From the start of 2021, gig-economy giant Uber has been involved in legal battles coupled with an industry that has been hit particularly hard by COVID-19.
The global pandemic affected virtually every sector of the gig economy, especially because of the lockdowns. Restriction of movement meant a significant drop in demand for rides. So much that most drivers left the platform as the businesses was no longer financially viable at the time. Riders were reported to be waiting for hours for a cab as there were not enough drivers.
However, what has been most hurtful to Uber has been the legal battles it has been embroiled in for the better part of this year. Uber has been fighting on multiple fronts as it struggles to maintain the contract structure with its drivers.
Uber had not been treating its drivers fairly for a long time. Since its early days as a ‘disruptor’ in the taxi industry, Uber had faced quite a lot of criticism about the way it paid its drivers. This is the main reason only 4% of drivers still remain after one year of service according to a report on The Information.
Over time loyal drivers got tired of this exploitative system and have been struggling tooth and nail for more benefits. To be more specific, drivers have been seeking to be classified as employees rather than independent contractors, which would qualify them for employee perks like healthcare insurance and retirement benefits.
Uber, along with other cab-hailing platforms like Lyft, have been fiercely opposed to their drivers’ demands. And understandably so. Acquiescing to those demands would significantly increase their operating costs. A San Francisco Chronicle article said that classifying its drivers as employees would increase operational costs by about 30%.
The result has been numerous legal battles fought over different countries where Uber is operational.
In Belgium, the Brussels local government banned any drivers from using their smartphones to accept new trips. This effectively put Uber and 2000 drivers working on the platform out of business in the Belgium capital. This was after Uber found a work around a ban put on one of its sister services, UberPop.
The ban was minor compared to the recent UK Supreme Court ruling which stated that Uber drivers are workers rather than independent contractors. This means that drivers are closer to being classified as official employees with access to benefits like security.
In California however, Uber and fellow ride-hailing platforms had a rare victory after Proposition 222 was passed. After a million-dollar campaign the public voted yes on the law that would keep the classification of drivers as independent contractors.
While the California win gave Uber some breathing space, it was not a quick fix for its low revenues in the past year. It certainly did not help with its publicity either. Today Uber is known as a company that exploits its ‘employees’ i.e. drivers.
Surviving the Storm
To survive, Uber has employed various tactics to get the best out of its business model.
For instance, in the low season during COVID, the gig-economy behemoth was forced to lower driver rates of payment. An article at thenextweb.com describes drivers complaining of wages being reduced by up to 50%.
On the other hand, post-cCorona, the company is offering bonuses and a list of different perks to new drivers to encourage others to sign up as the global gig-economy slowly re-opens. The company plans to spend about $250 million in perks in the US to motivate drivers to come back to work. New drivers are reported to be earning even higher than the pre-corona years.
A report by Reuters however says that this won’t last forever. Earnings are reported to go back to normal after the initial bump.
What’s more, these bonuses don’t seem to be working as they should. A report by The Rideshare Dude on Twitter showed that prices for riders have been hiked by up to 40% due to lack of enough drivers.
Moreover, this surge in prices has not resulted in a significant increase in driver earnings. This shows that Uber has no intention of really increasing their drivers’ earnings, the pay bump for new drivers was only an attraction that was never going to last.
Matthew Beadham captures this phenomenon brilliantly saying:
“I’d like to take this moment to point out a fallacy Uber often sells to its drivers: that they have the freedom to choose when and how they work.
Ultimately, they don’t. They work when the market requires them to, when they are incentivized to, and when there is demand. The notion that drivers have total control over when they work, is a misnomer. Free will doesn’t exist.“
Uber also had to sell parts of its gig-economy divisions so that they could focus on its core business, ride-hailing. It’s ambitious flying taxi arm was sold to Joby Aviation, a Californian Startup, for a profit. They however struck a deal such that if flying taxis did become a reality the company would be able to offer them as a service.
The gig-economy giant employed the same strategy in selling off its self-driving taxi division, Advanced Technologies Group (ATG) to Aurora. Here Uber invested $400 million for 26% of Aurora. This would grant them exclusive access to Aurora’s self-driving technology and assets in case it becomes a reality.