Welcome to the “Sharing Economy”: No WARNing in Nonlayoff Layoffs at Uber and Lyft

It was like watching another American trying to make himself understood to a French bartender by speaking English REALLY LOUDLY.  Now that Über and Lyft  have failed to convince Austin voters to let them self-regulate through the Über and Lyft proposed ballot measure “Proposition 1” they are going to stop operating in Austin.

What does “stop operating” or “pull out” actually mean in the case of Über and Lyft?  Or more importantly, what does it mean to Über and Lyft’s 10,000 or so drivers?

Remember–Über and Lyft are trying to keep their labor cost exposure as low as possible until they can reduce that cost to zero by replacing drivers with robots.  This is why Über especially is fighting every possible legal angle to keep being able to designate drivers as expendable independent contractors.

What’s unusual in Austin, though, is the large umber of drivers who are being disconnected from the Über app all at the same time.  We humans call this a “layoff” and there are rules about this.  Want to bet that Über will say none of those rules apply to them?

This is how it is in the “sharing economy” or what Über mentor Lawrence Lessig called the “hybrid economy” in his book, Remix.  In a revealing appearance on the Colbert Report, Lessig gave the example of Flickr as a “hybrid economy” model (although he could just as easily chosen Uber, also funded by Lessig benefactor Google). In this witty repartee, Colbert tries to understand what Lessig means by “hybrid economy”:

“Colbert:  The ‘hybrid economy’ is that everybody else does the work and Flickr makes the money?

Lessig:  Don’t tell any anyone!

Colbert:  This is like our green screen challenges, they do all the work and I get all the ad revenue?

Lessig:  That’s the point, that’s exactly the point.”

An excellent description of income transfer at work in the “sharing economy”.  Über and Lyft have elevated this to a science reflected in their unicorn valuations.  After the Prop 1 debacle, however, it may all be about to come crashing down.

Unemployment Insurance

Like all employers in the State of Texas, Über and Lyft will have paid into the Texas Workforce Commission’s unemployment insurance fund so that their thousands of dislocated drivers will be able to claim unemployment benefits, right?

It actually doesn’t look that way.  According to Fortune, Über doesn’t pay unemployment insurance contributions (chart is based on Über being determined to be an employer).


Über is currently fighting unemployment insurance claims in California where Über was found to be an employer at least for the purpose of taking care of drivers who filed claims.

On April 22, Über settled two class action brought in California and Massachusetts by drivers.  That settlement has yet to be approved by a federal court.  Uber is also being investigated by the National Labor Relations Board to determine whether it should be characterized as an employer and drivers as employees.

Our bet is that this is on the minds of Über and Lyft executives right now because of the carefully worded statement issued by former Austin Mayor Lee Leffingwell, who now lobbies for Uber:

Unfortunately thousands of people who drive with ridesharing companies to earn much needed income will now have to find another way to make ends meet.

“We’re disappointed in tonight’s results. The benefits of ridesharing are clear: reduced drunk driving and economic opportunity.”

Note that words like “job” or “our employees” do not appear anywhere in this statement. That’s because  Über and Lyft treat drivers as independent contractors.  So no mention of “jobs”.

The WARN Act

Under federal legislation called the “WARN Act” a layoff of this size could require an employer of the size of Über and Lyft to give drivers 60 days notice of the massive layoff.  If an employer is subject to WARN requirements and fails to comply, the employer could be ordered to pay up to 60 days back pay and benefits, less any severance payment made as “pay in lieu of notice.”


Über and Lyft will no doubt try to wriggle out of compliance with the WARN Act as well.