The U.K.’s Supreme Court unanimously ruled Friday that a “group of former drivers for Uber Technologies Inc. were entitled to a minimum wage and other benefits while working for the company,” WSJ reports.
Why It Matters: It’s a notable setback to Uber and other companies using the gig-economy model, which are currently facing legal scrutiny as to whether their workers should be considered employees. Friday’s decision only affects Uber, but it could set a “potential precedent for others in the U.K. who work for companies in the gig economy, where apps distribute individual tasks to a pool of people that the app makers regard as independent contractors.”
- Gig-economy companies say reclassifying workers would “add to costs, result in job losses and reduce flexibility that their workers prize.”
- Labor activists counter that by saying the companies are placing the risk on workers without other employment opportunities.
The Bigger Picture: Now, labor activists have ammunition to fuel battles against not just Uber, but other companies such as DoorDash and Deliveroo in the U.K. Workers from these companies will “be able to bring new cases to claim benefits on behalf of gig workers,” according to a lawyer arguing on behalf of the drivers.
- The battles have seen mixed results. Swiss courts ruled against using independent contractors in the Geneva area, while a French court reclassified an ex-Uber driver as an employee.
- “But the ride-hailing and delivery companies won a major battle in California last fall when voters approved a ballot measure that protected their contract-worker systems.”
What’s Next: Uber doesn’t have to jump to reclassify all of its U.K. drivers, and this decision is siloed away from its UberEats food-delivery segment. The company also said it has since added driver benefits such as insurance for injury and sickness since the case was filed.
- When the case was filed in 2016, Uber had around 40,000 drivers in the U.K.
Looking Ahead: It’ll take a while to realize the precise impact of this decision, with more cases and litigation with Uber and other companies likely ahead in the future. Meanwhile, Uber has filed an appeal to the U.K. Supreme Court’s ruling.
In general, most delivery companies will try to pass on the extra costs to the end customer. But although they may look the same, the different “delivery apps” have different economics and consumer incentives and will be affected differently.
Price and selection matters in hard goods delivery. This is why Bezos was so obsessed with being low cost, having the best selection, and having stellar customer service. As long as we don’t have to think about delivery costs and packages come within a few days, we are hooked. I also think ecommerce package delivery is sticky because the alternative is to physically go to stores and try to find what you’re looking for.
Amazon has built its delivery infrastructure in-house, so “gig” economics don’t apply. But other companies are exploring using companies like DoorDash and Uber for last-mile delivery.
If governments require extra costs for delivery workers, it would benefit the players with in-house scale, like Amazon, who can leverage more volume and efficiency on top of employees and meaningfully limit the “distributed delivery” opportunity.
If there is more parity between the cost of hiring employees and the cost of gig workers, then the difference between using UPS or FedEx and using DoorDash for last-mile deliveries narrows.
This is a naturally distributed network because apps have removed the need for central dispatching costs.
If governments increase the cost of gig workers to companies like Uber and Lyft, those costs will ultimately be passed on to the consumer. This won’t impact their current businesses too much, as taxi cabs aren’t really viable alternatives to Ubers and Lyfts today.
But it might limit the mid-term TAM of Uber and Lyft by driving up the overall cost of an app-hailed ride. When that happens, the attractiveness of driving yourself somewhere increases, which would be a headwind against more people using ride-hailing as a primary means of transportation.
But none of this matters once self-driving comes along…
Meal and Grocery Delivery:
This is where increasing gig worker costs really hit hardest. Meals and groceries are low-ticket items where delivery speed, selection, and price matter a lot. There are many substitutes available in terms of services or vendors.
When the cost of delivering food to your door increases, it looks much less palatable than fast food, picking up takeout, or grocery shopping yourself.
This is the reason why we see companies like DoorDash experiment with robo-kitchens and attempting to vertically integrate the whole value chain.