Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Florida Declares Uber Driver Employee

Uber’s worst nightmare might have just come true in the Sunshine State. The Florida State Department of Economic Opportunity ruled that a former Uber driver named Darrin McGillis was an employee and not an “independent contractor.”


To make matters worse for the networked transportation company, the Department granted McGillis’s claim for unemployment insurance benefits, The Miami Herald reported. McGillis became unable to work after his SUV was damaged while picking up an Uber fare. Neither McGillis’s insurance nor Uber would pay for repairs, so the Cutler Bay resident filed for unemployment benefits.

McGillis’s case could be a major threat to Uber’s business model because the Department found that Uber’s description of a driver’s position matched the IRS’s definition of an employee. That could set a precedent for other cases and for lawsuits trying to get employee status for Uber drivers. Among other things, it means that Uber could have to pay withholding taxes on drivers’ pay.


Florida Hates Uber

The McGillis case is only the latest roadblock that Uber has hit in Florida. The state legislature refused to change laws to exempt network transportation companies from insurance requirements. The County Commission in Broward County is threatening to hit Uber drivers that operate in Fort Lauderdale with massive fines, and Uber is apparently operating illegally in Dade County (Miami).

Losing Miami could hurt Uber; The Herald reported that its drivers made $30 million in fares in the city in the last year. Uber is in legal limbo in Dade County because the county commission has refused to enact an ordinance clarifying its status.

Mr. McGillis’s case exemplifies why Uber driving can be a very bad deal for average people. Without adequate insurance coverage, networked transportation drivers can quickly lose their livelihoods. McGillis lost his income because a scooter ran into the door of his van.

Since Uber is technically illegal in Miami, there is no insurance for its drivers. That is also part of the reason why Uber is illegal in Florida; state law requires cabs and limousines to have livery insurance. Most regular auto insurance policies specifically exclude commercial activities like hauling passengers for money from coverage.

That means Lyft and Uber drivers in the Sunshine State find themselves in a classic Catch 22; they cannot legally operate without insurance, but they cannot buy insurance because their service is not legal. In other words, the drivers cannot get insurance because the legal status of their business has not yet been determined.

Does Uber Really Make Money?

Uber itself contributes to the dilemma because it refuses to provide adequate insurance for its drivers. That situation is completely preposterous and unethical because Uber claims to have a $42 billion valuation. One imagines Uber could simply buy livery insurance with that money.
This brings up a number of disturbing thoughts about Uber and the so-called “gig economy” of which it is a part. One obvious one that comes to mind is that Uber simply does not have the money to buy insurance because it is not making the kind of revenue its promoters claim.

That hypothesis was raised by hedge fund boss Michael Novogratz on Wall Street Week recently. Novogratz claimed a former Uber CFO admitted the only way the company could justify its valuation was to cut driver pay and said he believes part of Uber’s valuation was based on statements made by the company’s executives on The Charlie Rose Show. Determining Uber’s real revenue is impossible because the company is privately held, meaning it does not have to disclose financial information to investors, so there’s no way to know if these claims are true or not.


Another potential problem is that Uber is afraid it would be held liable for its drivers’ actions if it provided insurance for them. Since Uber is providing financing to help drivers buy cars, that seems to be a farfetched notion. The company is offering a service under its brand name and selling that service to the public. It should certainly take responsibility for the contractors it hires to provide that service.

One thing is certain: Uber is going to have to resolve the insurance question if it wants to survive. If it does not, it is time to pull the plug on the whole networked transportation experiment because it is not working.