Uber and Lyft: Employee Reclassification

Uber and Lyft: Employee Reclassification

By Benjamin Kolb

Abstract

In the past year of 2020, Uber and Lyft services have provided easy access and affordable driver services to people across the United States. Their drivers have played a key role in executing these services to the general public. Recently however, both companies have come under fire by the state of California for the misclassification of their drivers as independent contractors. The state of California sued both companies, claiming that these drivers are employees, not independent contractors and they should be given employee benefits. Uber and Lyft fought the courts, and the final decision turned into a ballot question for the public to vote on. 

By looking at business ethics theories including Individualism, Utilitarianism, Kantianism, and Virtue theory, Uber and Lyft can be found morally right or wrong in their actions. An individualist would find these actions of Uber and Lyft as justified, because they are within the law. A Utilitarian would also find these actions as morally okay, because they are maximizing the overall happiness of all involved. Kantians would however not find these actions as permissible because using the formula of humanity, they are treating their drivers as mere means for profit. A virtue theorist would also find these actions as showing poor characteristics, because Uber and Lyfts’ leadership qualities are poor. This article will discuss the situation and the court case, along with the ethical theories surrounding the case and will finish with an action plan for Uber and Lyft to use when similar situations arise in the future.

Summary of Case

Uber and Lyft have been two of the largest and most forward-thinking companies following the turn for the 2010 decade. They offer a more available and simple transportation service that relies on independent contractors, or drivers, to sign up and work like a taxi service on behalf of Uber/Lyft. Uber (established in 2009) and Lyft (established in 2012) hire many different civilian drivers and pay them for driving people to where they need to go based on their mobile phone technology or app. Drivers for Uber and Lyft must go through several background checks and be 21 or older with a valid driver's license to qualify. However, after going through this process and being accepted by Uber or Lyft, drivers are not considered employees of the company but rather independent contractors. The difference simply put, although being paid by Uber and/or Lyft, they do not receive basic benefits such as health benefits, overtime pay, unemployment insurance, and other supplements that most employees would be entitled to. Nonetheless, the state of California recently noticed this unfair treatment towards the drivers and sued Uber and Lyft for their inequitable treatment of their workers. In addition, the general public recognized this as well and was immediately enraged. Many people believed that a company with such large prosperity should not be able to withhold basic fundamental employee benefits and thus began to criticize these companies. But was this a one-sided story about a big company wronging their workers or was this a misunderstood industry? 

The People vs Uber Technologies was filed on April 26th, 2020. The main issue behind the suit was the misclassification of employees within the company and in violation of the California Assembly Bill 5. The purpose of Assembly bill 5 is to define the difference between an independent contractor and an employee. If categorized as an employee, the employees have employee rights and are entitled to benefits. The bill highlights the ABC test which says that workers are employees unless the hiring entity satisfies all three of the following conditions: 1) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; 2) The worker performs work that is outside the usual course of the hiring entity’s business; 3) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. The court in this case ultimately justified the use of the Assembly bill 5 as applied to drivers, and thus determined that Uber and Lyft violated misclassifying their workers. This decision was ultimately upheld by the Appeals Court on August 22, 2020. The Court granted the state a preliminary injunction that would require Uber and Lyft to reclassify their drivers as employees beginning August 21, 2020. Consequently, Uber and Lyft responded to this ruling and spent 20 million dollars to make up a California ballot question: Proposition 22. Proposition 22 was designed so that the public could have the power to decide whether or not Uber and Lyft drivers should become employees. Uber's argument through this entire lawsuit and public scrutiny was that “Our drivers don’t want to be employees”.

It is easy to see why the state of California and its citizens were upset with Uber and Lyft and other companies that operate in the same capacity but to fully understand what happened in this decision, both sides need to be understood. During the November 2020 election, proposition 22 was released for the public to vote on, the results were 58.6% yes. The people of California voted in favor of Uber and Lyft, allowing them to continue calling their drivers, independent contractors. This was a major win for the gig economy, meaning all companies similar to Uber and Lyft services. The reason why the people voted for this solution was because of what Uber and Lyft were claiming the whole time, “Our drivers don’t want to be employees''. Uber and Lyft arguments according to reporter Alex Schulman was “...uber views itself as a tech company and so there only employees are those involved with the Tech of these apps”. While this wasn’t good enough to please the courts, the actual drivers for these companies also had an argument. As Uber drivers spoke about this issue, one said in an interview what many were expressing. He said that “This effort to make me an employee is trying to fix a problem that I don't have...I live a life separate from my work. And I set the hours for myself when I want to work and when I don’t want to work. If one of my grandkids has a Little League game that they want me to go to, I can just go ‘yeah, I’ll show up.’”. Many people that now work for Uber and Lyft quit full-time jobs to become drivers because of the flexible hours. This sort of response represented a majority of gig workers but not all. A Uber and Lyft driver named Gage said in an interview that “After every single ride when I get out and sanitize the car, I'm not getting paid for that,” said Gage. “If I get a flat tire on the road, I’m not getting paid for that. If I’m returning a lost item, a lost wallet or cellphone, to a passenger, I’m not getting paid for that time.”. This problem started because drivers were upset about not receiving benefits but a far majority of drivers seemed to like the flexibility and the way Uber and Lyft operated. 

This court case was so important because Uber/Lyft is challenging the constitutionality of the law, known as Assembly bill 5. This will be seen as a landmark case because it is the first case of its kind and a big win for the gig economy. Companies in the future that use gig workers as independent contractors will now have a defense from the government when being pushed on the issue of classification of employees. Although the public did vote for proposition 22 to pass, the state of California was very split in this decision. Many people call this a loss for democracy and a win for the big companies who were able to put lots of money into campaigning this idea. Proposition 22 did however give drivers more benefits but not nearly as many as they could have. Drivers will now get vouchers to access subsidized health insurance and guaranteed hourly earnings. The companies will also implement new safety measures including more frequent background checks of drivers. Although this case was long and seen from many different angles, the ending result is that Uber and Lyft will be allowed to do the same business they have been doing and for the most part, drivers are happy with that. 

Stakeholders

The main stakeholders or decision-makers in the case and all that are affected include; Uber and Lyft, the state government of California, the people of California, the gig economy(all other similar companies), and most importantly the drivers or independent contractors. For Uber/Lyft to maintain their successful companies, they will have to gain the popularity of the people, and the drivers to remain in business. These are their main customers and workers and will need to please them to continue making profits and operating. Uber/Lyft must also win out against the state government because if they lose this case in California, many other states will follow California’s lead, and soon Uber and Lyft will be out of business. The gig economy will also be concerned since this will be a landmark case in the classification of independent contractors. This case could likely result in a change in the economy if companies like Uber and Lyft are unable to win over the people and their potential legal issues. 

Individualism

Friedman’s Individualism is one of the ethical theories that will be applied to this case. Friedman’s Individualism is one of the most basic ethical arguments that revolve around maximizing profits within the law. The theory states that the only goal in business is to profit, so the only obligation that the businessman has is to maximize profit for the owner or the stockholders, within the law. According to this theory and looking from the standpoint of Uber or Lyft, their actions are complicated but in the end, morally correct. Although this theory is relatively simple, the case of Uber and Lyft make it complicated legally speaking. The case started as an unethical practice because they were tried and convicted of breaking the law, by not following assembly bill 5. They later went into the appeals courts which only confirmed the initial court rulings. If the case ended here, then based on this fact they did indeed break the law, and although this was not a criminal court, they still do not follow Friedman’s Individualism. But, because this was a civil court problem, they have some options to be exempt, which they pursued. The two companies challenged this ruling and made their argument into a ballot question, known as proposition 22. During the recent 2020 elections, the people of California favored Uber and Lyft, overturning the state's rulings on assembly bill 5. This means that although they were found guilty, the public voted and allowed them to continue their current employee classification system. Revisiting individualism ethics, if they are maximizing profits within the law, then the business is doing well. If proposition 22 did not pass, Uber and Lyft may have left the state to maximize stockholder value, which would have meant that they could still follow individualism but not in the state of California. In the end, based on the fact Uber and Lyft are not exempt from following assembly bill 5, they follow individualism ethics and therefore their actions are morally acceptable. 

Utilitarianism

Utilitarian theory is another one of the main ethical theories that can be related to this case. Utilitarian ethics theory revolves around the idea that happiness and pleasure are the only valuable intrinsic things. A more specific definition of Utilitarian ethics is described by J.R. DesJardins, “Utilitarianism tells us that we can determine the ethical significance of any action by looking at the consequences of that act. Utilitarianism is typically identified with the policy of ‘maximizing the overall good’... Acts that accomplish this aim are good; those that do not are bad.”. Uber and Lyft may have approached this argument so that they will benefit but the result of this issue also led to maximum happiness. Uber and Lyft may not have wanted to give their drivers benefits that came with their new reclassification of employees, but due to the public voting, neither did the drivers. Many drivers spoke out saying that they want benefits, overtime pay, and job security, but a great many more, claimed that the reclassification would hurt them. The general public also weighed in, some saying that they want to stand against big-name companies and others claiming that if the drivers don’t want it, ‘Why should we?’ Drivers claimed that they liked the way things were and especially the flexible lifestyle of an independent contractor. The state of California would be happiest with reclassifying the drivers as employees. The public and the independent contractors or drivers are currently mixed between standing up to big corporations and getting the best lifestyle for the drivers. In the end, the people voted for Uber and Lyft, in the form of proposition 22 on the ballot sheet. Proposition 22 did offer the maximum happiness for this situation however because proposition 22 offered a compromise for the drivers that were not happy. Proposition 22 offered some healthcare based on the number of hours you work and offered to pay the difference of minimum wage if the driver does not achieve this engaged time, meaning in actual driving hours. Along with other things, this offers a good mix for the drivers that wanted things to stay the same and the ones that didn't. Drivers and the people who wanted things to stay the same now have this, with some bonus benefits, and drivers that wanted to be employees now have some of the benefits that they wanted which makes them happier than before. The public was the ones that voted for this solution, meaning that if they were not happy with it they would have shown this on the ballot sheet. Overall this solution makes the majority happy, and with the risk of losing Uber and Lyft in California, this solution is best. If Uber and Lyft left, then people would have been very upset and troubled because people are reliant on their transportation. If anything could have been different, Uber and Lyft could have offered employee status to those special workers who do clock in a lot of hours because these employees are most valuable to the company. This would have been seen very favorably because they would be offering something that the public has been protesting about and they wouldn’t lose any current independent contractors or money.

Kantianism

Developed by Immanual Kant, Kantianism is another business ethics theory that will determine whether or not the actions of Uber/Lyft are permissible. Kantian business ethics are different from Utilitarian and Individualism because while those two look at what is ethical from a judge of happiness or legal perspective, Kantians use the categorical imperative. Part of the categorical imperative is the law of humanity, which states that humans are required never to treat others merely as a means to an end, but always as ends in themselves. Kantian ethics specifically differs from Utilitarian ethics by looking at maxims, or the reason for doing something while Utilitarian ethics looks at what result will make people the happiest. For Kant, it doesn’t matter if you use another person for achieving a goal but one cannot use another for the mere purpose of achieving a goal then dismissing them. In terms of Uber and Lyft, a Kantian would look at whether they are using the drivers or anyone in the situation as a mere means, and if they are, then this act is not morally correct. The main suspect to see if Uber and Lyft were mistreating or using as a mere means would be the drivers for both companies since the whole case revolves around their employment status. Uber and Lyft need these workers to be independent contractors to make a profit, and they rely on not giving these drivers benefits to make a profit. Uber and Lyft both threatened to leave the state of California if they had to give these drivers benefits because their business couldn’t afford to pay these workers. Whether or not the drivers wanted to be employees or not, Uber and Lyft by not giving their workers benefits or protection on the job, and by needing the workers to continue to not have these benefits shows that they are indeed using them as a mere means. The end goal is to make a profit and by not showing support or giving benefits or protection, Uber and Lyft are using their drivers for the only purpose of using their cheap labor to make gains. Yes, proposition 22 does include benefits for workers and even some overtime pay, but these benefits are for only a select few drivers that drive for a certain time and the benefits they do give are minimum. From the viewpoint of Kant, what Uber and Lyft are doing is not morally correct and can only be corrected by treating their drivers as people and not just numbers and figures. A way that Uber or Lyft could achieve this is by giving their drivers benefits, or by announcing a driving reward program, or by even taking on full-time employees if drivers want that choice. This would prove that Uber and Lyft aren’t just looking at their drivers as a way of making profits, but looking at them as a useful tool that needs to be treated as important. Kantian ethics do not align with what Uber and Lyft are doing and would agree with the state in making these drivers and employees. 

Virtue Theory

Another business theory that will be applied is Virtue theory, which was first founded by Ancient Greek philosopher, Aristotle. Virtue theory varies from some of the other ethical theories that were already discussed because virtue theory focuses on characteristics a company shows, rather than the outcome of the situation. In The Case Manual by Heather Salazar, virtue theory is described as, “Act to embody a variety of virtuous or good character traits and to avoid vicious or bad character traits.”. The opposite of a virtuous trait is a vice, meaning that for every good trait there is an equal bad trait that people/organizations can have. Uber and Lyft have shown many bad characteristics in their actions that a virtue theorist would find unethical. One of the main vices that Uber and Lyft showed was greed. Their entire motivation for not categorizing their drivers as employees were that they wouldn’t be able to afford them and therefore would not make a large enough profit. Both companies went as far as to threaten to leave the state. Uber and Lyft showed little compassion when making proposition 22 and showed even more greed and selfishness when coming up with the plan. For the people who wanted to become employees for the benefits and protection, Uber/Lyft gave these people very little compromise and few benefits that are next to impossible to qualify for. The one virtue that Uber and Lyft have displayed was justice. Although they were stubborn throughout the whole process, they did in the end let the drivers and the people decide what was the right thing to do. They let their workers and customers decide and it ended up working out for them. However, although they did show some virtues, the leadership and decision making qualities overall showed greed and selfishness. Their compromise in proposition 22 for the drivers was very little and left many drivers abandoned with no protection or benefits. Uber and Lyft showed very few virtuous traits and their qualities represent unvirtuous leaders. 

Justified Ethics Evaluation

In my opinion of the case, Uber and Lyft acted aggressive and selfish, but nothing impermissible. From the beginning, Uber and Lyft advertised this job as a ‘side hustle’ and not a full-time job with the same description as an employee. This case would not have been so controversial if Uber and Lyft didn’t have the support of their drivers. If the people that the government is trying to protect(the drivers) do not want these benefits and employee classification, then why should the government be fighting for them? The independent contractors working for Uber and Lyft indeed deserve job protection, and some benefits. However as long as the drivers know what they are getting into before they begin, then I don't see the problem with Uber and Lyft withholding these benefits for the overall profit of their company, especially if the drivers don’t want these things.

When the media and the public found out about this case, immediate outrage took place. People were upset that Uber and Lyft were fighting back so hard against the government and because the government was claiming they are doing things in the best interest of the drivers, people sided with the state. This was not the case however, drivers should be able to choose how they wanted to be treated and for the most part, they were pleased with their working situation. From my interactions with Uber and Lyft drivers, they seem very happy and sometimes even gloat about their working situation. Uber and Lyft showed many aggressive and bad qualities in this case, but I do think that they were justified in fighting back so hard. Their company couldn’t afford to operate in the environment the government wanted and was most likely confused. This issue had never come to their attention by their workers, so they saw no problem and in reality, I don’t think I see one either.

Action Plan

The current issue for Uber/Lyft is some of the drivers feel they are being cheated out of benefits and certain protections that they feel they deserve. Uber and Lyft drivers feel as though they should be considered employees and they want to be employees. This problem is challenging however because not all of their drivers feel the same way or want the same thing. Uber and Lyft are also unable to pay for all of their drivers to become employees. Based on the situation that Uber/Lyft are in, there are action steps that they can take to get them out of or resolve their conflict of interest. 

Step one of the action would include the following proposition 22 for at least six months. Their proposition 22 was the agreed-upon arrangement between Uber, Lyft, the public, and the drivers and should be followed for a certain period before going into step two. Step two would involve resolving this action plan to make their benefits, for full-time drivers, more attainable, and more rewarding. Uber’s and Lyft’s agreement in proposition 22 was to offer benefits for qualifying drivers, but these qualifications are met by a very small number of drivers. Surely Uber and Lyft would be able to offer committed drivers, who want the employee status, and employee benefits. The number of drivers who want this is reportedly small for Uber and Lyft, so if the number is small they should be able to offer this without losing too much money. The public would love to see this because it is two large companies, going out of their way to see that they are taking care of their employees. Thus, Uber and Lyft could see a rise in stock value and therefore maximizing their stockholder value. Step three would be more situational and would depend on what other drivers and other states want. Step three includes not giving these options to other states until they reach resistance from their drivers of that state. Although their stock may rise for this plan, their profits may suffer a small loss. This wouldn’t be a large loss and with more innovations from the Uber and Lyft teams, they will be able to recover. However, releasing this plan to ever state all at once may be too much money and complications for the two companies to handle at one time. So, step three would be the gradual integration of steps one and two, into the other states when requested upon by drivers. This would forgo the many legal fees they would have to repeat from the past case, which was high, and immediately look like a caring company in the eyes of the public. Making a good impression on the people who ultimately buy the companies stock, is always a wise thing to do, especially with the increase of companies going into the same business. 

Uber’s current mission statement focuses on bringing transportation to everyone, everywhere; Lyft’s mission statement is similar but adds to the improvement of customer’s lives. None of their statements focus on the drivers and this should be addressed. The new mission statement I propose for both companies would be; “Provide safe transportation for everyone, everywhere, looking after everyone in the car.”. This mission statement improves the original by adding attention to everyone in the car, not just passengers. Core values that will come from this statement will be safety, accessibility, affordability, and accommodation. Safety must always be mentioned because Uber and Lyft must guarantee their customers will be safe when riding with them. Accessibility because from the start, these two companies have revolved around how anyone from anywhere can order a driving service. Affordability is similar to accessibility because they want anyone to be able to afford their service to make the most profits. Accommodation is new and needs to be mentioned because they want all their customers and drivers to feel as though they are being heard and can be listened to if they have any problems. Uber and Lyft would reshape their core values and focus on making sure everyone in the car feels safe and happy. 

Everything following the action plan steps and the new mission statement and core values will fall into place. New drivers will be brought into the company knowing that they could receive employee benefits for acting as though a full-time employee would. Uber and Lyft will need to focus on having conversations with employees after the fact as well. To ensure that they do not need to spend money on a lengthy lawsuit and to make sure that they are not exploiting their workers. They could also hire a third-party company to come in to perform an ethical review and employee evaluation to find out what they are doing well or what they could expect to happen if they continue one of their practices. It is important that Uber and Lyft follow good ethical practices, not just for the face of the company, but to ensure they will continue to make profits. Expensive lawsuits and ballot questions are not how any company wants to continue business and if they want to avoid this in the future then following these steps will help to prevent this.

References

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Feiner, L. (2020, August 10). Judge grants preliminary injunction requiring Uber and Lyft to stop classifying drivers as contractors. Retrieved November 29, 2020, from https://www.cnbc.com/2020/08/10/judge-grants-preliminary-injunction-requiring-uber-and-lyft-to-stop-classifying-drivers-as-contractors.html

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