Uber Will 'Shut Down' in California If It Must Classify Drivers as Employees

Uber's PR push reminds us that Uber's business model relies on mistreating its drivers, and now it's threatening to leave California 'for a while' if it has to make them employees.
August 12, 2020, 8:03pm
In a Wednesday morning interview with MSNBC's Stephanie Ruhle, Uber CEO Dara Khosrowshahi said Uber would likely shut down temporarily if it failed to appeal a recent ruling requiring immediate reclassification of its drivers as full-time employees. Curre
Bloomberg / Contributor

In a Wednesday morning interview with MSNBC's Stephanie Ruhle, Uber CEO Dara Khosrowshahi said Uber would likely shut down temporarily if it failed to appeal a recent ruling requiring immediate reclassification of its drivers as full-time employees. Currently, Uber’s business model relies on classifying drivers as “independent contractors” who do not enjoy the benefits or stability that come with employment. 

"We think the ruling was unfortunate. We respect, obviously, the law and the court and the judge," Khosrowshahi said. "If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly, so I think Uber will shut down for a while."

In the interview, Khosrowshahi warned Uber may have to shut down until November, when voters will choose to accept or reject Proposition 22, a $110 million referendum led by Uber and backed by a coalition of gig economy companies to save their business model. Proposition 22 is meant to give drivers more protections while allowing Uber to still minimize labor costs, but researchers at the UC Berkeley Labor Center found that the measure would only guarantee $5.64 an hour, not the $15.60 an hour that Proposition 22 advocates promise.

The MSNBC interview is the latest in a round of public relations initiatives Uber has undertaken in order to beat back encroachments on its business model and propose alternatives to classifying drivers as employees. The company’s tooth-and-nail fight to convince lawmakers and the public hinges on the idea that Uber likely would not survive as a juggernaut if it had to treat drivers like other companies treat their employees. This argument is well-worn for Uber, as is the tactic of exiting uncooperative cities. 

When pressed by Ruhle on what Uber would look like once it was AB5 compliant, Khosrowshahi replied: "You would get a much smaller service, much higher prices, and probably a service that's focused in the center of cities versus a bunch of the smaller cities or the suburbs that we operate in right now."

In a New York Times op-ed earlier this week, where Khosrowshahi proposed a new law that would force companies including Uber to pay into benefits funds for drivers, he made a similar argument. Khosrowshahi said that "drivers can continue to have the flexibility they have, but they can enjoy the protections—benefits fund, an earnings standard—so that they've got the protections many associate with full-time work." The op-ed also raised the specter of a very different Uber if it classified drivers as employees: expensive rides, fewer cities. 

Indeed, Uber's value proposition to investors, according to its own IPO documents, would be "adversely affected if Drivers were classified as employees instead of independent contractors" because of the threat of unionization, minimum wages, benefits, and other unconscionable costs.

Currently, Uber is facing down a major tab in numerous jurisdictions arising from its mistreatment of drivers. Uber already owes New Jersey $650 million for unpaid unemployment insurance taxes from 2014 to 2018. Additionally, more than 5,000 Uber and Lyft drivers in California have collectively filed over $1.3 billion in wage claims (each company burns through hundreds of thousands of drivers each year). Uber and Lyft are also estimated to owe California $413 million in unpaid state unemployment insurance taxes from 2014 to 2019.

Research has shown that Uber drivers are neither flexible nor independent, but in fact tightly surveilled and controlled by a company that experts have said is likely violating antitrust law—all contrary to Khosrowshahi’s assertions. But there is likely truth to the idea that classifying drivers as employees rather than contractors would come at a major cost to the company. 

It is not as though these conditions are propping up a money-maker. Despite Uber’s ubiquity, the company has never turned a profit and burns billions of dollars annually with spending on subsidies and promotions in order to extend its reach. In a 2019 SEC filing, Uber admitted that this strategy of gaining market share even at a steep financial cost “may adversely affect [Uber’s] financial performance.” 

Uber has engaged in years of heavy-handed tactics to avoid any changes to its business model, including the threat of stopping or suspending service and appealing to the public.

In 2018, Veena Dubal, Ruth Berins Collier, and Christopher Carter, co-wrote a paper detailing how Uber regularly flaunted the law by either mobilizing its apps' users to help the company bully politicians into abandoning talk of regulation, or by simply leaving. When Austin lawmakers tried to require ride-hail drivers to get background checks, for example, Uber and Lyft put forward Proposition 1 to kill the reform—the referendum failed on May 7, and by May 9, Uber and Lyft were gone. Similar finger-printing requirements emerged in Houston and San Antonio. In Houston, Uber accepted the regulation before threatening to leave—it stayed once lobbying successfully overturned the decision. In San Antonio, Uber outright left in protest of the fingerprinting requirement, but returned as the city made fingerprinting optional.

It’s worth noting that Uber has had years to plan for re-classifying its drivers. Drivers have technically been employees since 2018’s Dynamex decision, and AB5 merely codified that California Supreme Court ruling. 

While the goal of Uber’s PR push is to demonstrate its value to the public and to push back against re-classifying its drivers, ultimately, it reminds us that merely existing hurts the company and following the law just might kill it. 

When Motherboard reached out to Uber for comment about its plans to restructure if the appeal failed, a spokesperson directed us to a motion Uber filed asking for a stay on the injunction to allow Uber a few weeks to seek its appeal.