The Right to Contract: It is Not Just An “Uber” Question
“Every problem has a solution”. That was Travis Kalanick’s firm belief which drove him to found Uber, now a thriving $50 billion business birthed in 2009. A ride-hailing company described in its website as a “premier enterprise delivery system” made possible with its P2P app, their primary stakeholders are their drivers, rightfully called “partners”.
Half a decade after its swift success spread to 60 countries worldwide, an Uber driver-partner filed a lawsuit seeking compensation for driving expenses, overtime and much more.
Pardon the pun, but Barbara Ann Berwick did know how to drive Uber crazy. After almost a year with Uber, Barbara Ann Berwick blew a powerful punch to Uber when she contested her right as an employee and not as an independent contractor. The California Labor Commission ruled in her favor last June.
She was awarded more than $4000 in expenses.
Let me tell you about Uber case number two. Florida driver Darrin McGillis was in a car accident and was immobile and couldn’t work. Uber wouldn’t “sympathize or empathize” with McGillis, so he filed for unemployment. He claimed he qualified since he’s effectively one. The Florida Department of Economic Opportunity sided with his case. However, Uber countered the decision. The Miami Herald also reported that Uber could overturn similar decisions.
This is only the saga of what may be known as Uber’s nightmare on every street. A precedent or two could set the pace and open up more sink holes along the way.
I wonder how the IRS’s 20-Factor Test impacts similar companies’ business models today? This benchmarks the determinants whether a worker is classified as an employee or contractor. Established in 1862 under Lincoln’s presidency, has this centuries’ old IRS guidelines been blindly antiquated and outdated in the eyes of employers? Isn’t this written in “black and white”? Why do so many shades of grey continue to crop up like the Uber cases?
Maybe, given its due and proper application, in the eyes of employers, the 20- Factor Test does have more shades of grey up its sleeves, and involved parties have nowhere to go but through litigation or arbitration for clarification and resolution.
Or could it be that these companies’ rules are the ones that are “grey-shaded” from the very start?
This brings us to the hard question, are rights eroding when it comes to the right to contract?
Some points to consider:
1. Clear employer-contractor policies. From the time the business model is established, define the hard and the soft rules. Have a clearly written policy manual that guides the business decisions so that all parties have a clear understanding of the agreement.
Uber gives good open-ended pay, flexible hours, family activities, vehicle discounts. These are benefits. But do they provide contractors privileges such as health and dental coverages or paid time off similar to employees?
2. Size matters. This helps determine the business model. Many times, contracting applies to small- or medium-scale types like caregiving businesses.
Shrewdly, the giant money-makers have a way of getting away with it to save up on overheads and other employee-related costs. Take FedEx and now, Uber. Had Uber stayed smaller than its 50 billion valuation, maybe they would have remained inconspicuous and would have easily avoided cases plaguing them today.
3. Exercise rights — operate within the legal framework.
FedEx lost their almost-10 year case and re-classified its more than 2,000 independent contractors to employees.
Once reported to the IRS, expect an audit. Once the courts determine employee status, it takes more time and money to change the decision. The consequences are substantial and taking the risk is not an option.
Along with the IRS, Department of Labor, State Unemployment, and others add to the cost of converting to an employee model of business.
4. Honesty is still the best policy. No cliché can ever be more meaningful than this. Yet, it is a golden rule approaching extinction. Authenticity seals the employer-contractor or employer-employee relationship directing the proper course of action when clarification is required.
Uber declares that it is “nothing more than a technology platform”. Say what? They could have commissioned robots instead, programmed to switch on and off as they please. Like many, Uber is in the service business where people use technology to meet their needs.
Here’s the clincher. Despite the tough blow, many believe that Uber will win the battle years from now.
Oh, going back to Barbara Berwick, she now enterprises a start-up known as Rideshare School teaching drivers to argue employee status. And, going back to the question posed earlier, rights will certainly not be eroded as long as workers will not allow it. Take it from Barbara.
Meanwhile, a solution awaits Uber. Take it from Travis.