December 26, 2017
Blow to Uber in Europe as top court rules its a transport service
Europe’s top court has provided the final verdict on a multi-years legal challenge brought by EU taxi associations to Uber’s claim that it’s just a technology platform — with the CJEU today ruling it’s a transport service.
The judgement means Uber must comply with individual Member States’ transportation regulations, and cannot claim its p2p ride-hailing services are only governed by less restrictive EU-wide ecommerce rules.
In its ruling the court writes that Uber’s “intermediation service… must be regarded as being inherently linked to a transport service and, accordingly, must be classified as ‘a service in the field of transport’ within the meaning of EU law”.
“Consequently, such a service must be excluded from the scope of the freedom to provide services in general as well as the directive on services in the internal market and the directive on electronic commerce. It follows that, as EU law currently stands, it is for the Member States to regulate the conditions under which such services are to be provided.”
As we reported earlier this year, an influential advocate general opinion had indicated the decision would not go Uber’s way — with the CJEU advisor stating that Uber “exerts control over all the relevant aspects of an urban transport service”.
Responding to the court’s final verdict today, an Uber spokesperson emailed this statement: “This ruling will not change things in most EU countries where we already operate under transportation law. However, millions of Europeans are still prevented from using apps like ours. As our new CEO has said, it is appropriate to regulate services such as Uber and so we will continue the dialogue with cities across Europe. This is the approach we’ll take to ensure everyone can get a reliable ride at the tap of a button.”
The original legal challenge was filed in 2014 by a professional taxi drivers’ association in Barcelona — seeking a declaration from that court that the activities of Uber’s Spanish unit amount to misleading practices and acts of unfair competition. In order to determine that matter, the court decided it needed a judgement on whether the services provided by Uber are transport services, information society services or a combination of both. Hence the case being referred to the CJEU.
While the court’s verdict is certainly a blow to Uber’s expansion ambitions in Europe, and will feed back into other legal challenges across the region, the company does already operate under transportation regulations in some European markets, such as London in the UK. (Albeit, it has currently had its license to operate in the city withdrawn for unrelated reasons.)
So Uber’s contention is the legal verdict will not change how it operates in most EU countries.
The ruling also only pertains to Uber’s peer-to-peer ride-hailing services — which have long faced out-and-out bans in multiple European markets, such as France, Spain and Belgium.
In some of these EU markets Uber has gone on to relaunch professional services (i.e. non-p2p ride hailing, using licensed drivers) — including in Berlin and Madrid — apparently complying with local transport rules.
Although in Spain, at least, local taxi associations are still striking and protesting at the presence of Uber and other ride-hailing firms, claiming that rules which are supposed to limit the number of taxi licenses to operate are being broken.
What’s clear now is the CJEU’s decision cements the need for Uber to work with local authorities and regulators in each and every EU market and city where it operates. It also closes the door on Uber being able to restart the engine of p2p ride-hailing expansion in Europe.
So any faint hope the company might still have entertained of being given a legal green light to speed down a digital EU fast-lane and overtake local transport interests is gone.
Even as taxi association blowback and regulatory and political pressure have already pushed it to conform to existing transport rules in many EU markets.
While in others, ‘hostile’ regulatory climates — as Uber has characterized it — have resulted in it pulling its service altogether. Though, more likely, it has just done a cost-benefit analysis and determined that a small market — like Denmark — is not worth its while to put in time and lobbying cash to try to flip the regulatory regime to something less restrictive.
The company may be hoping that the legal clarity provided by the CJEU’s ruling on ride-hailing apps pushes cities and local authorities to accelerate reforms of existing rules to more generously accommodate the new generation of app-based players. Though existing taxi associations will also be pushing in an equal and opposite direction against any changes they don’t like.
New CEO Dara Khosrowshahi does represent a welcome break with the old Uber and its aggressive style of business — and has signaled a desire to work with local lawmakers, as well as apologizing for Uber’s past mistakes, and managing to sound genuinely contrite and constructive.
But the reality for the still profit-less company is that its operational costs only look set to rise from here on in, as legal rulings unpick exploitable loopholes — at the same time as regulatory roadblocks are cemented in place to close down its old rapid expansion playbook. And as the cost of still emerging liabilities come home to roost.
In the UK, for instance, Uber has just lost its first appeal against an employment tribunal verdict that ruled a group of its drivers are workers, not self-employed contractors — and are therefore entitled to benefits such as holiday pay. Opening the company to additional legal challenges from other drivers.
Uber has said that if it has to fund such benefits for all ~50,000 of its local drivers it would cost its UK business “tens of millions” of pounds.
The UK government is also looking at changing employment law to reflect “modern” gig economy platform work — and will clearly be keen to protect its tax takings which have been dented by an algorithmically accelerated boom in ‘self-employment’.
“Uber does not charge VAT on the basis that it is for the self-employed drivers who supply the services to register with HMRC to charge VAT,” notes Rachel Farr, senior employment lawyer at international law firm Taylor Wessing, commenting on the implications of the ruling in a statement.
“Now that the ECJ has said that Uber itself is a transportation company, that will put further pressure on Uber to charge VAT. This would immediately increase the cost of fares by 20%, even before the extra costs such as the minimum wage and paid holiday if the drivers are treated as workers.”
Add to that politicians in Europe and elsewhere appear increasingly willing to give tech firms a public hosing — whether it be over tax, safety or wider societal problems being exacerbated by their products — and there’s a sense that the tide of public opinion is no longer going to be swayed just because you have a shiny app.
Even less for Uber whose reputation has been shredded in recent years by a string of corporate governance and internal scandals — including its disclosure last month of a data breach in 2016 affecting 57 million of its users and drivers. Instead of informing regulators when it learnt about the breach, Uber’s then management sought to conceal it by paying off the hackers.
That decision is yet another that seems likely to be an expensive one for Uber — both financially and, perhaps more importantly, in the eyes of the regulators and lawmakers which it increasingly needs to have on side.
Its competitors are certainly wasting no time in painting themselves as ‘constructive disruptors’ and jockeying for favor as more reliable local partners for cities to work with.
Read more: https://techcrunch.com/2017/12/20/blow-to-uber-in-europe-as-top-court-rules-its-a-transport-service/
March 5, 2018
MIT study shows how much driving for Uber or Lyft sucks 0
by MeDaryl • Cars • Tags: car sharing, gig economy, Lyft, Mark Tluszcz, platforms, sharing economy, Uber, United States, workers rights
Ride-hailing giants Uber and Lyft are delivering pitiful levels of take-home pay to the hundreds of thousands of US independent contractors providing their own vehicles and driving skills to deliver the core service, according to an MIT CEEPR study examining the economics of the two app platforms.
The report catalyses the debate about conditions for workers on gig economy platforms, and raises serious questions about the wider societal impacts of tax avoiding, VC-funded tech giants.
The study, entitled The Economics of Ride-Hailing: Driver Revenue, Expenses and Taxes, and which was carried out by the MIT Center for Energy and Environmental Policy Research, surveyed more than 1,100 Uber and Lyft ride-hailing drivers combined with detailed vehicle cost information — factoring in costs such as fuel, insurance, maintenance and repairs — to come up with a median profit per hour worked.
The upshot? The researchers found profit from ride-hail driving to be “very low”. On an hourly basis, the median profit was $3.37 per hour, with 74% of drivers earning less than the minimum wage in the state where they operate.
They also found a median driver generates $0.59 per mile of driving but incurs costs of $0.30 per mile; and almost a third (30 per cent) of drivers were found to incur expenses exceeding their revenue or to be losing money for every mile they drive.
The research also looked at how ride-hailing profits are taxed, and suggests that in the US a majority of driver profits are going untaxed owing to how mileage deduction is handled for tax purposes — suggesting Uber and Lyft’s business are denuding the public purse too.
From the study:
The authors add that if their $661/month mean profit is representative then the US’ Standard Mileage Deduction facilitates “several billion in untaxed income for hundreds of thousands of ride-hailing drivers nationwide”.
So what does the study tell us about the ride-hailing business model? “It tells us that it’s a shitty place to work,” says Mark Tluszcz, co-founder and CEO of Mangrove Capital Partners who has described the gig economy model as the modern day sweatshop, and says his VC firm made a conscious decision not to invest in gig economy companies because the model is exploitative.
“It tells you that it’s a great place if you’re a company. It’s really a poor place to be an employee or be a worker.”
The exploitative asymmetry of ride-hailing platforms comes because workers have a certain amount of fixed costs but the platform intermediary can just hike its commission at will and lower the service cost to the end user whenever it wants to increase competitiveness vs a rival business.
“At the end of the day there are a certain amount of fixed costs [for drivers],” says Tluszcz. “You have to buy a car, you have to get insurance, you have to pay for gas… And if you as an intermediary, which those platforms are, are taking an increasing amount of commission — 10%, 15%, now 20 in most of their markets — and then you’re using the price of the trip as a way of beating your competitor… then you as a driver are sitting there with basically all of your fixed costs and your income is going down and frankly the only way to cover your costs is to spend more hours in the car.
“Which is frankly what’s clearly illustrated by this study. These people have to spend so much time to cover their costs when you break it down to an hourly revenue, it’s a pitiful amount. And by the way you have no social coverage because you’ve got to take care of that yourself.”
At the time of writing neither Uber not Lyft had responded to a request for comment on the MIT study. But an Uber spokesperson told The Guardian the company believes the research methodology and findings are “deeply flawed”, adding: “We’ve reached out to the paper’s authors to share our concerns and suggest ways we might work together to refine their approach.”
Tluszcz was quick to dispatch that critique. “MIT is not some second tier organization that did this study,” he points out. “For me that’s a reference moment when MIT says look, there’s an issue here… There’s something wrong in the model and we can tolerate it for a period of time but ultimately we’re creating this lost generation of people.”
“These business are built on situations in the market that are not realistic,” he tells TechCrunch. “They took advantage of a hole in legislation… Governments let that happen. And it made all of sudden services cheaper. But people have to eat. People have to live. And ultimately there’s only 100% of a cake.
“Cabbies in the UK are not millionaires; they make a decent living. But they make a decent living because there’s a certain price-point to offer the service. And in every industry you have that. There is a certain fair price point to be able to live in that industry… And clearly right now, in the ride-sharing businesses, you don’t have it.”
In Europe, where Uber’s business has faced a series of legal challenges, the company has begun offering some subsidized insurance products for platform workers — including one for Uber Eats couriers across Europe and a personal injury and insurance product for drivers in the UK.
In January in the UK it also announced a safety cap on the number of consecutive hours drivers on its platform can accept trips, after coming under rising political and legal pressure on safety and working conditions.
Last year Uber also lost its first appeal against an employment tribunal that judged a group of Uber drivers to be workers, not self-employed contractors as it had claimed — meaning they are entitled to workers rights such as holiday and sick pay.
Uber also had its license to operate in London withdrawn last fall, with the local transport regulator citing concerns about safety and corporate responsibility as key considerations for not renewing the company’s private hire vehicle license.
Tluszcz’s view is that such moves prefigure a more major shift incoming in Europe that could cement permanent roadblocks to business models that function via intentional worker exploitation.
“The flaw in the [gig economy] model as a worker is so big that it seems to be quite clear that European governments are going to be looking at this and saying this is just not the European ethos. It’s just not,” he argues. “There’s going to be a moment when all these things are clashing. And I think it’s a cultural clash that we have really, between European values of equity and American values of just pure market capitalism.
“You can’t expect somebody making $3.37 an hour to take a part of that to contribute to retirement and social coverage. What the hell do you live on?” he adds.
“We’re creating the next lost generation of people who simply don’t have enough money to live and those companies are fundamentally enabling it under the premise that they’re offering a cheaper service to consumers… And I just don’t think Europe will put up with this.”
Last month the UK government confirmed its intent to act on this area by announcing a package of labor market reforms intended to respond to changes driven by the rise of gig economy platforms. It dubbed the strategy a ‘Good Work Plan’ — billing it as an expansion of workers rights and saying “millions” more workers would get new day-one rights, coupled with a tighter enforcement regime on platforms and companies to ensure they are providing sick and holiday pay rights.
“We are proud to have record levels of employment in this country but we must also ensure that workers’ rights are always upheld,” said the UK prime minister, also emphasizing that her goal was to build “an economy that works for everyone”.
It’s likely to publish more detail on the employment law reform later this year. But the direction of travel for gig economy platforms in Europe looks clear: Away from being freely able to exploit legal loopholes and towards a much more tightly managed framework of employment and workforce welfare regulations to ensure that underlying support structures (such as the UK’s national minimum wage) aren’t just being circumvented by clever engineering and legal positioning.
“This for me is an inherent dilemma one has between capitalism and some level of socialism which we have in Europe,” adds Tluszcz. “This is a clash of two fundamentally different views of the world and ultimately as a company you have to be a company that views your role in society as one of being a contributor — and tech companies can’t hide behind the fact; they must do the same.
“And unfortunately all these ride-sharing businesses, and including most of these gig economy companies, are just trying to take advantage of holes and frankly I don’t see them at all looking at their reason to be as at least having a component of ‘I’m good for the society in which I operate’. They don’t. They just simply don’t care.
“That’s a dilemma we have as consumers, because on the one hand we like the fact that it’s cheap. But we wish that people could all have a decent living.”
Whether US companies will be forced into a less exploitative relationship with their US workers remains to be seen.
Tluszcz’s view is that it will need some kind of government intervention for these types of companies to rethink how their models operate and who they are impacting.
“Tech companies frankly have an equal amount of responsibility to be great corporate citizens. And right now it feels — particularly because many of these tech companies are born in the US — it almost feels like this Americanism about them says I don’t have to be a good corporate citizen. I’m going to take advantage of the world for me and my shareholders,” he says.
“I’m a capitalist but I do think there’s some moral guidance you have to have about the business you’re building. And the US tech companies, around the world — certainly in Europe — are being highly criticized… Where is your moral compass? And unfortunately, today, sitting here, you have to say they lost it.”
Update: A Lyft spokesperson has now emailed the following statement in response to our request for comment: “Drivers are an integral part of Lyft’s success. An ever-growing number of individuals around the country are using Lyft as a flexible way to earn income, and we will continue to engage with our driver community to help them succeed. We have not yet reviewed this study in detail, but an initial review shows some questionable assumptions.”
Read more: https://techcrunch.com/2018/03/02/mit-study-shows-how-much-driving-for-uber-or-lyft-sucks/