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Will Uber go under?

Taxi drivers protest ride-sharing companies in Sacramento, Calif. (Max Whittaker/Reuters/Landov)

Money

Will Uber go under?

A lawsuit may harm one company, but the ride-sharing concept isn’t going away

If you own a smartphone, you probably know that Uber, like its competitor Lyft, is a ride-hailing company that has upended the taxi industry. Consumers love Uber; interest groups don’t: New York City Mayor Bill de Blasio recently threatened to crack down on Uber, and the French taxi industry protested Uber by shutting down Paris with a massive strike. Uber now faces multiple lawsuits in the United States.

Anyone who’s called a taxi that didn’t show up, looked in vain for a cab after an evening out, or suspects that the driver is deliberately driving in circles, can appreciate what’s at stake. Uber solves all of these problems (for those with smartphones). You simply install the Uber app on your phone, and when you need a ride, you click on the app and type in the location you want to go to. An Uber driver in your vicinity responds to your request, and you get a message saying how long the driver will take to get to you, what type of car the driver has, and how much the ride will cost. The Uber fee is automatically charged to your credit card. It’s fast, convenient, and—best of all—Uber doesn’t require a tip.

Uber’s critics accuse the company of cheating. Since Uber treats its drivers as independent contractors, it doesn’t have to pay for their benefits. And Uber drivers originally weren’t covered by Uber car insurance except when they were driving a customer. More recently, critics have focused on the modest earnings of many Uber drivers. Seizing on this theme, Hillary Clinton claims that Uber’s cost-cutting is making income inequality worse by depressing the wages of men and women who drive for a living.

The complaints aren’t all misguided. An Uber driver who gives dozens of rides-for-hire each week needs different insurance than the rest of us; the city or state isn’t wrong to require this. But the other criticisms sound like the sour grapes of a business that has been outmaneuvered by a more nimble, service-oriented competitor. And Hillary Clinton’s income inequality objection seems to be wrong. As a recent Forbes article pointed out, a study co-authored by one of Clinton’s own advisors (Princeton economist Alan Krueger) found that Uber drivers earn more than $19 per hour, as compared to $12.90 per hour for traditional cabbies.

But resistance to Uber runs deep. The most serious threat is a lawsuit filed in the Northern District of California by three Uber drivers who claim they really were employees and therefore Uber should have reimbursed them for business expenses. The key issue is whether the judge will agree to certify the case as a class action, which would add 159,006 additional parties and millions of dollars of damages to the case.

Current Supreme Court case law only allows a judge to certify a class if the experience of all of the plaintiffs is substantially the same. Uber has 17 different types of contracts with its drivers, and the drivers differ in other ways as well; but the judge in the Uber case seemed to hint in a recent hearing that he would side with the plaintiffs. If he does, the cost to Uber of settling the case or losing a jury trial would be enormous.

Uber is no longer a little company with a great idea. With a market value of $51 billion, it could probably survive a very large judgment. But even if it didn’t, the old taxi industry is on its way out. Now that consumers have seen the alternative to traditional taxis, Uber-style ride-hailing is quite clearly the path of the future. The only question is whether courts and local governments will saddle the ride-hailing companies with unnecessary costs, raising the price of the future for all of us.

Comments

  • William Peck 1958's picture
    William Peck 1958
    Posted: Mon, 04/11/2016 11:47 am

    Everyone who uses Uber loves it - riders and drivers. And they all universally hate cabs (and often, cabbies). Give the government time, and they'll screw the consumer at the bidding of unions.