An end to a distorted business model

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After years of struggle, and under the auspices of the Corona, a California court has ordered travel sharing companies Uber and Lift to reclassify their drivers so that they will be recognized as company employees. “Now that the defendants are at an all-time low, it is the best time for them to change their business procedures without causing far-reaching negative effects,” the order said, which is expected to affect over 500,000 drivers.

A court order enforces a law that went into effect in California on Jan. 1, 2020. By law, classifying workers as contractor workers requires companies to prove that workers are not under their control and are allowed to work outside of them. Until now, companies have refused to recognize drivers as employees, which could deprive them of protections such as the minimum wage, overtime, sick leave or the payment of unemployment benefits to which they would be entitled – if they were full-time employees.

Read more in Calcalist:

The companies have announced that they will exercise the right of appeal granted to them. “The drivers do not want to be employees of the company. Dot,” a Lift spokeswoman noted. “With more than 3 million unemployed in California, our elected leaders should focus on job creation, not on trying to close an entire industry,” a spokesman for Uber added.

The immediate implication for drivers is to balance the relationship with the companies. So far they have had to absorb all the operating costs of Uber and Lift’s core business – car purchase, routine care and insurance, and at the same time have been trapped in the membership terms regarding pricing, job allocation and zero social benefits.

Paid transportation services Uber and lift Photo: Reuters, Bloomberg

This structure is the main reason why companies have been able to operate around the world over the years without a profitable model – they simply do not have significant transaction costs. To date, most of the $ 30 billion raised by Uber and Lift has been invested in subsidizing travel and producing a false impression of price erosion. This is in order to push all competitors toBankruptcy, Take over entire market shares approxmonopolySea and may finally operate in profitable territory.

The current order will increase the operating costs of Uber and Lift, which will of course be borne by the passengers. At the same time, new competition from independent and unionized drivers may emerge and return the industry to what it was before the business distortion created by Uber through cheap money it raised. If that happens, Y.ShortT. A very important boundary for the venture capital industry: All the money in the world cannot save a business model that exploitation of workers is a basic condition for its existence.

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