The $41 Billion Company Uber is a Horrible Role Model for Business

December 9, 2014

You can’t argue with success! I can. Uber is a five-year old company now valued more than 72 percent of any Fortune 500 company. I actually love the concept of Uber: it is disruptive, filling a need, an uber startup, and Uber’s latest round of funding raising $1.2 billion at a $41 billion valuation is a confirmation of this from some of the world’s top investors. This is all in spite of the fact that Uber coincidentally also happens to be one of the worst role models for small and medium sized businesses alike.

Those on top will always have its critics, but it is how Uber got there (or is getting there) that should really be addressed. Uber’s rocket success will give similarly positioned startups the green light to be just as nasty and unethical.

In summary, Uber flaunts the law, deceives its drivers, deceives its users, and has a culture that gives little value to privacy.

Uber Drivers Take On More Risk Than They Know

Uber has an awesome and innovate app, but what many miss is that Uber basically operates as a franchise taxi company. Instead of the company bearing all these risks of costs and liabilities, they just shift it to individual owners. Unfortunately, most drivers do not quite understand this risk.

Misclassification as Independent Contractor

With FedEx Drivers being the latest target of misclassification of independent contractors versus an employee, Uber may be soon to follow. In a class action lawsuit against Uber, drivers allege they have been misclassified as independent contractors. The California case makes some compelling arguments including the fact that Uber’s website advertises that “Uber is your on-demand private driver” and there are a litany of detailed requirements imposed on drivers by Uber. Uber’s drivers are fully integrated into the entire business model–it is the business, leaving definite room for Uber to lose on this matter.Uber Class Action

It may be an industry killer to declare Uber drivers as independent contractors, but it seems drivers could really benefit from at least some of the protections that are given to employees, such as minimum wage and reimbursement of expenses.

Uber Drivers Do Not Make $90k Per Year

Since the drivers are their backbone, Uber spends quite a bit of effort in recruiting. They do it a way that sets an unrealistic expectation for drivers.  For example, on May 27, 2014, they stated that the median income for an uber driver in New York City is more than $90,000 per year; yet, when Uber actually released their numbers, it was revealed that an Uber driver would have to work close to 80 hours a week to make that amount.

Uber Impact Screenshot

While many would construe this as an outright lie, it has merely been discussed and somewhat ignored. Forget about the fact that this $90k number did not include the cost for the use of their car, gasoline, and the downtime between rides, this company-line that being a driver is like being a “small business entrepreneur” sounds more like they are trying to sell a pipe dream than an opportunity. The reality is that after all the math is done many Uber drivers may be barely making minimum wage. It is for this reason that franchises are so heavily regulated, requiring substantial disclosures so no franchiser can misconstrue the risk and reward.

Illegal Operation

Peter Thiel, a prominent VC known as a cofounder of PayPal, called Uber “the most ethically challenged company in Silicon Valley.” Thiel, in his AMA,  compared Uber to Napster alluding to the fact that much of Uber’s operations around the word are considered illegal by city officials and other opponents.

In fact, in cases across the nation, from San Francisco to Tuscaloosa Alabama, drivers have been arrested for operating unlicensed taxis. Some drivers report even risking their license thanks to Uber.

Uber was recently sued in Portland and threatened to ticket Uber drivers for failing to operating without the city’s permission. Uber’s response to their drivers concerned about the possible fines is demonstrative of the company’s culture–keep ridin’. Uber encouraged their drivers to continue their operation despite the city’s protest and offered to pick up the tab of any fines that are incurred.

Thiel makes a great comparison to Napster. Great innovative company, but against the law. Some may see the copyright law protecting the profits of the music industry something slight. In fact, at the time, many of us had little to no remorse in stealing music on the P2P network.

The difference in leaving Uber unregulated is that the victims are not just record labels or taxi drivers, but we passengers as well. There is a reason that in almost every urban population cars for hire are regulated. These ordinances  go beyond just a tax but are mostly designed to help protect the safety of the passengers just like any health and food regulation helps diners.

Granted, the current regulation for tax drivers is a little dated, but important nonetheless. Colorado has lead the movement of regulating Uber-like ridesharing programs that would require background checks, vehicle inspections, and mandatory insurance coverage.

San Francisco and Los Angeles District Attorneys Sue

Just today, the District Attorney of San Francisco announced that he and Los Angeles District Attorney filed a lawsuit that accuses Uber of “false or misleading statements to consumers” and for violating California law. Again, it comes down to Uber’s so-called industry-leading background checks that apparently have very little value. The lawsuit also refers to the “Safe Riders Fee” that is charged to customer related to the increased cost of background checks.

List of Uber Cities in Operating Against the Law (According to Opponents)

Almost half of the cities in the U.S. that Uber operates are said to be illegal by its opponents. I will need help from  you readers to keep this updated, but as of the date of publishing, here is a list of cities that Uber operates and whether the city or other opponents has complained that they are not authorized to operate.  Just let me know in the comments with any updates you may come across.

*Please do not rely upon this information as the legality of Uber’s operation in each city is subjective to its opponents until an authorized and enforceable ruling has been issued. Many cities are either not enforcing a violation or in the works of creating specific ordinances to address Uber and other ride-sharing services like Lyft.

  1. AKRON
  2. ALBUQUERQUE – Illegal (statewide)
  3. AMARILLO
  4. ANCHORAGE – Illegal
  5. ANN ARBOR – Illegal
  6. ASHEVILLE, NC
  7. ATHENS – Illegal
  8. ATLANTA – Illegal
  9. AUBURN, AL – Illegal
  10. AUSTIN – Illegal
  11. BAKERSFIELD – Illegal (statewide)
  12. BALTIMORE – Illegal (statewide)
  13. BATON ROUGE – Illegal
  14. BOISE
  15. BOSTON – Illegal
  16. BURLINGTON – Illegal
  17. CEDAR RAPIDS
  18. CENTRAL ATLANTIC COAST, FL
  19. CHARLESTON, SC – Illegal (statewide)
  20. CHARLOTTE
  21. CHARLOTTESVILLE, VA
  22. CHATTANOOGA
  23. CHICAGO
  24. CINCINNATI
  25. CLEVELAND
  26. COLLEGE STATION
  27. COLUMBIA, MO – Illegal
  28. COLUMBIA, SC – Illegal (statewide)
  29. COLUMBUS – Illegal
  30. CONNECTICUT – Illegal
  31. CORPUS CHRISTI
  32. DALLAS
  33. DAYTON
  34. DENVER
  35. DES MOINES
  36. DETROIT
  37. EL PASO – Illegal
  38. EUGENE – Illegal
  39. FAYETTEVILLE, AR – Illegal
  40. FAYETTEVILLE, NC
  41. FLAGSTAFF
  42. FLINT
  43. FLORIDA KEYS
  44. FORT MYERS-NAPLES
  45. FRESNO – Illegal (statewide)
  46. GAINESVILLE
  47. GRAND RAPIDS
  48. GREATER MARYLAND – Illegal (statewide)
  49. GREEN BAY
  50. GREENVILLE, SC – Illegal (statewide)
  51. HAMPTON ROADS
  52. HAMPTONS
  53. HONOLULU
  54. HOUSTON – Illegal
  55. INDIANAPOLIS – Illegal (statewide)
  56. INLAND EMPIRE
  57. JACKSONVILLE – Illegal
  58. KALAMAZOO
  59. KANSAS CITY
  60. KNOXVILLE – Illegal
  61. LANSING
  62. LAS VEGAS – Illegal
  63. LEXINGTON – Illegal (statewide)
  64. LINCOLN
  65. LITTLE ROCK – Illegal
  66. LOS ANGELES – Illegal (statewide)
  67. LOUISVILLE – Illegal (statewide)
  68. LUBBOCK
  69. MADISON
  70. MANCHESTER, NH
  71. MEMPHIS – Illegal
  72. MIAMI
  73. MILWAUKEE – Illegal
  74. MINNEAPOLIS – Illegal
  75. MODESTO – Illegal (statewide)
  76. MONTERREY – Illegal (statewide)
  77. MYRTLE BEACH – Illegal
  78. NASHVILLE
  79. NEW JERSEY – Illegal (in parts)
  80. NEW ORLEANS
  81. NEW YORK CITY
  82. OCALA, FL
  83. OKLAHOMA CITY
  84. OMAHA – Illegal (Statewide)
  85. ORANGE COUNTY
  86. ORLANDO – Illegal
  87. OXFORD – Illegal
  88. PALM SPRINGS
  89. PANAMA CITY, FL
  90. PENSACOLA, FL
  91. PHILADELPHIA – Illegal (statewide)
  92. PHOENIX – Illegal (statewide)
  93. PIEDMONT TRIAD, NC
  94. PITTSBURGH – Illegal (statewide)
  95. PORTLAND – Illegal
  96. PORTLAND, ME
  97. PROVIDENCE
  98. RALEIGH-DURHAM – Illegal
  99. RENO
  100. RICHMOND, VA
  101. ROANOKE-BLACKSBURG
  102. SACRAMENTO – Illegal (statewide)
  103. SALEM – Illegal
  104. SALT LAKE CITY
  105. SAN ANTONIO – Illegal
  106. SAN DIEGO – Illegal (statewide)
  107. SAN FRANCISCO – Illegal (statewide)
  108. SAN LUIS OBISPO
  109. SANTA BARBARA
  110. SANTA FE
  111. SARASOTA
  112. SEATTLE
  113. SOUTH BEND
  114. SPOKANE
  115. ST LOUIS
  116. TACOMA
  117. TALLAHASSEE
  118. TAMPA BAY – Illegal
  119. TOLEDO
  120. TUCSON – Illegal (statewide)
  121. TULSA
  122. TUSCALOOSA – Illegal
  123. VANCOUVER, WA – Illegal
  124. VENTURA – Illegal (statewide)
  125. WACO – Illegal
  126. WASHINGTON D.C. – Illegal Tip-Taking
  127. WICHITA – Illegal
  128. WILMINGTON, NC
  129. WORCESTER – Illegal

Just found this map of illegal cab operations.

Insurance Gap In Case of An Accident

Taxi companies and drivers complain that UberX’s unregulated operations leads to insurance protections that are inadequate and unsafe. What most Uber drivers may be unaware is that their insurance may not cover them in the event of an accident because they are operating their car in a “business activity.” In fact in some cases, a driver’s insurance companies have the right to terminate the policy altogether in such instances. In response to this concern, Uber did make available private insurance and commercial insurance to in the event there is a gap in coverage.

UberX Insurance Gap Coverage

Turning a Blind Eye

This whole model of passing on the risk down to individual drivers forces Uber to somewhat turn a blind eye to the mishaps of its drivers since over training them would get in the way of their contractor classification. This has resulted in multiple lawsuits against Uber.

Every week or so we hear of another incident of a Uber driver who committed some crime or committed some violation of a civil right. Last September, Uber was sued for violating federal civil rights for putting a blind person’s service dog in the trunk or in another instance being refused to be picked upon the driver seeing the service dog and twenty-eight similar cases.  Just this week, an Uber driver in New Dehli was accused of rape calling for extensive background check for drivers.

Uber probably should not be held responsible for every crime, but the system will breed this type of result. The more drivers they have, the cheaper the fare and the more ready available a ride is to a customer. Therefore, it has become pretty easy to become an Uber driver. There is no interview process or management. Even Uber’s background checks they do conduct seems to be flawed.

Unfair Business Practices Against Lyft

This last summer, Uber went on a crazy aggressive effort to recruit drivers from rival rideshare company Lyft.  Contractors hired by Uber have been reported to order a Lyft ride and spend their time to recruit the driver to switch to Uber. They have even been accused of making a focused effort to order Lyft rides only to cancel them last minute. Even the phones and credit cards being used by these contractors are said to have been provided by Uber itself. Even though Lyft has a few ways to pursue a claim against Uber, for the most part, they have chosen the public sphere to make their claims.

Tracking Reporters and Driver Privacy

Uber recently had to discipline a New York City manager for tracking the data of a particular reporter. Of course, they only reason we know about this is because the reporter was coming to Uber’s office and the manager said to her when she arrived “I was tracking you.” Why it is necessary for a general manager to be able to view any driver using the system and their location at any given time seems overly intrusive. This definitely did go over very well after only weeks after did Uber’s Senior Vice President Emil Michael apologized after saying they should dig up dirt on journalists that may be critical of Uber.

Surge Pricing

There is something unfair about Uber’s surge pricing. Many would argue is that they are just taking advantage of supply and demand, but the problem is that the market is never that efficient. Uber joins airlines taking advantage of holidays and high demand flights, but there seems to be an expectation and disclosure issue. Surge prices are disclosed yet people seem to still get upset about it.  Consumerist.com rightfully asks if it is ever acceptable to charge $362 for a 20-minute Uber ride.

What can I say, I’m not a fan of Uber and I don’t plan on riding with them anytime soon.

Nasir Pasha

By

Nasir N. Pasha is the managing attorney of Pasha Law, providing essential legal services and support to businesses and corporations in California, Illinois, New York, and Texas. He oversees all of the firm’s operations and is a pivotal force in maintaining client relationships and ensuring that each transaction is brought to its best possible conclusion.

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Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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