When a few taps on the smartphone screen can summon a real-life person to your door, it’s easy to feel like there’s a bit of magic in the air.
That’s what makes on-demand services one of the most intriguing frontiers in business. Whether you want a ride to the airport, a bag full of groceries, or someone to walk the dog, scrappy new companies are using the proliferation of smart mobile devices to connect demand and supply in a hyper-efficient way.
And in this new world of digital labor, it’s pretty close to gospel that the companies making those connections are simply middlemen linking independent contractors with people who will pay for their services.
“This economy facilitates new markets by matching providers who have specific assets or skills with the people who need them, dramatically expanding the possibilities for private commercial exchange of services between consenting entities,” NYU professor Arun Sundararajan wrote in Wired.
But not everyone is buying into that utopian vision. A prime example can be seen in courtrooms from Boston to San Francisco, where one of the fastest-growing companies in the tech startup world is being sued for allegedly mistreating the people who provide its services.
The target in these lawsuits is Uber, the maker of super-slick smartphone apps that can dispatch, track, and seamlessly pay for a ride in taxis, town cars, or everyday commuter vehicles.
Leading the assault is Shannon Liss-Riordan, a Boston-based lawyer who specializes in suing companies that give short shrift to workers. For all of the company’s next-wave technological prowess, Liss-Riordan contends that Uber is relying on some very old-school tactics to keep its costs down—treating people as independent contractors when they should be paid as employees.
Uber is fighting those allegations, which are part of a larger lawsuit that also contends the company has improperly held onto tips that should be flowing to drivers. It could be months before the issues get fully decided by a federal judge, but if the former Uber drivers represented by Liss-Riordan win, there could be huge implications for technology companies hoping to build a business around an on-demand, unattached labor force.
“There’s this real struggle that’s going on between companies of all types—I would say especially these startup technology companies who are trying to define themselves as being something different—against these employment protections that have been put in place over decades in order to protect workers,” Liss-Riordan says. “They are just trying to distance themselves from it because it’s a way to save money.”
This isn’t the first time Liss-Riordan has gone after a company that claimed it was merely marshaling a bunch of independent contractors. She’s pursued and won similar claims against cleaning businesses, which said they were selling expensive franchises to house cleaners, and strip clubs, which charged dancers big fees to step out on stage. And her firm is going after the old-line cab industry, filing a lawsuit that alleges drivers have similarly been misidentified as contractors.
She’s also among the lawyers who have spent years arguing with FedEx in court over the company’s policy of classifying some delivery drivers as independent contractors who must pay for day-to-day expenses. FedEx has won some of those claims and settled others, but Liss-Riordan prevailed last year in a federal case in Massachusetts and is now seeking reimbursement for the former drivers’ costs.
“Just like Uber’s trying to claim it’s a technology company, FedEx tried to claim that it was not a package delivery company—it was a logistics operation that connects people who want to send packages to people who want to recieve packages,” Liss-Riordan says with a laugh. “OK, well, that looks like a package delivery company to me, and it looked that way to the court too.”
Since its founding in San Francisco in 2009, Uber has expanded to 100 cities around the world and attracted the financial backing of institutional powers like Goldman Sachs and Google Ventures, the latter of which led a $258 million investment last summer. If you believe the latest anonymous reports, Uber is considering raising even more money, with investors perhaps prepared to value it at multiple billions of dollars.
That’s a stunningly quick ascension for a private company, one that illustrates the growth potential in the current era of mobile computing. With smartphones increasingly being carried in the pockets and purses of people around the world, entrepreneurs are finding it possible to create companies that can spread across the physical map with the kind speed previously seen only on the Internet.
That kind of growth also results in some interesting conflicts. Uber and its competitor, Lyft, have probably exemplified that friction better than anyone because they are entering a highly regulated industry, typically without getting permission. That’s led to the now-familiar battles with local regulators and protests from established competitors, which tend to happen just about everywhere these companies enter a new market.
The employment law questions could add another troubling angle for Uber and its competitors.
