Uber And Lyft In California: How To Use Employment Law To Wreck An Industry

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From Forbes, Richard Epstein writes about the distinction between independent contractors and employees both under traditional law and the current situation with lawsuits against Lyft and Uber.  He writes:

“Under traditional law, an independent contractor receives a fee for the services he performs, but otherwise runs his own business as he pleases.  In contrast, an employee works for an employer who pays him a wage in exchange for a bundle of services that are subject to the employer’s close supervision. In an unregulated market, this distinction has little effect on how new businesses operate. The two parties to the agreement can decide to call their business by one name or by the other, and the only consequences are on the terms of their contract. Nor in an open market are they confined to structure their relationship in strict accordance with either of these two pure forms. The forms are guides. They are not Procrustean beds. If they don’t fit the case, the parties are free to fine-tune their relationships by adding some terms and eliminating others in ways that suit their business needs. Nor must all parties march off in unison in the same direction.  They can each use their own separate modifications.  The job of judges is not to second-guess that choice of forms, but to enforce the agreement as it is written.

The evolution of legal transactions is thus driven by market pressures, rather than by judicial fiat. Now that labor markets are extensively regulated, the private evolution has been brought to a screeching halt.  No longer does the distinction between an independent contractor and employee give a first approximation of the attention of the parties.  Destroy the contractor arrangement carries with it enormous economic consequences.  Under current law, the independent contractor arrangement is not highly regulated.  In stark contrast, every aspect of the standard employment contract is subject to massive government regulation.

In the current San Francisco class actions, the plaintiffs claim that they are really employees and not independent contractors.  As employees, they further claim that they are now entitled to receive reimbursement for their operating expenses, which include both ordinary maintenance and the cost of fuel.  But it is not just these costs that are at issue in this choice of classification.  Now these newly minted employees are entitled to seek union representation, which is not available to independent contractors under the National Labor Relations Act.  In addition, Congress and the states have larded on additional burdens, including unemployment insurance, social security benefits, overtime pay, family leave, and much more.

Putting Uber and Lyft drivers into the employee box thus has two consequences.  In the instant case, it results in a large, one-time cash transfer to the drivers.  In the long run, however, the entire set of regulations is capable of transforming the business for the worse, by casting massive doubt on a successful business model.  At the very least, the base salary will go down to offset the additional benefits that the companies will need to supply to the drivers.  If that were the only effect of the official judicial characterization, the workers would get a lower base pay and higher fringes.  The adjustments would look like a reduction in base pay under the Fair Labor Standards Act, as an offset for higher fringes over time….”

Read the full story at Uber And Lyft In California: How To Use Employment Law To Wreck An Industry 

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