Behind the shiny veneer of Uber’s venture capital–backed technological innovation lies a time-tested business model: labor exploitation. Uber’s latest scheme is a new spin on the age-old practice of sharecropping. Struggling to find enough drivers willing to put miles on their own cars, Uber recently began offering subprime auto loans to would-be drivers, conveniently extracting payments directly from their paychecks, or (because Uber insists its drivers aren’t its employees) their “Uber earnings.” Since last July, Uber and its wholly owned subsidiary, Xchange Leasing, have partnered with auto dealerships, advertised to drivers, and even repossessed cars from drivers who lag in their payments.
Uber isn’t the only company to resurrect sharecropping in modern industries. Lyft is working with investor General Motors to rent cars to its drivers. Until 2008, FedEx purchased custom-made trucks and sold or leased them to potential drivers. Janitorial companies have gotten into legal hot water for requiring their cleaners to buy franchises and charging them additional fees for clients.
These are just a few of the companies that insist their low-wage workers are independent business people. Here’s the rub: independent businesspeople make capital investments in their businesses. But these workers lack the heavy capital needed to start a business and can’t afford to pay upfront. So the company conveniently arranges for them to buy or lease equipment, often through an exploitative deal. These companies get the best of both worlds, shifting business costs onto workers while keeping them financially tethered—and of course, reaping the profits.
The companies that set up pay-to-work deals say they’re giving opportunities to workers who would otherwise be shut out of gainful employment, but their offers are a far cry from the American dream of entrepreneurship.
First, rather than giving workers a true chance to prosper, the companies keep tight reins on key aspects of the business, restricting workers’ earning potential while saddling them with hefty lease payments and reducing pay to poverty levels. In one example, janitorial giant Coverall charged worker Pius Awuah more than $14,000 to purchase a janitorial “franchise,” arranging to deduct what he couldn’t pay upfront from his paychecks; Awuah netted less than $1,300 a month.
As exploitative as arrangements like this are, they get even worse when the cost of business essentials like gas spike, or when Uber unilaterally lowers fares. Shawn Hofstede leased a 2016 Toyota Corolla from Xchange in November, paying $155 a week. When Uber slashed fares two months later, Hofstede went from making $200 to $140 in a weekend. “It got to the point that I would drive just to meet my payment,” said Hofstede. He’s not alone: a just-released survey of Uber drivers found that 57% have bought, leased, or made substantial investments in vehicles to drive for Uber, but only 23% see working for Uber as a stable source of income.
Second, the companies’ insistence that the workers are independent contractors rather than employees undermines the labor standards that should provide a backstop to these exploitative deals. Under the law, an independent contractor is someone who runs a separate business, with specialized skill, capital investment, and the ability to engage in arms-length negotiations over job terms. But when companies misuse the label, workers get stuck paying all employer-side taxes and business expenses, and lose critical protections such as wage and hour rights, workers’ compensation, and unemployment insurance.
A federal court found that Coverall employed Awuah and his coworkers and awarded them the unpaid wages they were due as employees. Lawsuits against FedEx and Uber have resulted in massive settlements, and just last week, a group representing 5,000 Uber drivers in New York City filed a lawsuit alleging the company misclassified them and denied them employment protections.
Third, Uber and other modern-day sharecroppers are peddling questionable financial products that expose many more financially vulnerable Americans to outsized risk. “Subprime auto is sort of the new hot place to get into the securities market,” Chris Kukla, executive vice president at the Center for Responsible Lending, told Bloomberg News. “There are some similar things going on in the auto market that look like a lot of what’s been going on in the mortgage market pre-crash.” Under Uber’s lease arrangements, drivers’ leases can run far above the actual Blue Book value of the car, not unlike how homeowners were left underwater when housing prices plummeted and their mortgages far exceeded their homes’ value. Under the terms of driver Damascus Durham’s lease, for example, he’d have to pay Uber $31,200 over the three years of the lease and then an additional $5,000 to purchase the car outright, a Honda Civic valued at only $18,142.
Given the alternatives, Uber’s program may seem like a good deal at first glance. After all, at a time when workers are feeling squeezed by stagnating wages—nationally, 42% of workers earn less than $15 an hour—they may see few other options. But the answer is to raise wages and job standards, enforce the laws on the books, and make sure workers can form unions with coworkers to advocate for themselves, not to promote sham independent business arrangements to workers who deserve a fair shake at the American dream.