McJobs and UberJobs

THE French enjoy nothing more than resisting the forces of Anglo-Saxon capitalism. On June 25th French taxi drivers paralysed Paris in protest against Uber, a ride-sharing service, and attacked a few Uber cars for good measure. On June 29th police arrested two of Uber’s managers in France for “illicit activity”. But from Uber’s point of view, all this is but a minor inconvenience: Paris is just one of 300 cities it serves. Far more worrying is what is happening in the company’s own backyard in San Francisco.

On June 3rd the California Labour Commissioner ruled that Uber owes a former driver, Barbara Ann Berwick, $4,152, mostly in expenses, on the ground that she was an employee rather than, as Uber claims, an independent contractor. Uber is appealing against the ruling. But it is a harbinger of things to come: San Francisco courts are also hearing two more cases that hinge on the same question. If the rulings go against the company, its labour costs may rise significantly, as it is forced to pay drivers’ social security and other benefits as well as their expenses. Its valuation, which is currently above $40 billion, may suffer.

Uber is not the only big American company whose business model may be upended by employment law. Last year the National Labour Relations Board’s general counsel said he would treat McDonald’s as a joint employer, together with franchisees, of staff in the chain’s franchised restaurants. This opinion will soon be tested in a case brought by ten employees who claim that they were sacked by a franchisee in Virginia on racial grounds.

Both Uber and McDonald’s are up against powerful interest groups that are capable of both fighting prolonged legal battles and playing on the public’s heartstrings. Uber has to confront state governments which stand to gain sizeable tax revenues if on-demand workers are classified as employees. McDonald’s has to wrestle with the Service Employees International Union, which has been trying for years to unionise fast-food restaurants.

The legal situation seems to be murky in both cases. A pro-Uber lawyer could argue that the firm is essentially little more than a marketmaker that provides a forum for buyers and sellers of rides to come together. Its drivers own their vehicles and choose their working hours. They are free to work for rivals, such as Lyft. An anti-Uber lawyer could retort that the company exercises considerable control over its workers. It screens them for criminal records, and weeds out those who get poor reviews from passengers. Likewise, a pro-McDonald’s lawyer could argue that it is the franchisees who hire and fire workers, and who run the business from day to day. An anti-McDonald’s lawyer could point to the detailed rules that the company lays down on how workers in franchised restaurants are trained and how they should serve customers.

The fundamental problem is that in America, as in many other rich countries, employment law has failed to keep up with the changing realities of modern work. Its labour rules are rooted in a landmark piece of legislation, the Fair Labour Standards Act, passed in 1938 during Franklin Roosevelt’s presidency. In those days a far larger proportion of American men worked in manufacturing; most women did not work; and the difference between employees, who worked full-time for a company, and contractors, who were typically tradesmen such as plumbers, seemed much clearer. The post-war growth of franchising, and the expansion of companies like Amway and Avon that used freelance door-to-door sellers, began to blur the distinction. Now, the “on-demand” economy is all but obliterating it, by letting people sell their labour and rent out their assets—from cars to apartments—in a series of short-term assignments arranged by smartphone app.

That the law is so dated suggests that judges should exercise as light a touch as possible. The franchise model has thrived because it allows local entrepreneurs to join forces with a global goliath to scale up their businesses quickly while operating them according to local labour-market conditions. Forcing McDonald’s to become a co-employer would expose those franchisees to co-ordinated union action and make it much more difficult for them to respond to local circumstances.

The benefits of flexibility

The case for a light touch is even more compelling when it comes to Uber and its peers. The most important thing to remember about the on-demand economy is that it has been a dramatic success not just for consumers but also for workers seeking flexibility. That is why Uber’s number of drivers has been doubling every six months for the past couple of years. Some on-demand companies will choose to classify their workers as employees: for instance, Instacart, a grocery-delivery service, has invited some of its freelancers to become part-time employees, in the belief that this will make it easier to train and supervise them. But other firms should be free to decide otherwise. Uber’s drivers, and their peers at on-demand firms, would get expenses and other benefits if they were declared employees—but they would have less flexibility over working hours and, more important, the increased cost of employing them might mean fewer jobs.

America needs to update its employment law to take into account the fact that FDR is no longer president. This will involve some careful balancing. Policymakers need to recognise that people want to work more flexible hours and that technology has made it possible to create spot markets in surplus labour and idle assets. But they must also recognise the state’s need to raise taxes to pay for public services and benefits. Given the dysfunctional nature of America’s politics, such updating will take a good deal of time and will probably involve many false starts. Until then judges should leave open as many options as possible. The last thing the country needs is for over-strict interpretations of outdated laws to kill exciting new businesses and sabotage jobs. Do that and you end up like France.