San Francisco-based tech company Uber was founded in 2009 as a way to connect people in the city who needed rides (but couldn't find taxis) with limousine and town car drivers who wanted to make extra money. The company went public in May 2019 and the stock trades under the ticker symbol UBER.
Today, Uber connects drivers and passengers in 400 cities worldwide and its drivers include, not just professionals, but also average people willing to drive strangers around for a fee. The company launched its UberEats food-delivery app in 2014 and a helicopter taxi-service to JFK airport in New York City in 2019.
Uber has seen a number of competitors, such as Lyft and Via, spring up in the ride-sharing business and the company has faced regulatory issues worldwide. From being banned at airports (and entire countries) to increasing costs of operation, Uber has four challenges on its hands in America and abroad.
- Founded in 2009, Uber is a ride-sharing platform that connects drivers with passengers.
- While some Uber drivers are professional drivers, others are average people driving others around for a fee.
- Among the challenges Uber faces are laws in California that require ride-sharing companies to treat drivers as employees rather than independent contractors.
- Changes in laws can also affect how much Uber pays in taxes.
- Some countries and airports have banned ride-sharing companies altogether.
California Leads the Way
The California Senate passed Assembly Bill 5 in 2019 and the rule would require Uber, Lyft, and other companies to treat workers as employees rather than independent contractors. Although the bill is expected to become law, Uber's top attorney said in response that the company would not begin treating drivers as employees despite the legislation.
Uber maintains that it is a technology company and that its sole function is to connect drivers and passengers. This works out well for the company–it can start operating in new markets easily and doesn't need to concern itself with employer-employee laws and the related responsibilities and obligations. Without an employer-employee relationship, Uber isn't obliged to pay Social Security taxes, unemployment insurance, or worker's compensation. And, it is not required to reimburse drivers for mileage.
While some drivers are upset about being treated as independent contractors, others welcome the flexibility and freedom that comes with not being an employee. Uber drivers can work when they want, for as many hours as they want, and for less than minimum wage if they so choose.
If the California courts declare Uber drivers to be Uber employees, however, the company will be forced to either lower payments to its drivers, pay them minimum wage, increase rates or, in the worst case scenario, stop operating in California. With a population of 39 million, California is a huge market for Uber. In addition, the new, legal precedent suggests drivers in other states will likely wage their own court battles against the company.
On November 3, 2020, Proposition 22 was introduced on the ballet in California, which defined app-based transportation and delivery drivers as independent contractors, which would override Assembly Bill 5 (AB 5). Proposition 22 was approved.
The next challenge that Uber faces relates to the employer-employee relationship. If Uber is dismissed as being a technology company, governments can argue that the entire ride payment is revenue for Uber and subject to city and state taxes.
Uber already faces complaints from various governments that it shirks its tax liabilities onto its drivers and that the drivers are often non-compliant about paying their taxes. More tax legislation could exacerbate the problem and will also mean either an increase in ride fares or the end of Uber operations in that particular city or state.
The Risk of Being an Uber Driver
Aside from the risk of potentially being non-compliant with taxes, Uber drivers face incredible risk when working in cities or countries that have banned the company. In various countries, Uber is outright forbidden. In others, there is a call for regulation in the industry or for the governments to declare the car-sharing app illegal.
Aside from government intervention, airport authorities have been cracking down on Uber drivers. The authorities have begun charging Uber drivers access fees to drop-off and pick-up customers at the airport. The access fees increase the cost of a ride for consumers, making the service less competitive when compared to traditional taxis.
International Expansion Comes With Risks
As Uber continues to expand outside of the United States, it increases its operational risks. In Asia, for example, the ratio of taxis to population are higher than in America. Because of this, there is more competition between Uber drivers and traditional taxis.
Furthermore, taxi service in Asia is fast, clean, cheap and, in some countries, can be paid for via NFC cell phones using apps such as Alipay—negating Uber's competitive advantage of being able to pay for a ride with its app.
The number of countries with Uber drivers as of January 2021.
With more reliable and cheaper service than in America, it seems unlikely that there is a strong market for Uber abroad. As the technology company expands and is met with governmental opposition and protest, it will find it harder to get drivers to compete against established taxi companies.
The Bottom Line
Uber is a company that disrupted the transportation system. In its role as a liaison between customers and drivers, the company takes a cut and the platform is among the most successful in the world. But Uber is struggling to attain profitability. In its first report as a public company, Uber said it lost more than $1 billion on $3.1 billion in revenue during the first quarter of 2019. While Uber stands to make a crazy amount of money given its high revenue and the low wages that drivers earn, it's not shocking to learn that Uber is facing many challenges as it grows.