Is Uber taking its drivers for a ride?

In the decision delivered on October 28th in London, Justice Anthony Snelson blasted Uber’s labour market practices. The tribunal’s ruling comes in the wake of the Airbnb ban in New York City and the EU’s ongoing battle with Google, another sign of a worldwide regulatory backlash against the so-called “sharing economy.”

“The lady doth protest too much, methinks,” read Justice Snelson’s reasons, quoting Shakespeare’s Hamlet as he responded to the “grimly loyal evidence” presented by Uber’s lawyers. At times, the judge found that Uber’s defense had resorted to “fictions, twisted language, and even brand new terminology.”

Contrary to Uber’s claim that drivers are independent contractors, a finding that would allow the tech company to continue operating while skirting the relevant labour regulations, the tribunal declared that they are in fact workers.

“The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common platform is to our minds ridiculous,” read the decision.

Classified as workers, the tribunal held that the time drivers spend between rides qualifies as unmeasured time in accordance with the UK’s National Minimum Wage Regulations. The decision means Uber, and similarly modeled tech companies operating in Britain, could be on the hook for the minimum wage and holiday pay.

While Uber swiftly appealed the ruling, the new classification has immediate implications for the ride-sharing app’s British market. According to court documents, there are over 40,000 drivers in service in the UK. Enforcing a minimum wage and holiday pay will have a significant impact on Uber’s business model. For a private company valued at over $60 billion dollars, a regulatory domino effect could have big financial consequences for an eventual IPO.

Uber has consistently deployed the independent contractor argument in its worldwide defense briefs. To Uber’s benefit, global courts have taken inconsistent approaches. A U.S. class action on behalf of drivers in Massachusetts, for example, was settled for $US 100 million after an appeal. However, a U.S. court tossed the award out this past fall, leaving the claimants in limbo.

A regulatory challenge to the unlicensed UberX service in Canada in 2015, brought by the City of Toronto, also failed. There the judge characterized Uber as a “super charged directory service”, paving the way for a new set of rules governing the taxi market to fill the regulatory gap.

Recent events make it unclear whether it will be business as usual for Uber and other companies. The British decision could open the floodgates to litigation, raising important economic policy concerns. The decision is also emblematic of a broader clampdown on tech disruption in the European Union and U.S. that could have global consequences.

Is Uber taking its drivers for a ride? Should governments intervene to enforce the minimum wage standard on peer-to-peer platforms?

Silicon Valley’s typical rejoinder, when rejecting assertions of legal and regulatory malpractice, is that the law has failed to keep pace with technological innovation. Labour provisions do not apply to independent contractors, who are part-time casual labour. In a nutshell, Uber has argued that it orchestrates an informal economy not envisioned when laws were put on the statute books.

There are also sound economic reasons for resisting change. Adopting a minimum wage would risk stifling innovation and sandbagging American prosperity. The minimum wage is a price floor, which would make rides more expensive while rendering the service less efficient. With higher prices and depressed demand, drivers would lose jobs and consumers would lose out. It would be anathema to the gig economy.

Like the courts, experts are skeptical of this line of argument.

“To call Uber ride sharing seems incredibly disingenuous,” says Ben Edelman, an associate professor at Harvard Business School who conducts research on the sharing economy. “Ridesharing is a term of art,” he added.

Critics point out that Uber takes advantage of precarious work arrangements that disadvantage workers to yield higher profits. As the British decision last week affirmed, the independent contractor argument is a window dressing. Uber’s deceptive remuneration practices are motivated by naked self-interest and the pursuit of profit.

Similarly deceptive practices are evident in the tech giant’s other lawsuits. In the US class action, Uber’s drivers complained that the company did not remit tips in full, despite advertising otherwise on customer invoices. According to Ben Edelman, Uber perceives itself to be above the law. This perception in turn gives Uber a fraudulent cognitive license to defy legal rules, and deceive its workers and customers.

“When I talk about the deceptions of Uber’s marketing, I usually start with things that are literally false,” Edelman continues.

Dr. Edelman’s research has uncovered countless cases where Uber has charged fictitious tolls, imposed improper cancellation fees, and otherwise taken customers for a ride. Because of the arbitration clause in the user agreement, when it comes to recourse against Uber, it has to be out of court.

Down the road, Edelman predicts that Uber will suffer the same fate as Napster. When Napster first disrupted the tech industry, it was thought to be untouchable. The courts eventually shut it down, making the way for legally compliant services like iTunes, Spotify, and Pandora.

For Uber, Airbnb, and other embattled technology companies, Napster’s demise is a powerful warning. To survive a legal and regulatory onslaught, technologists will have to respect workers and relevant employment legislation. Legislation will also have to change, and regulators need to take a balanced approach weighing costs and benefits for consumers, labourers, and other community stakeholders. The minimum wage issue, moreover, is only one of a handful of complex regulatory challenges threatening the sharing economy business model. Technology companies should work with policymakers to anticipate change.

The alternative, a business as usual strategy, is fatal. The writing is on the wall. Soon Silicon Valley must realize that it is cheaper to ask for permission than beg for forgiveness.