All hail the California court that put the brakes on Uber and co | John Naughton
Last Monday, the superior court of California handed down a landmark judgment that looks like taking the wind out of the sails of at least some parts of the “gig economy”. The case was brought by the attorney general of the state of California, together with the city attorneys of Los Angeles, San Diego and San Francisco, on the basis that the ride-hailing companies Uber and Lyft have “misclassified their drivers as independent contractors rather than employees” in violation of a Californian law that took effect in January. This statute is intended to ensure that all workers who meet its criteria receive the basic rights and protections guaranteed to employees under California law.
The companies opposed this idea, for the understandable (but of course unstated) reason that complying with the law would blow their business models to smithereens. In submissions concealed under three coats of prime legal verbiage, they sought to have the hearing delayed until after the November presidential election, complained that the attorneys general should not have lumped them together (they are, after all, commercial rivals) and that judgment should be deferred until all the other cases concerning them in the US and elsewhere should be decided.
Judge Ethan Schulman was not impressed by these arguments. The US supreme court, he pointed out, had produced three tests for deciding whether someone was an independent contractor or not. They are that the person a) should be “free from the control and direction of the hiring entity”; b) “performs work that is outside the usual course of the hiring entity’s business”; and c) “is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed”. Since it was self-evident that the defendants couldn’t satisfy criterion b, the judge declared: “The likelihood that the People will prevail on their claim that the Defendants have misclassified their drivers is overwhelming.” QED.
It is not often that reading a court transcript is good for one’s blood pressure, but this one is an exception. It shows what happens when a sharp judicial mind comes face to face with the pretensions of the neoliberal racket that sails under the gig economy flag of convenience.
This “economy” is neoliberal because it embodies the idea that society consists only of markets and individuals. In the Uber/Lyft case, there is a market for rides and there are individuals who can drive. So a software platform is built to connect said individuals with those needing their services. The owner of the platform has no obligations to the atomised individuals who provide the service: they are free to work (or not) and are “managed” by an algorithm and drivers have none of those expensive rights that come from being a normal “employee”. Pricing of the services is decided algorithmically: when there’s a thunderstorm, the cost of a ride goes up; when there’s a lull, they go down. Truly the gig economy is a Hayekian wet dream.
The lengths to which gig economy companies go in order to pretend they’re not employers are comical. A while back, the Financial Times got hold of a Deliveroo internal manual. Never say “We pay you every two weeks”, it advises; instead, it’s “Rider invoices are processed fortnightly”. Never say “Yesterday, you were late to start your shift”; instead, it’s “Yesterday, you logged in later than you agreed to be available”. And of course never mention “uniforms”: they’re “branded clothing”.
So much for the neoliberal lexicon. But the gig economy is also a racket because it’s based on a dodgy business model. Many of the companies burn money like it’s going out of fashion. Uber lost $8.5bn in 2019, for example. “We have incurred significant losses since inception, including in the United States and other major markets,” the company wrote in its SEC filing. “We expect our operating expenses to increase significantly in the foreseeable future and we may not achieve profitability.”
The reason Uber isn’t profitable is because its rides are cheaper than those of conventional taxi firms. And that’s a feature, not a bug: it’s a strategy to drive conventional firms out of business. The money it’s burning belongs to investors (such as the Saudi sovereign wealth fund) who are betting that once the company is the only one left standing, they will have a monopolistic asset on their hands. This is “creative destruction” at its most vicious.
None of this means that the services gig economy firms provide aren’t useful or valuable: if nothing else, the pandemic has established that. But, like the more conventional tech giants, they have grown exponentially in a period where relevant laws have been behind the curve or, in some cases, not enforced. The significance of the Californian judgment is that that is finally beginning to change. And about time, too.
What I’ve been reading
“Why Computing Belongs Within the Social Sciences”. Really unexpected essay – by a computer scientist – in a major academic journal.
The fall of America
“The Withering Away of the State”. Sobering editorial by Nathan Gardels on the Noema magazine site.
“QAnon Was a Theory on a Message Board. Now It’s Headed to Congress”. Charlie Warzel, writing in the New York imes, on how a weird conspiracy theory continues to gain traction in the US.