By Sam Hillen | April 26 2021 |
Have you ever taken an Uber? Or ordered take-out through Skip the Dishes, Doordash or any other third-party delivery service? You might even be old enough to be a driver yourself, making your own hours, working wherever you want, with no boss to tell you what to do. But how can a business like Uber afford to give so much freedom to its employees while st ill making billions of dollars every quarter? Well, it's because Uber doesn’t employ their drivers.
Uber, Lyft, Doordash, and other app-based driving companies don’t work like a regular business. Since each driver just signs up and registers to operate with the company, they’re technically a subcontractor picking up jobs that the company offers them. This business model which has come to be known as a ‘gig economy,’ poses a number of problems for restaurants and regular taxi companies.
Back in 2016, as Uber began to make its way into Kingston, taxi drivers rallied in front of the Kingston Area Taxi Commission against the lack of regulations that Uber’s business model favours. The taxi drivers made a case for the introduction of bylaws that would regulate app-based ride companies in order to even the playing field. As the fifth-largest employer in Kingston at the time, the double-standard held to taxi drivers was seen as a threat and a potential harm to the local economy. Unfortunately for the drivers, the KATC rejected their request to create a by-law.
Again in 2018 another push was made to regulate the rideshare companies. The Kingston Area Taxi Commission sought to bring into law a regulation that would force both Uber (and other similar ridesharing companies) and their drivers to pay a fee in order to operate inside Kingston. It would have been a one-time $40 000 startup fee as well as a $35 000 annual administration fee for the company. The drivers would also have to pay up to $950 annually to operate within city limits. Although the bylaw passed through the KATC it struggled to actually impact the drivers. There was little to no regulation preventing drivers from just not registering with the KATC as Uber did nothing to help with compliance. And in just the last month the topic arose again at a city council meeting which finally united with the KATC to create universal regulation for the ride-hailing industry and the taxi industry, though the policy proposals have yet to be established.
So why all the hullabaloo about more options for consumers? Well, the playing field between Uber and taxi companies aren’t even. Not even close. And it’s all because of the app-based gig-economy setup on which they rely. For one, Uber doesn’t actually have to pay corporate tax in Canada. They have few physical institutions where revenue is made and since their employees aren’t actually their employees, there is no liability to pay wages or any associated fees. In the eyes of the law it's like asking the Stockholm Mojang office to pay corporate taxes in Canada because Canadians have bought Minecraft; it’s a very grey area. In contrast the Kingston area taxi corporations need physical buildings everywhere their cabs drive, revenue is generated by actual employees, and the revenue centralizes through the business and must be declared as such. Taxis have been around significantly longer than these new app-based companies and the laws reflect this.
And this isn’t just the case for Uber. All the app-based ride sharing companies and the app-based third party delivery companies operate under this grey area and can always fall back on the fact that they have no drivers employed. The companies are able to increase profit margins allowing them to lower rates so much that it’s impossible for the taxis or individual restaurant delivery systems to compete. And on the topic of app-based delivery companies, they are similarly detrimental to local restaurants for many of the same reasons since, like Uber, they are able to decrease rates to a non-competitive price point.
As a result, restaurants can’t keep up and are forced to sign contracts with the companies in order to retain customers. And since these companies operate based on a fixed percentage of the order, restaurants can actually lose money on each sale through these apps.
The food and service industry is extremely delicate. Not just during this pandemic where people can’t go out and eat as easily, but even before. Profit margins for small and medium-sized restaurants are tiny when compared to other industries, about 2.8% on average. This means that for every $1 of food sold, the restaurant will net a profit of 2.8 cents. And yet the commission rate for the app-based delivery companies can be up to 30%. It varies but the average hovers from 20% to 30% depending on the company and the contract. For example simply ordering from a restaurant through Uber Eats in Toronto where the restaurant provides its own drivers, menu, and all labour is done by the restaurant the commission rate is 15% on the order. The only contribution made by Uber Eats is the app. For many small businesses owners it’s not even that they can be losing money on the deal, it’s that the money is going to a huge multi-billion dollar American corporation instead of supporting local, an Edmontonian restaurant owner explained.
So in our capitalist society it’s extremely important to regulate these multinationals in order to prevent predatory behavior that harms taxi companies and small restaurant owners. But another huge controversy with these types of gig-economy corporations is the mistreatment of the drivers, because the gig-economy doesn’t just hurt competitors it also hurts workers.
Again it all stems from the fact that in a gig-economy model, employees aren’t employed. They have no stable wage, they have no power to unionize demanding better benefits, and they have no protection under law from being ‘deactivated’ by the app-based company. Maybe you’ve refunded an order because it was wrong (or because you didn’t want to pay) and you’ve asked yourself, ‘who pays?’ Well it isn’t the delivery company. In fact, its everyone but the delivery company. Depending on what happened and who’s at fault, either the driver pays, or the restaurant does. For incorrect orders, it’s the restaurant. For failed deliveries, it's the driver. In the former case the restaurant has signed a contract with Uber Eats that makes them liable for the money. And for the latter the driver receives no pay and the restaurant makes up the difference, though in Australia some progress has been made to reduce stress on restaurants by protecting them from paying the failed delivery charges in this scenario.
And not only do these third party delivery companies take commission on the sales of restaurants, but also on the deliveries of the drivers. A New York Times article found that DoorDash delivery drivers don’t necessarily receive tips in the way you’d think. A DoorDash driver explains, “here’s how it works: If the woman in the bathrobe had tipped zero, DoorDash would have paid me the whole $6.85. Because she tipped $3, DoorDash kicked in only $3.85. She was saving DoorDash $3, not tipping me.” So although the driver receives 100% of the tip, he still doesn’t receive any more money because DoorDash is just pocketing it.
Over the last 6 years Uber has been defending its gig-economy model citing the freedom that it gives to its contractors as its reason for its success. Uber, and other app-based companies, has been combating efforts made by drivers to unionize and gain workers rights as under current circumstances they are more so protected under consumer legislation which nets significantly less protection. When Foodora’s Ontario drivers began to unite and unionize, the company left the country claiming they were “faced with strong competition in the Canadian market…[and] been unable to get to a position which would allow [them] to continue to operate without having to continually absorb losses,” leaving hundreds of workers without an income. This of course came only after the Ontario Labour Relations Board successfully voted on worker unionization, something for which the drivers had been fighting for months.
Despite what Uber and other companies want you to think about their drivers, they want unionization. One study conducted by UCLA based on interviews, surveys, policy and literature reviews found that half of all drivers in the LA area were driving as their only source of income. Two thirds were driving as their primary source of income and of those that had two or more jobs over half were working in the service industry, one of the hardest hit from the pandemic. One in five drivers needed food stamps, subsidized medical assistance, or other government aid. But most interesting of all is that 79% of drivers were in favour of joining a worker organization for better wages and improved working conditions.
The other thing that is important to note is the passive cost of being a driver; you need to pay for a car and the accompanying maintenance fees. The report indicates that 36% of drivers choose to lease or purchase a car for the purpose of driving for the company. Though many of the expenses including oil changes, gas money, cleaning fees, insurance, all costs associated with the operation of the vehicle can be written off as tax deductions, many drivers are unaware and bear the burden of paying without compensation. This largely negates the money made by the driver as Uber has no responsibility of compensation for the drivers’ expenses.
Some suggestions made by the report include optional employment by the company, increased regulation to incentivise competition with taxi companies, and increased studies on gig-economy models. The optional employment could be an excellent solution to the workers rights issues as it solves the issue of full-time driver exploitation while retaining the flexible ‘gig’ option. And like what Kingston is beginning to do with rideshare companies, it could begin to legislate against third party delivery companies as well.
But aside from legislative changes, the consumer can also perform minor actions that can aid the situation in the short term. When ordering from restaurants, if possible call them and order through their system. Many restaurants also have their own websites that can be used to directly order from the restaurant. The restaurant doesn’t have to pay a billion dollar multinational, and drivers that work for the restaurant have fair wages and benefits. And if you are buying through an app, tipping in cash ensures that the company can’t take a cut of the tip in the fineprint.
As for rideshare companies, it depends on where you live. In Kingston, Taxis and Ubers are pretty much even in price. The attraction of Uber used to be the app’s UI but companies like Amey’s and Modern taxi have developed a similar app that also allows you to track the location of your cab in real-time. It doesn’t really make a difference which one you choose. But for bigger cities like Toronto or Montreal, it makes all the difference. Since there are so many more drivers and so much more of a demand, ride-sharing companies can drive down their price to make it impossible for taxis to compete. In this case you as a consumer are incentivized to take an Uber and there’s not much more that you can do other than paying a cash tip to the driver.
As these giant companies move into Canada without being regulated, our taxis, local restaurants, and workers rights are being jeopardized. The lack of government action at all levels over the last ten years is concerning for many of those affected, especially full-time drivers. The topic of gig-economy has never been more pertinent than during a pandemic when its utility is something that can’t just be thrown out the door. We have to work together with all parties involved to come to an agreement that balances the convenience of the service with those who are currently being exploited and put out of business. Perhaps in the future this gig-economy model can successfully coincide with the less modern systems we have in place, as their convenience is something that no one wants to see go away.
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