Uber and Lyft are facing a new and significant challenge to their business models in Seattle after a first-of-its-kind ordinance allowing drivers to unionize passed the City Council unanimously on Monday (Dec. 14).
Spectators stood to applaud and chant ”we won” immediately after the 8–0 vote was taken. The bill, co-sponsored by Seattle council members Mike O’Brien and Nick Licata, will allow drivers for ride-hailing companies, as well as taxis and other for-hire vehicles, to collectively bargain for things like higher pay and better working conditions. Seattle is the first US city to grant Uber and Lyft drivers the right to form a union.
“We’ve heard from Seattle drivers making sub-minimum wage, and companies like Uber have turned a deaf ear to their concerns,” O’Brien said in a statement. ”This bill was only introduced out of necessity after witnessing how little power drivers themselves had in working for a living wage.”
Uber said in a statement that its platform creates “new opportunities for many people to earn a better living on their own time and terms.” The company reiterated that drivers like the flexibility and independence Uber affords them, and that many have other full- or part-time jobs. Speaking at an event in Seattle earlier this year, Uber political strategist David Plouffe called the city’s ordinance “puzzling” and “generally believed to be flatly illegal.”
Whether Seattle’s ordinance will withstand an inevitable slew of legal challenges hinges on the central issue of the so-called gig economy: Are Uber and Lyft drivers employees? Or are they independent contractors?
There are two federal laws under which Uber and Lyft could challenge the unionization decision. The first is the National Labor Relations Act, which preempts states and cities from regulating the union activities of a company’s employees. Were ride-hailing drivers determined to be employees, they would be covered by the NLRA, which would invalidate Seattle’s ordinance. Uber and Lyft have insisted their drivers are not employees, so that’s an unlikely argument for the companies to make.
The second grounds for a legal challenge would be antitrust. Under the Sherman Act, independent contractors who attempt to unionize risk running afoul of legislation against price-fixing and other anticompetitive behaviors. A union that allowed Uber and Lyft drivers to bargain for higher pay, benefits, and different fares—potentially to the detriment of consumers—could be deemed illegal per that law.
And so once more, the big, glaring problem is that no one knows for sure whether workers in this new platform-based economy should be considered employees or independent contractors. A smattering of regulatory rulings has offered little clarity: Over the summer in California, the state’s labor commissioner said a San Francisco Uber driver was an employee of the company. Earlier this month in Florida, the Department of Economic Opportunity said two drivers were independent contractors. Also in California, a major class-action lawsuit against Uber on precisely this question heads to trial in June 2016.
In recent months, regulators, policymakers, and even the companies themselves have increasingly coalesced around the idea that neither of the existing employment categories really fits, and some sort of third, currently undefined option is needed. But rewriting the rules to include such a third category is unlikely to happen quickly and could leave tens of thousands of workers stranded in murky legal territory in the interim. By clearing drivers to unionize, Seattle is attempting to create a present-day solution to thorny employment questions that might not be resolved for a very long time.
Samuel Estreicher, professor at New York University School of Law and director of the Center for Labor and Employment Law, thinks the idea of a third category provides some interesting outcomes that few people have considered. “There are people that may not be employees under the NLRA and still cannot be sued under the antitrust laws,” Estreicher says. “And I think these new independent contractors—they’re called the gig workforce—may be in that category.”
Right now, though, all that’s hypothetical. The relevant question is what happens if and when Seattle’s ordinance is challenged. Rebecca Smith, deputy director for the National Employment Law Project, which advised drivers on the bill, is optimistic that it will hold up. ”While it is uncharted territory, Seattle is in really good shape to pass a law that can fend off any kind of challenge,” she says.