A new economy has been developing for a while, opening a unique market, with new opportunities. This is what’s called the new “sharing” economy with an entrepreneur presenting a way to connect willing participants for an economic transaction. This has evolved from something like Craigslist, to a more user-friendly and app-based operation. Namely, this includes businesses like Uber, Lyft, and AirBnB.
Yet now, it has opened a question with Uber via a proposed settlement about whether the service providers are employees or independent contractors. So, what happens when you begin to question the standards of a business operation? To what end can you control the product to ensure that there is a strong method to your brand? How long can a settlement keep service providers from claiming they are employees and not independent contractors?
The Business Model
The first item to be assessed is the business model. What is noticeable about this is the degree of control placed on the service providers. They are required to meet certain qualifications to be a service provider. For example, a driver must have a four-door vehicle with a model year of 2000 or newer, be over 21, and pass a background check. In addition, Uber could previously boot off low-rated or inactive drivers from the service.
Why does this make sense? In short, by connecting willing individuals, and not hiring them, Uber collects and distributes the payments (with some processing fees) while allowing the free market to do most of the heavy lifting. There are no payroll issues, limited liability for driver misconduct, considerably limited physical capital requirements by avoiding the purchase of cars and the advantage to being able to skirt around various legal requirements that inhibit similar businesses.
The Settlement
The settlement as offered by Uber still has to be approved by the court. However, the key terms in the settlement are millions of dollars for the drivers listed within the class action, as well as, the condition that the drivers remain classified as independent contractors. To help cement this classification, Uber has also added conditions to its terms and conditions that would give drivers more time to correct “problems” before they are removed, like refusing rides, or getting a low rank. Furthermore, a dispute resolution process has been added to contest any deactivations from the service, and it has been made clear that the drivers can now solicit tips from riders.
Yet, with all of this, the court must approve it before Uber can settle. If the court does not do so, then case law will eventually finalize the unresolved issues. This would then serve as limitation not just towards Uber, adding the costs of employees to its payroll, but to other businesses, as if they were to adapt the Uber business model, they would likely be limited by the case law as well.
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