Market Mad House

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

Long Ideas

Uber Drivers are now Employees in the UK, IPO Predicted

Uber just suffered a legal, operational, and existential setback in the United Kingdom that might threaten its’ initial public offering (IPO) plans.

Her Majesty’s government just reclassified Uber drivers from contractors to employees, The Guardian reported. The Employment Appeal Tribunal rejected Uber’s argument that drivers are not employees because they do not work fixed work schedules.

This upends Uber’s business model because it would require the company to provide all the generous benefits, employees are entitled to under British law. That includes union representation and the high taxes that support Britain’s welfare state. Uber has been leaching off the UK’s welfare state because its’ drivers enjoy benefits like free healthcare from the National Health without paying for them.

The 10 October ruling would fix that by requiring Uber to pay the €1 ($1.32) in national insurance for every hour a driver worked. National Insurance pays for the National Health, and for pensions. Last month Reuters reported that paying National Insurance would cost Uber tens of millions of pounds in the UK, which might make it unprofitable.

Not surprisingly Uber has appealed this ruling to Britain’s Supreme Court which will hear the case next year. It also puts the company at the mercy of the British government which is in turmoil because of the collapse of the Conservative Party. A nightmare for Uber would be a new general election in the UK which might land left-wing Labour Leader Jeremy Corbyn in 10 Downing Street.

Uber CEO Thinks Company would be better off Public

These developments can threaten Uber’s plans by depriving it of a profitable market.  CEO Dara Khosrowshahi said that Uber is planning an IPO within 18 to 36 months at The New York Times’ DealBook conference on November 9, TechCrunch reported. At the conference, Khosrowshahi revealed that he thinks Uber would be better off as a public company.

By remaining private, Uber “has all the disadvantage of being a public company, with the spotlight on us, with none of the advantages,” Khosrowshahi complained. The IPO is being delayed because of a potential deal between Uber and Japan’s Softbank Group (NYSE: SFTBY).

SoftBank is considering investing several billion dollars, but its’ CEO Masayoshi Son is cautious about the deal. After the revelations about unethical behavior at Uber headquarters; and the ruling in the UK, it is to see why.

Is UK Ruling an Opportunity for Uber?

The Employment Appeal Tribunal ruling might be an opportunity for Uber because it can integrate the company’s drivers into the tax structure of the welfare state.

The government would be making money off the National Insurance tax paid by Uber drivers so it would have a strong incentive to keep the organization in business. The drivers would probably also have a union; which at least some British politicians would pay attention to, giving Uber more leverage over Parliament.

A major dilemma that Uber faces right now is that it has little or no influence over the British government. The company was unable to stop Transport for London from pulling its license to operate in that city. Paying taxes and unionizing drivers would give Uber more influence.

Another Ethical Problem for Uber

There’s also a serious ethical and political problem here that Khosrowshahi needs to address.

Uber is profiting from the British welfare state without paying for it. The ride-hailing service is lucrative in the UK because Her Majesty’s government and the British taxpayer are footing the bill for its drivers’ healthcare, retirement, and other benefits.

That is not fair to the majority of Britons who pay National Insurance through their jobs. It provides both Conservative and Labour politicians with a powerful argument to use against Uber and all gig-economy companies.

Accepting the Tribunal’s ruling, and working within the system, would defuse that argument. More importantly, it would put Uber in a strong position to negotiate a favorable deal with the government. Such an arrangement would also provide a settlement that might work in other countries.

Uber needs to move carefully here because a UK Supreme Court decision against it, can serve as a precedent that courts in other English-speaking countries may follow. The United States, India, Canada, Australia, and other former British Empire countries all follow variants of the English Common law.

One has to wonder if Uber will even be able to survive to 2019, let alone go public. Political, legal, and ethical troubles may run it off the road permanently long before then.