back to article Join Uber in a tale of rent seeking and employment law

Dabbsy was chuntering on about Uber and TfL finally deigning to take note of the regulations under which they should offer services, and it reminded me that we've got three lovely pieces of economics wrapped up in this whole sharing economy story. The first is one well known to youse guys in the tech industry: network effects …

  1. AndyS

    One network?

    Surely the same would apply to black cab drivers - that they can only drive for one network? And then the same self-employed contractor issues would arise for them. How are they intending to make that rule impact Uber, but not the traditional cabbies?

    1. Tim Worstal

      Re: One network?

      The one thing that cabbies can do (well, among the) is pick up someone waving their arms by the street. That's their customer.

      1. dotdavid

        Re: One network?

        So a licensed black cab's customer is the punter, the Uber driver's customer is Uber not the punter as the punter has to go through Uber to arrange transportation? Sneaky.

        1. Tim Worstal

          Re: One network?

          IANAL but that's the way I read it, yes.

          1. auburnman

            Re: One network?

            It is sneaky but it seems like it's accurate if you think it through; Uber get payment from the customer and pay the driver, ergo the customers relationship is with Uber and the driver is merely an agent (contractor or employee, however that shakes out) tasked with completing the service sold by Uber. This will almost certainly have big implications on Uber's liability for crashes and other service issues.

            Maybe they could duck the issue if they spun out or partnered with a payment handler so that the customer's cash (less their cut) went directly to the driver when a booking is taken? then they could position themselves as simply a marketplace for driving services. Or would they have to give drivers greater say in pricing?

          2. LucreLout

            Re: One network?

            @Tim

            IANAL but that's the way I read it, yes.

            IANAL either, but I read it differently - mainly because I want to - the law, it's an amazing concept.

            Uber is effectively the employment agent, arranging contact between a contractor and their customer in return for a commission, says I. In that regard then, no different to any other middleman situation.

            I'm sure the cabbies think they're onto a winner here, but the law of unintended consequences says this'll bite them on their dinosaur @rse too, sooner or later.

            1. Dr. Mouse

              Re: One network?

              Uber is effectively the employment agent, arranging contact between a contractor and their customer in return for a commission, says I. In that regard then, no different to any other middleman situation.

              This is how I read it, too.

              Many who do contracting in the UK work through employment agencies. The agent finds you a contract, and often provides several other services (collecting the money on your behalf, negotiating contracts etc.). They take a commission for doing so.

              This is exactly what Uber do. They advertise your services, find you a customer, pass that customer on to you, and collect the money for you. They are providing a set of services to you, in return for payment.

              I guess it depends on exactly how the contracts are formed. If the contract is legally between the customer and driver, with the driver having a separate contract for services with Uber, then Uber are effectively an agency. If the contract is between the customer and Uber (which I expect most customers would assume), then they could easily be classed as employees. This will be the point which will likely be played out in the courts.

        2. Your alien overlord - fear me

          Re: One network?

          Really? Never had a business credit card then? If I get a black cab in London (from Gatwick, railway station or from the street), I don't pay them, the company credit card does. Therefore the taxicab's customer is the company not me. I might have hailed them but so do Uber punters, abet by phone/computer rather than waving a hand in the air.

          PS I don't like Uber, but then I find black cabs are a rip off as well. Rock, hard place, me in the middle.

          1. auburnman

            Re: One network?

            You have the option of paying the cab direct though, and the cabbie is unlikely to only receive payment from one source for the day's trade. The argument is whether Uber drivers can call themselves contractors if they only get money from Uber - your company paying for your cab has no bearing on that.

          2. Kristian Walsh

            Re: One network?

            It's not who pays that matters, it's who forms the contract.

            You form a contract with the cabbie. He agrees to bring you to Victoria Station, and you agree to give him an acceptable form of payment. In this case, a payment made using a VISA card [other cards are available]. This is the contract that decides whether the cabbie is a contractor or an employee. He doesn't require that the payment be by card, nor does he require that the payment be backed by your employer: as long as its an instrument that results in money reaching his bank account, he'll provide the carriage service. And an entertaining commentary on London's rich ethnic diversity (kidding).

            In the meantime, there are two other contracts in place. Your your employer has a contract with you, part of which is that they give you a credit card with which you can pay for legitimate business expenses, like taxis.

            The second contract is between your employer and VISA, in which VISA agrees to accept and process electronic payments and give the money to the person who asks for it (the cabbie in this one case, but also the hotelier, pret-a-manger and Network Rail at various other times in the day), in exchange for your employer eventually giving VISA back that money, plus a fee for providing the service.

            So, yes, the money to pay the cabbie eventually came from your employer, but he didn't negotiate a contract for taking you to the train station with your employer, he did that with you. You used the benefits of a contract you had with someone else (your employer) to fulfil your obligations with the cabbie, but that's the way the world of commerce works: you form contracts to fulfil the obligations of other contracts..

            Plus, even if your example were valid, the cabbie would not be an employee of your company unless he only ever drove for payment on that company's credit card.

            Uber is different because it is Uber who always pays the driver. You pay Uber, not the driver, and the driver is later paid by Uber for providing the service that you booked through Uber. No contract is ever formed between you and the driver.

            My big concern with Uber from a customer viewpoint is the lack of trust and accountability - even with the worst minicab company (and Uber is basically an online minicab company with a huge fleet), you can find the office, and have it out with the owners if you're treated badly or ripped off, and it serious cases, complaints will result in a driver being dropped. Over time, the company builds up a stable cohort of drivers who are honest and safe, or it goes out of business. Uber is hampered in doing this by its size - it has thousands of "drivers" on its roster, with as many bad apples as you'd expect from any service business of that size. But that sheer size, and the transience of the workforce means you're playing whack-a-mole when it comes to removing bad elements, and the risk of harm or crime remains pretty much constant. Very low, granted, but constant.

        3. Brewster's Angle Grinder Silver badge

          Re: One network?

          Let me quote "Dabbsy" then:

          "Uber is right about one thing: it is certainly not a minicab business....It’s just a social media framework accessed from an app. All it does is offer the equivalent of phoning around for the nearest available and affordable minicab, doing it swiftly and conveniently from an net-connected smartphone.

          If Uber's lawyers can convince a judge of that, then they're on the same footing as the Black Cabs.

          1. mathew42
            Facepalm

            How long will Uber care about contractor / employee distinction?

            My opinion is that Uber's long term (<5 years) is to replace drivers using their own cars with driver-less cars. Currently they are prepared to run at a loss to establish market share so that when the transition occurs they are in the prime spot. Many 2 & 3 car families may well decide that replacing 1 car Uber is cheaper.

            The current legal negotiations are about minimising losses and ensuring Uber has access to markets when the transition to driver less cars occurs.

  2. Anonymous Coward
    Anonymous Coward

    the UK test for whether you're a contractor is ... how many different people do you work for?

    HMRC would love the test to be that simple, but it clearly isn't. To suggest that a company must abandon a customer who provides regular business simply to prove its independence is an unreasonable restraint of trade. There probably exist companies with one customer and numerous employees - how do you categorise them?

    However much they may trumpet their occasional victories, the truth is that HMRC's record in proving that contractors are really employees is pitiful.

    I think I'll post anonymously, though. Just in case.

    1. knarf

      One customer and One Employee

      A black-hack taxi driver has one employee (OK wife might be on the payroll), but he has lots of customers i.e. arm waving punters and he sets his own hours and terms of work.

      An IT contractor has one customer and one employee at a specified location which is specified by the customer. Customer says you must work here between these core hours and I will direct your work. That is the difference (OK it is.can-be a bit more complex).

      As far as the HMRC is concerned you have Zero contract hours employees being IT workers who A) Don't pay a lot (read enough) Tax/NI and B) The employer doesn't pay NI for.

    2. Hairy Airey

      Just to state the obvious - HMRC does not like "disguised employees" because someone who works for only one company is an employee. To get around this would involve more expenditure than paying PAYE etc. Although it probably does go on. Probably by people who

      As for being able to use Maps on phones - I can recall a journey from London Bridge to Oxford Circus where three different road closures meant I went there via Euston Road. Given London's near gridlock I don't imagine many taxi drivers have the time to keep reprogramming their phone. The knowledge is still useful.

      1. Roger Greenwood

        " . where three different road closures . "

        Seen Waze? I saw it in a Taxi last week, with the driver using it to avoid traffic etc. Even the knowledge is not that up to date.

      2. Michael Wojcik Silver badge

        maps on phones

        As for being able to use Maps on phones - I can recall a journey from London Bridge to Oxford Circus where three different road closures meant I went there via Euston Road. Given London's near gridlock I don't imagine many taxi drivers have the time to keep reprogramming their phone. The knowledge is still useful.

        Yes, and this - transient obstacles - is only one of many failure modes for maps-on-phones. Claiming AGPS navigation systems replace good knowledge of the local road network and traffic conditions is quintessential technophilic foolishness. At the very least, if he's going to play economist, Tim should have considered how the lost value (increased probable delay in reaching your destination, primarily) compares to the gained value (in lower barrier to entry and - in theory - consequent lower prices for consumers).

    3. Doctor Syntax Silver badge

      "the UK test for whether you're a contractor is ... how many different people do you work for?"

      "To suggest that a company must abandon a customer who provides regular business simply to prove its independence is an unreasonable restraint of trade"

      Apart from that there are other tests. I'd have thought that "provides own equipment" would be fairly significant. BYOD may be blurring that but one would hope that the Uber driver has paid more than the cost of an iPad for his vehicle.

  3. ScissorHands
    WTF?

    Wanting an NHS is rent seeking?

    So, wanting to stop fairy-dust Silicon Valley types from sucking the marrow and not paying their dues in return, to have roads, to have consumer protection, is rent-seeking.

    I was blind, now I can see !!

    1. Fraggle850

      Re: Wanting an NHS is rent seeking?

      The only part of the business that we don't get tax from is Uber's profits. The self employed drivers will be liable for all applicable taxes, including the not inconsequential fuel tax. So this situation at least gives us some tax revenue, unlike certain other silicon valley companies that trade over here.

      Given that Uber and Lyft had been around for a while before they came to the UK there was a window of opportunity for a home grown version to have got off the ground.

      Not necessarily a fan of the situation re: Uber personally but hard to see how it can be stopped beyond protectionist legislation. Perhaps it's time that black cabs went the way of the horse?

      1. bencurthoys

        "a window of opportunity for a home grown version to have got off the ground."

        I don't use taxis much, but Addison Lee was that as far as I was concerned.

        They were big enough that they could cover all of London, and unlike looking up the nearest local minicab office, always had drivers nearby, always had nice, clean, comfortable cars. Good technology integration, etc.

        Sure, they've done some horrendously dickish things in their time, but there are also centralised processes so that e.g. homophobic drivers can be corrected.

        My mental image of what getting an Uber ride is like is it being just like booking a car with Addison Lee, except that if it's a "surge" they'll rip you off and they'll treat their staff less well. Is that unfair?

        1. Yet Another Anonymous coward Silver badge

          Re: "a window of opportunity for a home grown version to have got off the ground."

          > if it's a "surge" they'll rip you off

          If it's a surge they will increase the price, so more drivers will work so there will be more cars. They tell you up front - it's upto you to choose to pay more or not take a car.

          With black cabs your choice is to not get a cab.

          If black cabs really are this public service then, in the case of a surge - tube strike, bad weather etc, then all holders of a black cab license presumably have a duty to abandon the golf course and rush to the aid of Londoners.

    2. Anonymous Coward
      Anonymous Coward

      Re: Wanting an NHS is rent seeking?

      Err, no.

      The rent seeking, as the article alluded to, occurs when regulation causes a market (in this case providing ad hoc transportation for individuals or small passengers) to be closed to competition, which leads to sub-optimal service, lack of innovation and high prices. The result is system favoring businesses instead of consumers. Hackney carriages are one example. In the USA the franchise car dealer system is another.

      Tim's just highlighed the unnecessary rule of restricting drivers to one network as an example of the way regulation supports rent-seeking. It encourages monopoly, which helps neither driver nor customer. In fact any regulation should have been the _opposite_, which would be to say that the companies _cannot_ have exclusive agreements with contractors, and _cannot_ favor contractors based on availability.

      There are ways government can regulate without limiting competition.

      1. tom dial Silver badge

        Re: Wanting an NHS is rent seeking?

        Have an upvote. It is worth noting, though, that constant vigilance is needed to keep reasonable regulation focused on public rather than private good. This may be especially necessary here in the US where the First Amendment to the Constitution protects the rights of the rent seekers and their agents the lobbyists, although I expect the situation is not greatly different elsewhere.

  4. armyknife

    Why Am I Not Surprised.

    "Tyler Cowen has used this as an example of why it's sometimes easier (for which read 'better') to simply ignore the law and regulation."

    Astonishing that a modern capitalist should suggest such a thing, maybe he works for a renegade company like VW, Amazon et al.

    1. Anonymous Coward
      Anonymous Coward

      Re: Why Am I Not Surprised.

      As they say

      It's easier to ask for forgiveness than permission

  5. IHateWearingATie
    Mushroom

    I don't really care about Uber as a company...

    ... but I've had far more unpleasant experiences with Black Cabs in London than mini-cabs (which Uber argue they are).

    Anything which screws the black cab monopoly is fine by me. Have some sympathy with TfL trying to walk a difficult line between various stakeholders, but I'd happily stick two fingers up at the LTDA.

  6. Pellinor

    Employement status is more complex than that

    As noted by AC before me, you've over-simplified the self-employment position.

    It is perfectly possible to be a self-employed contractor working for only one customer, it's just that it's a bit tricky. However, if we have an individual working directly with Uber, it gets a lot simpler than the situation where an intermediary gets involved. You'd have to run through all the various tests about financial risk, mutuality of obligation, provision of equipment, and so on, but I wouldn't be at all surprised if the reality of the relationship between a driver and Uber was that the driver was self-employed.

    I don't know what the contract says, but if the driver doesn't have to pick any particular person up, Uber doesn't have to send any particular customers the driver's way, he has to provide his own cab and get it maintained, he has to pay for fuel, Uber can't dictate the route to be driven, and so on, then you're looking rather a long way from employment. HMRC may disagree, of course :-)

    If you were to bring an intermediary in to the loop then you'd have more of an issue, as Uber being able to exercise supervision, direction or control over the driver would be enough to impose a PAYE liability, self-employment notwithstanding. I'd imagine that there's a risk of supervision there, at least. But without the intermediary you fall back to good old employment status tests.

    1. Tim Worstal

      Re: Employement status is more complex than that

      One of the problems with straddling the pong (err, not physically you understand). Because Uber in California has just fallen foul of exactly that test....

      1. Pellinor

        Re: Employement status is more complex than that

        Yes, but that was a) in California, which has a different view of the world from most people's, and b) a situation where it's worthwhile being employed rather than self-employed. In the UK it's widely accepted that it's in your interest to be self-employed if you can be.

        And the tests in the US are very different from the UK ones. Some similar concepts - but in particular they have a default to employment, which (maugre HMRC's head) we don't in the UK.

        1. jonathanb Silver badge

          Re: Employement status is more complex than that

          In the UK, you pay a lot less National Insurance if you are self-employed, and usually less tax, as you can generally claim more in expenses. However you don't get sick pay, maternity pay, holiday pay, unfair dismissal rights and so on.

    2. jonathanb Silver badge

      Re: Employement status is more complex than that

      As far as I'm aware, you do have to accept the jobs that are assigned to you while logged on, though you can log out at any time, and you do have to follow the route on their sat-nav.

      1. Pellinor

        Re: Employment status is more complex than that

        "As far as I'm aware, you do have to accept the jobs that are assigned to you while logged on, though you can log out at any time, and you do have to follow the route on their sat-nav."

        That's interesting, and pushes the analysis more towards employment. Being able to log out at will does seem to limit the mutuality of obligation, though, so I'm not sure it would be at all conclusive.

        Having to follow Uber's sat-nav route could bring the driver within "supervision, direction, or control", though that's more important where there's an intermediary than where a driver is engaging directly.

    3. P. Lee

      Re: Employement status is more complex than that

      IR35 is about tax law, not employment law. It explicitly states that the two are not related or dependent on each other. So you can be taxed as an employee without having employee status.

      Its also evil and designed as a backdoor way to impose employee status problems on those with the temerity to run a small business which successfully wins big clients.

      1. Anonymous Coward
        Anonymous Coward

        Re: Employement status is more complex than that

        " It explicitly states that the two are not related or dependent on each other. So you can be taxed as an employee without having employee status."

        that's easily fixed: if you don't get sick pay, holiday pay, etc., you are not an employee in status and therefore not in tax. If HMRC wants to tax you as if you're an employee, but you dont get holiday/sick etc pay, then HMRC can either (a) strip those rights from it's own employees as well, or (b) pay them to you, at your normal rates.

        Or they change things, make the whole thing reasonable or even within a mile of fair, and simply say if you don't get employee benefits you are not an employee and won't be taxed as such.

        1. Pellinor

          Re: Employement status is more complex than that

          "that's easily fixed: if you don't get sick pay, holiday pay, etc., you are not an employee in status and therefore not in tax."

          The Office of Tax Simplification has been looking at this, and one of the themes they've drawn out in their most recent report on the subject (I know I raised it when talking to them, and I suspect a lot of other people did too) is that getting the tax and employment law aligned would make life an awful lot simpler all round.

          The problem is that businesses and the courts regard employment as a privileged status which should only be granted to those who merit it, whereas HMRC regard self-employment as the privilege and would rather that employment is treated as the default option.

          So as long as the review is being done by the Treasury and HMRC, so they get to draw the line, we're not going to get a sensible synthesis of tax and employment law :-(

          1. Anonymous Coward
            Anonymous Coward

            Re: Employement status is more complex than that

            "So as long as the review is being done by the Treasury and HMRC, so they get to draw the line, we're not going to get a sensible synthesis of tax and employment law :-("

            (same AC)

            Again, easily fixed - if getting sick pay or holiday pay is not required to be or a sign of being an employee, then simply remove both from everyone who is employed by HMRC or the Treasury; after all, if "we" don't need it in order to be employees, neither do they.

  7. Peter Johnston 1

    There are also a host of benefits in kind for taxi drivers.

    Outside every airport and major train station are parking areas exclusively for registered taxis - no Ubers allowed - all paid for at the taxpayers' expense. Signage inside these stations directs people to the councils' revenue stream and excludes all others.

    Taxis are allowed in bus lanes, speeding journey times and thus giving them an unfair advantage.

    When Uber fights back, expect to see a lot of politicians and local government employees in court for illegal practices directing people to their own services and excluding competing services.

  8. zebm

    What about Amazon drivers?

    Being an Amazon Prime customer it seems that deliveries are made by lots of independent couriers who probably have Amazon as their sole customer. This would seem to be pretty much the same situation as Uber drivers when it comes to employment legislation.

    Would anyone knowing more care to comment?

  9. strum

    Black cabs are easy targets - especially for pseudo-freemarketeers, who don't have to think too hard.

    But the Hackney Carriage Acts do have weight. You have never seen a dirty black cab working in London. You have never seen a damaged black cab working in London. This is because these are against the HC Acts, and the Office treats them seriously.

    And, even though there are many anecdotal complaints about cabbies, there are surprisingly few real ones. Again, this is because the HC Office takes complaints seriously.

    And why does that matter? It matters because the HC Office retains power over cabbies. It retains that power because of the license monopoly.

    A cabbie who drives a dirty cab risks his livelihood. A cabbie who cheats a customer risks his livelihood. All because of a (relatively-benign) monopoly.

  10. BobRocket

    MisAppRehension

    I thought that Uber was some kind of Universal Dutch auction appears they are just a taxi controller with contracted drivers and fixed prices.

    I thought the whole thing was ... I am at (a), I want to go to (b), I broadcast this data, suppliers check my history (I have always been where I said I was, I have always paid promptly, I have rarely disputed route) and pitch a price and time.

  11. Anonymous Coward
    Anonymous Coward

    Difference between Uber driver and "self employed" courier?

    As title.

    How long has Uber been around?

    How long have "self employed courier" drivers been around (be it Citylink, now deceased, where the logo'd vans gave the appearance of an employee driver when it wasn't the case, or Yodel, where the untaxed wrecks and language issues of the last mile drivers give the appearance of something well dodgy)? Expert Logistics, the delivery/installation arm of Appliances Online, is another outfit which to its "customers" (the people buying from AO) gives the appearance of employed drivers, but the reality is the vehicles and orders are provided by AO, the drivers are only *allegedly* self employed.

    Are there any legal paralllels or precedents relating to the two?

    1. ThorWarhammer

      Re: Difference between Uber driver and "self employed" courier?

      I did some "self employed" courier work, now have a better work from home gig, whilst I get some IT Industry certifications, knowledge and ability don't get a gig without cert's

      My Hermes packed it in after a week, You earn less than minimum wage as you never finish in time all manner of issues here from traffic to customers not being in, to the depot's

      Yodel decent gig but it is a 6 day week for a 48k job initial 2 year contract + you need to supply the van or lease one.

      Don't know about the precedents, but is is simply the companies, not needing to pay higher NI, cover sick pay and holiday pay and pensions, by having inyd's do the leg work

      The Zero hour contractor's lack of company benefits et al is the employers profit margins in my eyes.

      Uber and Lyft are breaking up a stus quo and a monopoly of sorts, by cunning acts of douchebagery, leaving the Gov appendages to play catch up and devise ways to say Oi, pack it in.

      Pretty much like the bankers rigging mortgages, selling toxic mortgages, back slapping and pocket filling on libor rates, dodgy scales for precious metal deals and any other thing where they can play the system for cash.

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