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The recent rumble surrounding Uber might take its toll on the start-up based on the ‘sharing economy’ model.
Following the California court ruling aimed at only one contractor of Uber, Ann Berwick, it is interesting to see how Uber’s business model will stand or fall.
Ann Berwick brought up the case that drivers working for Uber should be given the legal status of employee rather than be an independent contractor.
To some extent, it makes sense. The ruling of the California instance agreed. After all, Uber is an employer like all others: drivers do pick their working hours, yet Uber gets to have the upperhand on the terms of driver’s employment. Independent contractors rely on Uber to find the customers, to regulate the tiniest details of how customers will be served.
Uber sets the fare, Uber dictates locations and times, Uber sets the standard for how the cars of the independent contractors should look. And it is Uber that pays drivers 50,000 dollars yearly (before taxes and expenses are deducted) if there are 60 rides weekly on the said driver’s schedule.
Analysts look at the California state court ruling as a potential factor in changing the way sharing-economy companies work. Nonetheless, Uber’s value is unlikely to be inflicted by the ruling.
Naturally, the decision of the California state court was appealed by the company. However the appeal plays out, investors and analysts alike look confident that Uber will be undented. And with Uber, all other companies that rely on the vast network of independent contractors.
Surely, independent contractors bring a cohort of benefits to emerging start-ups. Yet, once these grow, it would perhaps be wiser that they switch to regular employees who can ensure the predictability of the company in terms of products or services.
It wouldn’t turn out too harsh either if Uber changed its business model. Now valued at a staggering 40 billion dollars, the emerging start-up has grown into a swan.
If it moved from contractors to employees, the costs related to worker’s compensations or Social Security or any other costs coming with the legal status of employee would surely be offset by the lower wages.
One analyst mirrors the majority’s view. James McQuivey of Forrester Research stated:
“This problem can be routed around”.
McQuivey is certain that at least in the foreseeable future Uber’s valuation would suffer no hit due to the California court ruling. As mentioned before, Uber is valued at over 40 billion dollars, which makes the company the richest valued company in the U.S.
Even if the appeal plays out against Uber, the forecasts look sunny. With 22,000 drivers in San Francisco, Uber reiterated that the initial ruling solely applies to one driver.
Admittedly, the ruling could set a precedent. If there is a number of drivers who start claiming retroactive payments from the company and initiate an increasing number of lawsuits, the situation might become more complex.
Yet, there is little reason to fret. Jeremy Levine of Bessemer Venture Partners explained that while the precedent poses a risk, there is little legislators do to hurt consumers.
Given Uber’s business model, consumers and better value are at the core of the running. Thus, it is expected that whatever ensuing legislation or regulation comes about, it will have consumers’ interest at its heart.
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