Disclaimer: while I am currently a full-time employee of Uber Technologies, all positions and opinions presented in this essay are mine alone and unaffiliated with the company. Uber is the largest on-demand marketplace and as such stands in for other services like Lyft and DoorDash in this writing, but the ruling in California would have the same deleterious effects on all companies relying on freelance labor.
Last Monday, August 10, a California court ruled that Uber contractors ought to be classified employees - giving Uber, Lyft, DoorDash et al 10 days to appeal the decision.
In response, Dara Khosrowshahi, CEO of Uber, penned the following op-ed in the New York Times:
I Am the C.E.O. of Uber. Gig Workers Deserve Better.
Our current employment system is outdated and unfair. It forces every worker to choose between being an employee with more benefits but less flexibility, or an independent contractor with more flexibility but almost no safety net… America needs to change the status quo to protect all workers, not just one type of work.
Critics have long held that driving for Uber is an untenable way to make a living. Without guaranteed pay, benefits, health insurance, overtime, and other stipulations of traditional employment, drivers - who are often from immigrant, underserved, and vulnerable populations - are particularly liable to be exploited.
Uber is quick to point out that, as a percentage of the entire base of signed-up drivers, few support themselves solely off gig economy earnings. Switching to a full employment model would benefit only a small percentage of rideshare drivers while driving away the majority of flexible time workers, and crippling the platform’s availability and price competitiveness for consumers.
The scale and ubiquity of Uber-like transportation and delivery services clearly demonstrates the demand for the business. With Uber achieving verb status in the standard lexicon, it’s difficult to imagine a time without it. That said, according to an internal study by Uber, the forced reclassification of contractors to employees will decrease the availability of the service to the tune of 23-59%, and result in ride costs doubling in certain areas, especially in non-metro zones that are historically underserved by taxis and public transit. Many riders will find it unacceptably difficult or expensive to get where they need to go.
In short, this ruling will be a lose-lose-lose for the vast majority of players involved in the gig marketplace. Yes, some of the drivers whose rights are at stake will receive job security, but far more will be unable to access gig economy platforms for any kind of work at all.
This being a many-sided marketplace with many interested parties, there are far more stakeholders who are inconvenienced or displaced entirely as a result of the change. Beyond the convenience and simple logistics of A to B transportation, we are only beginning to understand and appreciate the positive network effects of ridesharing at scale. In the case of employees vs contractors, heavy handed regulation is certain to do more harm than good.
One major point that this court decision does not seem to take into account are the varying needs of individual workers who find themselves driving and delivering for gig economy apps. I’d categorize any given rideshare worker into one of the following camps:
A. Wants to drive for fun, not for earnings
I’ve met just a few folks in this category, but an example would be retirees looking for social interaction. I also had one driver in a BMW M5 who claimed he was doing UberX for tax purposes. Whatever their reasoning for working, earnings are just a cherry on top for these drivers.
B. Wants to drive for earnings, as “nice to have” supplemental income
These are people who want to flexibly earn a few extra bucks for discretionary spending. They’re not close to financial jeopardy, but might be a few hundred short for the new motorbike they’ve been eyeing. These earners tend to be goal oriented and on the platform for short periods of time.
C. Wants to drive for earnings, as a necessary supplemental revenue stream
These are people who do need supplemental income, because their other job(s) are not enough for their expenses. They may be burdened by debt, temporarily out of work, or covering for a sick family member - but the outcome is the same. Driving is their recourse because it’s convenient, especially if they already have access to a vehicle, though if they didn’t drive they might find some other employment to get by.
D. Wants to drive for earnings, as their only revenue stream
These are those who have made a “career” out of professional driving. They may have held other jobs even recently in the past - waiting tables, packing for Amazon, even driving taxis. In any case, driving is all they choose to do to stay afloat. They know all the ins and outs of the apps and do their best to game the system before it games them. They tend to enjoy rideshare for one reason or another (the flexibility and social aspect come up often), but could pick up other work if they had to.
E. Has to drive for earnings, as their only revenue stream
These are often recent immigrants or seasoned ex-drivers who don’t have much optionality when it comes to finding lines of work. Driving is their lifeblood, often to support multiple family members, and they may drive three hours each way to metro areas just for better earnings opportunities. Driving is all they can do, and they are often the most vulnerable population of workers - one bad accident or one too many tickets could push them under.
F. Has to drive for earnings, as a necessary supplemental revenue stream
A bit of an edge case similar to E, these people find it difficult to get work, and so driving is a rare opportunity for them to make ends meet. An example might be a disabled person who can only work in short bursts, looking to supplement their disability income.
You can see how it’s basically impossible to extrapolate the needs of all these groups and serve them equally, while it is the sum of all these groups’ efforts that creates a consistent service for the customer. In terms of the occurrence of these types of workers on gig economy platforms, I’d hazard a guess that it roughly falls into a skewed bell curve as shown below:

What happens when the employment hammer falls on Uber?
Types A and B will take flight in response to such a mandate; their goals don’t align with the commitment that employment entails.
Types C and D - people who choose to drive, and make a living out of it - make up a bulk of Uber’s contractor population. These career drivers often have thousands of trips of experience and the skills to show for it. They are critical in maintaining standards of service for customers. Many enjoy their work and might chafe at being displaced.
Types E and F - drivers who have very little opportunity outside of driving, and so are a smaller, more vulnerable population - are the workers who stand to benefit most from the employment model.
It’s clear that the employment mandate will directly result in the loss of livelihood for most drivers. A difficult question: how does Uber decide who to convert to full time employment?
Looking at metrics like rating or lifetime engagement with the platform seem like a good analogue for “high quality drivers”. But these metrics may not capture the motive underlying the distinction between type C, D, E, and F drivers. If the goal of legislation is to protect the wellbeing of drivers, groups E and F should receive the rights and benefits associated with employment.
Even so, the dynamic of flexible work is lost entirely, as Uber will have to mandate shift hours and dictate where drivers should be at various times of day to ensure a smaller worker supply can meet demand. This requires a grounds-up technical, operational, and cultural rebuilding that strips Uber of what made it Uber.
Foisting the employment model onto on-demand transportation and delivery marketplaces creates an existential crisis for these businesses, and by extension a very real threat to the livelihoods of the workers who still depend on them. Nor is it a cure-all to the issue of driver exploitation, because not every driver will receive salvation. Most, in fact, will lose access to a scarce income stream in this financial downturn.
The true solution to the fundamental conflict of interests - marketplaces looking to maximize profit, riders looking to minimize spending, and drivers looking to receive livable wages and basic protections - requires a more thoughtful approach that may well result in an all-new worker classification. It’s clear that our modern day approach to employment and productivity has moved far beyond the contractor/employee dichotomy that was defined in 1917, over a hundred years ago.
Uber and its gig economy compatriots have fewer than 10 days to make an appeal on the ruling. If California holds firm on this stance, it is effectively disbarring ridesharing, and on-demand service work as it exists today, by making its economics unviable.
Looking at the bigger picture, it’s clear that this decision harms opportunities for both riders and drivers far more than it benefits the select few drivers who will remain. If other jurisdictions follow suit, our regulatory system will have failed to accommodate the innovation of the on-demand marketplace with a narrow-minded, false solution to the very real and troubling issue of worker exploitation - one that demands a more nuanced approach than this.
Uber has proposed remediations to begin to make things right. Regulators need to go back to the drawing board and create legislation that acknowledges the new normal of the on-demand economy, provides support for the disenfranchised, and maintains the opportunities that freelance service work provides.
Congratulations on the creation of The Lobby. You presented many interesting thoughts and invited your readers, by intention or not, to carry on with their thoughts.
I am just going to give you a little feedback on one topic now because it’s current and highly relevant to a large number of Californians: the ride-sharing gig economy. (I would love to come back another time to share a few words about Ikigai.)
You are correct in saying that it’s a lose-lose-lose situation. You might not classify it this way, but there are essentially three components in the gig economy: Capital (Uber), Labor (driver), and Public (rider). Let’s dive into a more granular level:
The Capital component includes inventors, technology, investors, engineers, salespeople, and other employees. For the sake of this argument, we are going to put aside the fact that Uber employees could also be in the Labor component.
The Labor component is not limited to Uber or Lyft drivers. Affected are also taxi drivers, limousine drivers, delivery drivers, and other commercial drivers. All these drivers have common and conflicting interests.
The Public component includes not just ride-share customers. Almost all segments of the public are affected by Uber, Lyft, etc. This includes the government, infrastructure, and other modality of transportation. Take a look at how the traffic around the San Francisco International Airport has changed. Also, tax revenues to the local government are negatively impacted.
According to Joseph Schumpeter, Creative Destruction in a capitalist economy elevates the value of some type of labor and simultaneously diminishes the value of others. Inevitably, creative destruction produces winners and losers. When the scale of the conflict is large, we have societal upheavals.
Inescapably, Capital and Labor are in an adversarial relationship. It is the public that determines who wins. The public in this situation is not just a dispassionate referee. The public is also a stakeholder. The public votes with consumer choices and with legislative actions. It is easy to posit that the gig economy offers greater consumer values. It is also convenient to argue in favor of gig workers' flexibility and the virtue of optimizing surplus labor and machinery. The truth is, the tech company (Capital) benefits disproportionally. Wages for a full-time Uber driver are barely above the poverty level, putting aside the void of employer-sponsored healthcare benefits. Also on the losing side is the San Francisco or New City City taxi owner/driver who paid $200,000 to $1,000,000 for a taxi medallion.
Uber is banned in some European cities and Uber drivers have been violently attacked. I traveled to Istanbul last year. All I needed to do to get a strong reaction from a taxi driver was to say the word Uber.
California SB-5 and Prop 22 are partisan solutions. They will only further the conflict between Capital and Labor, and widen the division among the public. No winner-take-all approach is fair or sustainable.
We need a comprehensive approach that takes into account all stakeholder interests. We need to be creative and cooperative wherever and whenever possible. When I was traveling in Dublin (Ireland), I noticed that I could use the Uber app to hail a taxi. That was the only way the Uber app could be used. I had hesitated to use Uber because, to me, supporting higher wages for the driver was more important than saving a few bucks. But I liked the ability to tell the driver where I am waiting and where I want to go, and most importantly, pay the fare without local currency. (If I were in Japan or Thailand, where the Uber app is used similarly, I also wouldn’t have to worry if the driver understands English.) I don’t know how the taxi company and Uber share the revenues, but it seemed to be a win-win-win arrangement.
Most importantly, I would like all stakeholders to broaden their views on the societal consequences of their actions. In California, if you want to build a shopping center, for example, you have to do an “Environmental Impact Study” and make available the report for the public to evaluate before you get a building permit. We want to anticipate how development affects traffic, road wear, air quality, water usage, waste disposal, fire protection, law enforcement, etc. Private businesses underpay for public services if we don’t make them acknowledge the externality cost. Unless you are a flaming libertarian, you would support this requirement — for the public good. So why wouldn’t we have an “Economic Impact Study” before implementing creative destruction in the market place? I am not suggesting for Uber to bear the entire externality cost. I don’t want them to have to reimburse taxi companies for their medallions. That would not be fair, nor encouraging for innovation. But if we have good data and scientific modeling, we can then work cooperatively and rationally toward a solution that minimizes social discourse while maximizing the benefits of creative destruction.