Uber and the Ride-Sharing Industry: Overview.

Introduction

Uber is a ride-sharing service that connects drivers and passengers through its mobile phone app. Its best-known service, UberX, enables drivers, typically without commercial driver's licenses, to provide rides to passengers in their personal vehicles.

Following its launch in San Francisco in 2010, Uber grew rapidly in major cities in the US and around the world, attracting significant media attention and political controversy along the way. Two major controversies involve the regulation of Uber and other ride-sharing companies, and the classification of Uber drivers. Proponents of Uber argue that it is a technology company and not a transport company, and should not be subject to the same regulations as taxi companies. They claim ride-sharing services provide greater flexibility for drivers and lower prices and shorter wait times for passengers. Critics of Uber argue that it has an unfair advantage over taxi drivers. Others argue that Uber should classify its drivers as employees rather than independent contractors, and offer them employee benefits.

Understanding the Discussion

Independent contractor: A person offering services directly to the public rather than as an employee of a larger company; the customer has the right to control or direct only the result of the work, and not what is to be done or how it will be done.

Ride sharing: When drivers use their personal vehicles to pick up passengers, often for a fare. The term has been used to refer to companies like Uber and Lyft, as well as carpooling services.

Sharing economy: System in which individuals can sell their goods or services directly to other individuals, typically through a digital marketplace or platform. Also known as the on-demand economy, gig economy, and peer-to-peer economy.

History

The modern ride-sharing industry began in the early 2010s, and expanded rapidly throughout the US and the world. Uber began operations in 2010 as a service for professional drivers with high-end cars, and introduced UberX, its lower-cost service and the one that has attracted the most attention and controversy, in July 2012. Its main rival, Lyft, began operations in San Francisco in mid-2012. By 2015, Uber had more than 162,000 drivers, and had operations in many US cities as well as sixty countries around the world, including France, England, Canada, Australia, India, and China; Lyft had over 60,000 drivers throughout the United States.

The main way in which Uber and Lyft differ from traditional taxi services is in the use of digital technology to connect drivers and passengers. Both drivers and passengers sign up to use the Uber app. Drivers for UberX generally do not have a commercial driver's license, and they use their own personal vehicles for Uber trips; they are not directly employed by Uber. Uber's requirements of drivers vary by city, but drivers generally must pass a background check, complete a city-knowledge test, and drive a car that meets a quality inspection and is less than a certain number of years old. Passengers request a ride through the app, which sends their location via GPS to drivers, who can choose whether or not to accept the request. The rates are set by Uber and depend on the distance and time of request. Uber also uses a dynamic pricing model, which means that rates increase along with demand. Passengers pay for their trips with a credit card through the app; no money need change hands on the ride. Uber then keeps anywhere from 5 to 10 percent of the fare, giving the rest to the driver. After the ride, both drivers and passengers may rate one another, and the ratings provide useful information for future trips for other drivers and passengers.

Uber and Lyft are often cited as exemplars of the sharing economy, in which individuals can sell goods or services directly to other individuals. eBay is perhaps the earliest example of such a marketplace, but a host of other platforms and services emerged over the years, including Airbnb for accommodation, Postmates for delivery, and TaskRabbit for a wide variety of chores and tasks. The "sharing" part of the sharing economy has to do with the monetization of personal assets (such as one's car or apartment) for commercial use without having to go through a third party (such as a traditional taxi company or a hotel). The sharing economy was valued at $26 billion in 2013, and by the mid-2010s the industry was predicted to quickly grow to more than $110 billion.

Uber became one of the biggest success stories of the sharing economy: it was valued at over $50 billion in July 2015, with over $5 billion in venture capital funding. The company's success had a clear impact on the transportation industry—the average number of trips per taxi in San Francisco, where Uber first started, dropped from over 1,400 a month in March 2012 to barely over 500 a month in July 2014. And in New York City the number of Uber rides grew from an estimated 300,000 in June 2013 to 3.5 million in June 2015, while the number of yellow cab rides dropped by 2.1 million in the same time. The Economist suggested that while about 35 percent of the growth in Uber rides in New York City came from an increase in market demand, about 65 percent replaced trips that would otherwise have been made in taxis. According to Uber, the number of UberX drivers in New York City more than doubled between September 2014 and September 2015, but average gross fares per hour still increased, which points to growing demand for UberX services in the city.

The impact of Uber on the taxi industry led to a number of protests in major cities in the United States and around the world. In 2014 France banned UberPop, Uber's low-cost service in Europe, and two UberPop executives were charged with providing taxi services without a license, which is a criminal offence. Cab drivers pressured Transport for London (TfL), the transport regulator in London, England, to restrict Uber under fare metering laws. TfL considered new regulations for the ride-sharing industry, including proposals to require passengers to wait at least five minutes for a ride. Between 2013 and 2016, Uber operated in China thanks to a lack of nationwide regulation; in July 2016, the Chinese transportation ministry finalized rules that would both consider ride-sharing as legally separate from taxis but also stipulate requirements for criminal and driving records, vehicle safety, and minimum fares. In August 2016, Uber China announced a $35 billion merger with its competitor Didi Chuxing, which also caused controversy, as neither company had filed for approval from the Chinese government.

Uber also faced regulatory challenges in the United States and been the subject of multiple citations and lawsuits across the country. Two of the more controversial challenges involve the regulation of Uber and other ride-sharing services and the classification of ride-sharing drivers.

One challenge is whether Uber should be considered a transport company and be subject to the same regulations as traditional taxi companies, or whether it should be considered, as it argues, a technology company and subject to different regulations. As Uber grew rapidly through the 2010s there was no consensus among officials across the United States on how to regulate Uber and other similar services. Some jurisdictions developed new regulations (with the California Public Utilities Commission being the first regulator to create and regulate the category of transportation network companies), some jurisdictions required Uber to be subject to the same regulations as taxi companies, and others had no regulations for ride-sharing services.

Another challenge has to do with whether drivers should be classified as independent contractors or employees. Uber argues that its drivers are independent contractors who sign up to use the app, and not employees of the company. This feature is characteristic of the sharing economy; people who sign up to rent their apartments through Airbnb, for example, are not considered employees of Airbnb. On the other hand, Uber sets minimum standards for prospective drivers and their cars, sets rates for trips, and may deactivate a driver's account if their star rating falls below a certain threshold. In May 2015, the Florida Department of Economic Opportunity ruled that one Uber driver should be considered an employee of the company and as such qualified for unemployment insurance, though the decision was later reversed. In June 2015 the California Labor Commission similarly ruled that Uber should reimburse a driver for her driving expenses, noting that the company was heavily involved with drivers beyond simply providing an app to connect them with passengers.

In September 2015, a federal judge approved the class-action status of a suit filed by Uber employees in California, seeking reimbursement for mileage and tips and challenging their classification as independent contractors rather than employees. As employees, Uber drivers would be eligible for minimum wage, Social Security and Medicare tax payments, unemployment insurance and health insurance, as well as other employee benefits such as paid sick leave. Rulings in several other states, however, supported the independent contractor classification of Uber employees.

Safety has become a paramount concern for ride-hailing services, particularly amid news of violence crimes being committed by drivers and riders alike. While the companies run criminal background checks, critics have alleged that they do no go far enough, citing the fact that ride-sharing companies do not fingerprint drivers to verify their identity. In May 2016, both Uber and Lyft vowed to cease operations in Austin, Texas, after 56 percent of citizens voted against Proposition 1, which would have repealed a fingerprinting ordinance and allowed the companies to self-regulate, and which the companies themselves supported heavily. They argued that compliance would hamper their ability to hire drivers expeditiously and that the databases used for checking fingerprints were not current. Other major US cities including Atlanta, Chicago, Houston, and Los Angeles had or were considering passing such laws as well. (Texas approved a statewide law on ride-sharing—without fingerprinting requirement—in 2017, leading Uber and Lyft to return to Austin that year.)

Similarly, in December 2016, a semiautonomous Uber vehicle ran a red light in San Francisco, where the company lacked a state-required testing permit, and the city demanded that Uber shut down its self-driving car service. Although the incident was attributed to the human monitor's error, it called into question the vehicles' design and the company's commitment to passenger safety.

Discrimination allegations have also plagued Uber. In May 2016, the company settled out of court over the issue of drivers refusing to accept blind passengers with guide dogs. Later that year, an National Bureau of Economic Research study found that drivers in Seattle and Boston consistently made black riders wait longer or canceled their trips. Then, Uber experienced internal turmoil in early 2017 when a former employee went public with her experience of repeated sexual harassment and human-resources cover-ups. Kalanick hired former attorney general Eric Holder to conduct an independent investigation, after which twenty employees were fired for sexual harassment and discrimination. Because of the succession of scandals, investors demanded Kalanick's resignation as CEO, which he did in June 2017.

In August 2018, New York became the first US city to impose a cap on the number of ride-sharing vehicles allowed in the city, responding to complaints of increased traffic congestion, as well as requiring that ride-share drivers earn at least $17.22 per hour. The pay minimum came about following a study finding that about 40 percent of ride-share drivers in New York have incomes low enough to qualify for Medicaid, while 18 percent qualify for food stamps. Also in 2018 Uber's autonomous, or self-driving, car program brought negative attention when it resulted in a pedestrian death in Arizona. Later that year the company agreed to a $148 million settlement in a case involving a major data breach and cover-up in 2016. Nevertheless, Uber continued to grow in both areas serviced and investments.

Uber had its initial public offering (IPO) on the New York Stock Exchange (NYSE) in May 2019, before it had even achieved profitability. Its market capitalization was $75.5 billion, with a $45 dollar share price, though the price dropped in the first day of trading. The company's financial figures were widely considered to be damaged by ongoing controversies, including over regulation and driver classification. Indeed, the IPO was preceded by driver strikes and protests. However, Uber earned a victory over its opponents later in May 2019, when the US Labor Relations Board ruled that ride-share drivers should be considered independent contractors rather than employees.

Despite that ruling, in September 2019 California approved a labor bill that would force Uber, Lyft, and similar companies to classify drivers as employees, effective in 2020. Both Uber and Lyft stated they would not make such a reclassification following California's passage of the bill and would fight the issue in court. Meanwhile, other jurisdictions continued to enact or explore various ways to regulate the sharing economy, creating further challenges for the now well-established ride-sharing industry. Notably, in November 2019 the City of London decided not to renew Uber's license to operate there. That same month, Chicago and Seattle passed taxes or fees affecting ride-sharing, while New Jersey fined Uber $640 million over its classification of drivers as contractors. In 2022, Uber agreed to drop its appeal of the New Jersey case and pay the state $100 million in back taxes for misclassifying some 91,000 Uber drivers in the state as independent contractors.

The New York Supreme Court ruled in 2021 that Uber drivers were employees rather than independent contractors, and were thus able to file for unemployment insurance during the COVID-19 pandemic. Similar rulings designating Uber's drivers as employees rather than independent contractors in the Netherlands and the UK that year caused some industry observers to fear that Uber's business in the European market could be at risk.

Uber and the Ride-Sharing Industry Today

Debate over the classification of Uber drivers as independent contractors or employees continued in the mid-2020s. In January 2024, the US Labor Department under President Joe Biden issued the Final Rule, Employee or Independent Contractor Classification Under the Fair Labor Standards Act. The Final Rule went into effect that March and replaced the 2021 Independent Contractor Status Under the Fair Labor Standards Act with guidance for determining whether a worker was an employee or an independent contractor. Observers noted that the rule made it harder for ride-share companies like Uber to categorize their drivers as independent contractors instead of full-time employees, but anticipated that the Final Rule would be tested by court cases. Labor advocates applauded the rule change. Uber, Lyft, and DoorDash initially appeared confident that the rule would not force them to reclassify their drivers as employees, but business groups expressed concern that the new rule caused uncertainty for the companies because it was not yet known how stringently the Labor Department would enforce it.

Another source of debate regarding Uber and the ride-sharing industry in the 2020s concerned advertising and user privacy. In 2022, Uber announced the launch of its targeted ad system, which allowed advertisers to place in-app ads based on a user's recent travel history and precise geolocation. Uber said that its targeted ad system allowed its advertisers to reach consumers while they are making purchasing decisions during their Uber rides. The company stressed that while advertisers could access aggregated user data, they could not access individual user data and individual users could opt out of targeted ads. Critics of Uber's targeted ad system argued that it still threatened users' digital privacy.

By the end of 2022, Uber began offering free in-car tablets to its drivers. While the company touted the tablets as a way for drivers to make more money for the same number of trips, critics said the tablets were another way for the company to spam riders with advertising.

These essays and any opinions, information, or representations contained therein are the creation of the particular author and do not necessarily reflect the opinion of EBSCO Information Services.

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