Uber’s founders have cashed in. How about the drivers?

The Explainer

The ride-hailing company Uber has made its long-awaited debut as a publicly traded stock, but investor demand for the May 10 initial public offering (IPO) fell short of the company’s hopes. Part of the reason is a lingering question about its workforce: Does the still-unprofitable firm deliver low-cost rides for passengers at the expense of decent treatment for drivers, and could the resulting discontent undermine Uber’s business model?

The issue over whether Uber drivers are employees (entitled to company benefits such as sick pay and retirement) or contractors (entitled to nothing) has been at the center of the labor controversy since the company launched a decade ago. It is still largely unresolved.

What’s the issue?

Uber positions itself as a technology company, supplying a digital platform that connects riders with independent drivers. They fight being called a “transportation company,” to the extent Uber calls its drivers “partners.” The business world calls them “gig workers.”

But whatever they are called, the drivers complain of 80-hour workweeks, low pay, and a lack of benefits. They must also cover their own vehicle expenses such as gas and car insurance. They operate in a twilight zone between full employment and freelance or contract work, where “freedom” and flexibility are a high price for income that can be less than minimum wage. They lack bargaining clout, leaving “enormous power in the hands of platform owners,” says Jovana Karanovic, an employment expert at Vrije University in Amsterdam.

How big is the gig economy and who’s in it?

A 2018 European Commission survey found that 2% of adults in the European Union earned more than half their income from platform-based work. The share may be a bit lower in the U.S., although precise measures are hard to come by. But the gig economy is expanding alongside other types of freelance or contracting activities that often lack traditional employer-provided benefits.

“My ‘boss’ is an algorithm,” Arndt, a food delivery driver in the Netherlands, said in an interview late last year after he spoke at a “Reshaping Work” conference in Amsterdam. “And that doesn’t help me when the restaurant hasn’t got the food ready for pickup and the waiting costs me money because every minute I’m standing around is a minute I could be making another delivery.”

And this growing sector is not limited to driving. Sophie, who like Arndt asked that her last name not be used in this story, inputs data from her home on the outskirts of Paris. “I need the money. There is nothing else to do that would allow me to work and still take care of my children,” she says. “The pay is low, but worst of all, the work is boring and there is no chance for advancement, no one to talk to about any kind of future.”

Firms like Uber are fostering the growth of gig work. What are they doing for these workers?  

Amid political pressure, Uber changed gears last year and created, with Paris-headquartered AXA insurance, a benefits program in Europe that could become a model for other digital-platform companies. It’s a move that’s been praised by some labor leaders, and seems to have assuaged some of Uber’s legal battles.

The Partner Protection program covers health expenses, death and disability benefits, and injuries on-trip, automatically, for its 150,000 drivers and couriers in 20 countries of the EU and parts of Africa and the Middle East. For frequent drivers, there’s also off-trip protection for things like parental and maternity leave, retirement, and severe illness. Some platform companies in the U.S. have tiptoed in a similar direction.

“Over the past 15 years, large digital players have changed the way people behave and consume, and this has resulted in large protection gaps,” says Charles De La Horie, AXA’s director of digital partnerships. He says the program with Uber reflects the imperative “to make the independent worker lifestyle sustainable.”

What role do governments play in providing benefits for this new labor sector?  

In Europe and in some U.S. states, policymakers are considering how to bring at least basic benefits to gig workers, and to ensure their long-term needs aren’t left unaddressed as a looming burden for the workers and for society. The EU has a social model of strong worker benefits, yet gig or “independent” laborers don’t fit that model; they’re adrift, like serfs in a new digital feudalism.

“The current social benefits system is attached to a single employer. However, in this new economy workers perform tasks for multiple platforms which are their employers; thus we need to detach the social benefits from a single employer,” Ms. Karanovic says. Portable benefits, such as those in Uber’s Partner Protection program which are hitched to the worker rather than the job, are a new step forward.

This idea is already gaining traction in Latvia and France, where independent workers pay contributions and get benefits based on their various professional activities. In the U.S., Uber is among those voicing support for state laws under which platform companies might fund portable benefits for gig workers.

So, will gig workers get what they’re hoping for?

That remains to be seen. Social protections for them are on the rise, and any progress is better than none. But labor advocates continue to battle companies in court, lobbying for legislation to classify these workers as full employees with a panoply of benefits and labor rights. The idea: If most of your pay and work opportunities revolve around an app, to call you a “contractor” is to misclassify you.

“I don’t like this idea of portable benefits, and I disagree that ‘work’ is changing,” says Boston-based attorney Shannon Liss-Riordan, who has led some of the lawsuits in the U.S. “The way work is being assigned is changing. Companies in the gig economy want to rewrite the rules to suit themselves. They dupe the public and lawmakers by focusing on [gig workers’] flexibility, not the lack of social protection.”

Companies like Uber have lost or settled some court cases. But they’ve also used their lobbying clout to win what critics call “carve-outs” from state employment laws, inserting the definition of gig workers as contractors. And the firms face marketplace pressure to keep costs low as they compete with rival services. (Uber and Lyft say in IPO documents that they’d suffer financially if forced to classify drivers as employees and pay benefits.)

Political pressure has been growing to adapt labor laws to better support workers in the platform era. But one way or another, the cost of employee pay and benefits tends to get passed from companies along to their customers. Consumers have benefited from tap-of-the-phone convenience. Are they willing to pay a bit more if it means their driver is also benefiting?