UBER isn’t merely a digital middleman linking passengers and
drivers, but rather an actual transportation service, the European
Court of Justice ruled on Wednesday, in a pivotal move that may spill
over into the broader ride-hailing industry and the future of the
on-demand economy.
The decision opens the door for
European cities to impose stricter regulations on the ride-hailing
company as a taxi operator. That means Uber will have to abandon
services, such as UberPop, the equivalent of UberX in the United States,
that use non-professional drivers and instead abide by local rules
governing taxis.
Uber said it operates in most European
markets with certified drivers and won’t change things much for them.
But some experts say the company and smaller competitors that see
themselves mainly as digital platforms may soon be faced with new,
government-imposed obstacles, which may stymie their growth.
“The
ruling certainly dampens the enthusiasm that any platform has for
offering transportation service in Europe,” said Arun Sundararajan, a
professor at New York University’s Stern School of Business. “European
regulators don’t seem to be willing to adapt their structures to
accommodate new digital business models.”
Uber is perhaps
the most prominent company in the on-demand economy, with a valuation
of $68 billion and operations in 600 cities worldwide. This new type of
business model relies on the ubiquity of cellphones, and allows
consumers to summon a broad array of services at the touch of a button,
from local transportation to food delivery, housework and home repair.
The on-demand economy has transformed the way consumers seek out
services and has freed start-ups from the substantial costs of paying a
vast network of employees. It’s also created a market for workers who,
for instance, need a flexible work schedule or supplemental income.
But
the on-demand economy has also allowed firms to circumvent
long-standing regulations and to avoid the responsibilities generally
associated with employers, like providing steady pay with benefits.
In
recent months, the British delivery service Deliveroo, and the
California-based home rental platform Airbnb, have also drawn scrutiny
in Europe. A British tribunal is examining whether Deliveroo workers
should be granted employment rights, and the Paris city council ruled
that short-term renters on Airbnb must first register their properties
with the town hall.
Tech industry critics have argued
that powerful platform companies, such as Uber, Lyft and TaskRabbit have
skirted their responsibilities to the public and to their workers.
“Jurisdictions are becoming more assertive and realising they don’t have
to take Uber the way it presents itself,” said Tom Slee, author of the
book “What’s Yours Is Mine,” a critique of the sharing economy. “I think
it’s a very healthy step towards a better relationship between the law
and technology companies, and particularly Uber. It’s going to be a
boost to efforts to get gig economy companies to recognise employment
rights,” he said.
While the ruling only affects markets
in the European Union, it could prompt regulators elsewhere to take a
closer look at the issue, as they evaluate what to do about contract
work, experts say.
Some see a missed opportunity for
Europe. Sundararajan said the court could have urged parliament to chart
a new path for ride-hailing services, recognising that the classic
employer-employee relationship might not work for innovative business
models. What’s more, for European cities that have capped the number of
professional drivers or that mandate costly requirements for driver
certification, the ruling could harm consumers seeking high-quality,
low-cost rides, he said. Tighter regulations could also adversely affect
other ride hailing start-ups, he added, which lack the resources to
shoulder additional costs.
For European cities that have
capped the number of professional drivers or that mandate costly
requirements for driver certification, the ruling could harm consumers
seeking high-quality, low-cost rides, he said. Tighter regulations could
also adversely affect other ride hailing start-ups, he added, which
lack the resources to shoulder additional costs.
While
the ultimate consequences of the Uber ruling remain unclear, industry
observers say governments have yet to address the massive societal shift
toward independent work, and away from the traditional full-time
employment model.
According to a McKinsey study published
last year, 20 to 30 percent of the working-age population in the United
States engage in some kind of independent work. But industry observers
say that Americans are effectively penalised for working outside a
typical 9-to-5 job arrangement. “For a country that has such a strong
narrative about supporting entrepreneurship, our tax system and our
labour market don’t deliver on that promise or that narrative,” said
Diane Mulcahy, author of “The Gig Economy.”
Mulcahy
emphasised that platform companies like Uber make up only a fraction of
the gig economy, which can encompass consultants, independent
contractors, freelancers, part-time and on-demand workers.
She
highlighted the larger question that the Uber ruling did not directly
address but remains of significant importance: How will societies secure
benefits for workers historically tied to employment, like health
insurance, workers’ compensation, vacation and sick leave.
“The
day of reckoning is still coming,” she said. “We still have to grapple
with this question of how do we do deal with a workforce that isn’t made
up of full time employees and full time jobs.”
Bloomberg/The Washington Post Service