Kalanick and the attempted rebrand as a less nefarious force, Uber seems to have returned to its roots, going out the way it came in: reckless rulebreakers with a vision of total impunity mixed with some self-fulfilling ignorance of the rules. The story of Uber may well end just as it began.