[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.
This post is authored by Eline Chivot, (Senior Policy Analyst, Center for Data Innovation, Information Technology and Innovation Foundation.).]
As the COVID-19 outbreak led to the shutdown of many stores, e-commerce and brick-and-mortar shops have been stepping up efforts to facilitate online deliveries while ensuring their workers’ safety. Without online retail, lockdown conditions would have been less tolerable, and confinement measures less sustainable. Yet a recent French court’s ruling on Amazon seems to be a justification for making life more difficult for some of these businesses and more inconvenient for people by limiting consumer choice. But in a context that calls for as much support to economic activity and consumer welfare as possible, that makes little sense. In fact, the court’s decision is symptomatic of how countries use industrial policy to treat certain companies with double standards.
On April 24, Amazon lost its appeal of a French court order requiring the platform to stop delivering “non-essential items” until it evaluates workers’ risk of coronavirus exposure in its six French warehouses. The online retailer is now facing penalties of about 100,000 euros (about $110,000) per delivery, and was given 48 hours to reduce its warehouse activities and operations.
But the complexity of logistics would make it difficult to adjust and limit deliveries to just “essential items.” Given the novelty of the situation, there were no official, precise, and pre-determined lists in place, nor was there clarity about who gets to decide, nor was there a common understanding of what customers would consider essential services or goods. As a result, Amazon temporarily closed its six French distribution centers, and is now shipping to its French customers from its warehouses in other European countries. If France wants to apply such measure for worker safety in this time of crisis, that’s clearly its right. But the requirement should apply to all online retailers equally, not just to the American company Amazon.
The court’s decision was made on the grounds that Amazon had not implemented sufficient safety measures for its workers. The turnaround last week of trade unions (who had initiated the complaints against Amazon and called for the shutdown of its facilities) and their proposition to “gradually” resume operations speak volume. Like many other companies, Amazon had invested in additional safety measures for its employees during the crisis, distributed masks and gloves to its workers, had taken their temperatures before their shifts, had built testing capacity, and proactively decided to prioritize the delivery of essential goods. Like many other companies, Amazon had to rapidly cope with unprecedented circumstances it wasn’t prepared to handle, while having to juggle a surge in online orders during lockdowns and make do with some governments’ unclear guidance regarding safety measures.
But France has long prioritized worker welfare over broad economic welfare—which includes worker welfare, but also consumer welfare and economic growth. Yet, in this case, that prioritization seems to only apply to Amazon. French retailers like Fnac, Cdiscount, Spartoo, and La Redoute did not face the same degree of judicial scrutiny despite similar complaints about distribution centers. Nor did they have to restrict their deliveries to “essential goods.” But in France, it seems, what is good for French geese isn’t good for U.S. ganders. In fact, the real issue appears to be the French application of industrial policy. According to a union representative of Fnac, this is about “preventing Amazon from gaining market share over French retailers during lockdown,” so that the latter can reap the benefits. Using the crisis as an excuse to restructure the French retail sector is certainly one creative application of industrial policy.
Moreover, by applying these restrictions (either just to Amazon or across all retailers who engage in e-commerce), the French government is deepening the economic crisis. The restrictions it has imposed on Amazon are likely to accentuate the losses many French small- and medium-sized companies are already facing because of the COVID-19 crisis, while also having longer-term negative consequences for its logistics network in France. Many such firms rely on Amazon’s platform to sell, ship, and develop their business, and now have to turn to more expensive delivery services. In addition, the reduction in activity by its distribution centers could force Amazon to furlough many of its 9,300 French workers.
According to the unions, Amazon’s activity is judged “nonessential to the life of the country.” Never mind that Amazon partners with French retailers like Casino and is rescuing brands like Deliveroo during the crisis. In addition, online companies like Amazon, HelloFresh and Instacarthired more workers to manage growing demands during the crisis, while others had to furlough or layoff their staff. Beyond, French brands will need economically robust allies like Amazon to compete with Chinese state-backed giants like Alibaba that are expanding their footprint in European markets, and that have come under fire for dubious workplace practices.
Finally, the French court’s decision is an inconvenience to the 22.2 million people in France who order via Amazon, depend on efficient home deliveries to cope with strict confinement measures, and are now being told what is essential or not. With Amazon relying on other European warehouses for deliveries and being forced to limit them to items such as IT products, health and nutrition items, food, and pet food, consumers will be faced with delayed deliveries and reduced access to product variety. The court’s decision also hurts many French merchants who use Amazon for warehousing and fulfillment, as they are effectively locked out of accessing their stock.
Non-discrimination is, or least should be, a core principle of rule-of-law nations. It appears that, at least in this case, France does not think it should apply to non-French firms.
[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.
This post is authored by John Newman, Associate Professor, University of Miami School of Law; Advisory Board Member, American Antitrust Institute; Affiliated Fellow, Thurman Arnold Project, Yale; Former Trial Attorney, DOJ Antitrust Division.)]
Cooperation is the basis of productivity. The war of all against all is not a good model for any economy.
Who said it—a rose-emoji Twitter Marxist, or a card-carrying member of the laissez faire Chicago School of economics? If you guessed the latter, you’d be right. Frank Easterbrook penned these words in an antitrust decision written shortly after he left the University of Chicago to become a federal judge. Easterbrook’s opinion, now a textbook staple, wholeheartedly endorsed a cooperative agreement between two business owners not to compete with each another.
But other enforcers and judges have taken a far less favorable view of cooperation—particularly when workers are the ones cooperating. A few years ago, in an increasingly rare example of interagency agreement, the DOJ and FTC teamed up to argue against a Seattle ordinance that would have permitted drivers to cooperatively bargain with Uber and Lyft. Why the hostility from enforcers? “Competition is the lynchpin of the U.S. economy,” explained Acting FTC Chairman Maureen Ohlhausen.
Should workers be able to cooperate to counter concentrated corporate power? Or is bellum omnium contra omnes truly the “lynchpin” of our industrial policy?
The coronavirus pandemic has thrown this question into sharper relief than ever before. Low-income workers—many of them classified as independent contractors—have launched multiple coordinated boycotts in an effort to improve working conditions. The antitrust agencies, once quick to condemn similar actions by Uber and Lyft drivers, have fallen conspicuously silent.
Why? Why should workers be allowed to negotiate cooperatively for a healthier workplace, yet not for a living wage? In a society largely organized around paying for basic social services, money is health—and even life itself.
Unraveling the Double Standard
Antitrust law, like the rest of industrial policy, involves difficult questions over which members of society can cooperate with one another. These laws allocate “coordination rights”. Before the coronavirus pandemic, industrial policy seemed generally to favor allocating these rights to corporations, while simultaneously denying them to workers and class-action plaintiffs. But, as the antitrust agencies’ apparent about-face on workplace organizing suggests, the times may be a-changing.
Some of today’s most existential threats to societal welfare—pandemics, climate change, pollution—will best be addressed via cooperation, not atomistic rivalry. On-the-ground stakeholders certainly seem to think so. Absent a coherent, unified federal policy to deal with the coronavirus pandemic, state governors have reportedly begun to consider cooperating to provide a coordinated regional response. Last year, a group of auto manufacturers voluntarily agreed to increase fuel-efficiency standards and reduce emissions. They did attract an antitrust investigation, but it was subsequently dropped—a triumph for pro-social cooperation. It was perhaps also a reminder that corporations, each of which is itself a cooperative enterprise, can still play the role they were historically assigned: serving the public interest.
Going forward, policy-makers should give careful thought to how their actions and inactions encourage or stifle cooperation. Judge Easterbrook praised an agreement between business owners because it “promoted enterprise”. What counts as legitimate “enterprise”, though, is an eminently contestable proposition.
The federal antitrust agencies’ anti-worker stance in particular seems ripe for revisiting. Its modern origins date back to the 1980s, when President Reagan’s FTC challenged a coordinated boycott among D.C.-area criminal-defense attorneys. The boycott was a strike of sorts, intended to pressure the city into increasing court-appointed fees to a level that would allow for adequate representation. (The mayor’s office, despite being responsible for paying the fees, actually encouraged the boycott.) As the sole buyer of this particular type of service, the government wielded substantial power in the marketplace. A coordinated front was needed to counter it. Nonetheless, the FTC condemned the attorneys’ strike as per se illegal—a label supposedly reserved for the worst possible anticompetitive behavior—and the U.S. Supreme Court ultimately agreed.
Reviving Cooperation
In the short run, the federal antitrust agencies should formally reverse this anti-labor course. When workers cooperate in an attempt to counter employers’ power, antitrust intervention is, at best, a misallocation of scarce agency resources. Surely there are (much) bigger fish to fry. At worst, hostility to such cooperation directly contravenes Congress’ vision for the antitrust laws. These laws were intended to protect workers from concentrated downstream power, not to force their exposure to it—as the federal agencies themselves have recognized elsewhere.
In the longer run, congressional action may be needed. Supreme Court antitrust case law condemning worker coordination should be legislatively overruled. And, in a sharp departure from the current trend, we should be making it easier, not harder, for workers to form cooperative unions. Capital can be combined into a legal corporation in just a few hours, while it takes more than a month to create an effective labor union. None of this is to say that competition should be abandoned—much the opposite, in fact. A market that pits individual workers against highly concentrated cooperative entities is hardly “competitive”.
Thinking more broadly, antitrust and industrial policy may need to allow—or even encourage—cooperation in a number of sectors. Automakers’ and other manufacturers’ voluntary efforts to fight climate change should be lauded and protected, not investigated. Where cooperation is already shielded and even incentivized, as is the case with corporations, affirmative steps may be needed to ensure that the public interest is being furthered.
The current moment is without precedent. Industrial policy is destined, and has already begun, to change. Although competition has its place, it cannot serve as the sole lynchpin for a just economy. Now more than ever, a revival of cooperation is needed.
[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.
This post is authored by Dirk Auer, (Senior Researcher, Liege Competition & Innovation Institute; Senior Fellow, ICLE).]
Across the globe, millions of people are rapidly coming to terms with the harsh realities of life under lockdown. As governments impose ever-greater social distancing measures, many of the daily comforts we took for granted are no longer available to us.
And yet, we can all take solace in the knowledge that our current predicament would have been far less tolerable if the COVID-19 outbreak had hit us twenty years ago. Among others, we have Big Tech firms to thank for this silver lining.
Contrary to the claims of critics, such as Senator Josh Hawley, Big Tech has produced game-changing innovations that dramatically improve our ability to fight COVID-19.
The previous post in this series showed that innovations produced by Big Tech provide us with critical information, allow us to maintain some level of social interactions (despite living under lockdown), and have enabled companies, universities and schools to continue functioning (albeit at a severely reduced pace).
But apart from information, social interactions, and online working (and learning); what has Big Tech ever done for us?
One of the most underappreciated ways in which technology (mostly pioneered by Big Tech firms) is helping the world deal with COVID-19 has been a rapid shift towards contactless economic transactions. Not only are consumers turning towards digital goods to fill their spare time, but physical goods (most notably food) are increasingly being exchanged without any direct contact.
These ongoing changes would be impossible without the innovations and infrastructure that have emerged from tech and telecommunications companies over the last couple of decades.
Of course, the overall picture is still bleak. The shift to contactless transactions has only slightly softened the tremendous blow suffered by the retail and restaurant industries – some predictions suggest their overall revenue could fall by at least 50% in the second quarter of 2020. Nevertheless, as explained below, this situation would likely be significantly worse without the many innovations produced by Big Tech companies. For that we would be thankful.
1. Food and other goods
For a start, the COVID-19 outbreak (and government measures to combat it) has caused many brick & mortar stores and restaurants to shut down. These closures would have been far harder to implement before the advent of online retail and food delivery platforms.
At the time of writing, e-commerce websites already appear to have witnessed a 20-30% increase in sales (other sources report 52% increase, compared to the same time last year). This increase will likely continue in the coming months.
The Amazon Retail platform has been at the forefront of this online shift.
Having witnessed a surge in online shopping, Amazon announced that it would be hiring 100.000 distribution workers to cope with the increased demand. Amazon’s staff have also been asked to work overtime in order to meet increased demand (in exchange, Amazon has doubled their pay for overtime hours).
To attract these new hires and ensure that existing ones continue working, Amazon simultaneously announced that it would be increasing wages in virus-hit countries (from $15 to $17, in the US) .
Amazon also stopped accepting “non-essential” goods in its warehouses, in order to prioritize the sale of household essentials and medical goods that are in high demand.
Finally, in Italy, Amazon decided not to stop its operations, despite some employees testing positive for COVID-19. Controversial as this move may be, Amazon’s private interests are aligned with those of society – maintaining the supply of essential goods is now more important than ever.
And it is not just Amazon that is seeking to fill the breach left temporarily by brick & mortar retail. Other retailers are also stepping up efforts to distribute their goods online.
The apps of traditional retail chains have witnessed record daily downloads (thus relying on the smartphone platforms pioneered by Google and Apple).
Walmart has become the go-to choice for online food purchases:
Given the drastically lower activity within their brick & mortar stores, Walmart and Target, among others, have announced they would make their parking lots available for drive-thru testing.
The shift to online shopping mimics what occurred in China, during its own COVID-19 lockdown.
According to an article published in HBR, e-commerce penetration reached 36.6% of retail sales in China (compared to 29.7% in 2019). The same article explains how Alibaba’s technology is enabling traditional retailers to better manage their supply chains, ultimately helping them to sell their goods online.
A study by Nielsen ratings found that 67% of retailers would expand online channels.
Spurred by compassion and/or a desire to boost its brand abroad, Alibaba and its founder, Jack Ma, have made large efforts to provide critical medical supplies (notably tests kits and surgical masks) to COVID-hit countries such as the US and Belgium.
And it is not just retail that is adapting to the outbreak. Many restaurants are trying to stay afloat by shifting from in-house dining to deliveries. These attempts have been made possible by the emergence of food delivery platforms, such as UberEats and Deliveroo.
These platforms have taken several steps to facilitate food deliveries during the outbreak.
UberEats announced that it would be waiving delivery fees for independent restaurants.
Both UberEats and Deliveroo have put in place systems for deliveries to take place without direct physical contact. While not entirely risk-free, meal delivery can provide welcome relief to people experiencing stressful lockdown conditions.
Similarly, the shares of Blue Apron – an online meal-kit delivery service – have surged more than 600% since the start of the outbreak.
In short, COVID-19 has caused a drastic shift towards contactless retail and food delivery services. It is an open question how much of this shift would have been possible without the pioneering business model innovations brought about by Amazon and its online retail platform, as well as modern food delivery platforms, such as UberEats and Deliveroo. At the very least, it seems unlikely that it would have happened as fast.
The entertainment industry is another area where increasing digitization has made lockdowns more bearable. The reason is obvious: locked-down consumers still require some form of amusement. With physical supply chains under tremendous strain, and social gatherings no longer an option, digital media has thus become the default choice for many.
Data published by Verizon shows a sharp increase (in the week running from March 9 to March 16) in the consumption of digital entertainment, especially gaming:
This echoes other sources, which also report that the use of traditional streaming platforms has surged in areas hit by COVID-19.
Netflix subscriptions are said to be spiking in locked-down communities. During the first week of March, Netflix installations increased by 77% in Italy and 33% in Spain, compared to the February average. Netflix app downloads increased by 33% in Hong kong and South Korea. The Amazon Prime app saw a similar increase.
Disney Plus has also been highly popular. According to one source, half of US homes with children under the age of 10 purchased a Disney Plus subscription. This trend is expected to continue during the COVID-19 outbreak. Disney even released Frozen II three months ahead of schedule in order to boost new subscriptions.
Hollywood studios have started releasing some of their lower-profile titles directly on streaming services.
Traffic has also increased significantly on popular gaming platforms.
According to the CEO of Verizon, gaming hours have gone up 75% since the start of COVID-19 lockdows, in early March.
Fortnite is also experiencing increased usage. In Italy, of example, game time is said to have increased by 70% since the beginning of the outbreak.
EA’s Call of Duty: Warzone achieved a record 15 million downloads in the first three days following its release. Its release likely led to the biggest peak in network usage, in the UK, since the start of the COVID-19 outbreak.
These are just a tiny sample of the many ways in which digital entertainment is filling the void left by social gatherings. It is thus central to the lives of people under lockdown.
2. Cashless payments
But all of the services that are listed above rely on cashless payments – be it to limit the risk or contagion or because these transactions take place remotely. Fintech innovations have thus turned out to be one of the foundations that make social distancing policies viable.
This is particularly evident in the food industry.
Food delivery platforms, like UberEats and Deliveroo, already relied on mobile payments.
Costa coffee (a UK equivalent to starbucks) went cashless in an attempt to limit the spread of COVID-19.
Domino’s Pizza, among other franchises, announced that it would move to contactless deliveries.
President Donald Trump is said to have discussed plans to keep drive-thru restaurants open during the outbreak. This would also certainly imply exclusively digital payments.
And although doubts remain concerning the extent to which the SARS-CoV-2 virus may, or may not, be transmitted via banknotes and coins, many other businesses have preemptively ceased to accept cash payments.
As the Jodie Kelley – the CEO of the Electronic Transactions Association – put it, in a CNBC interview:
Contactless payments have come up as a new option for consumers who are much more conscious of what they touch.
This increased demand for cashless payments has been a blessing for Fintech firms.
Though it is too early to gage the magnitude of this shift, early signs – notably from China – suggest that mobile payments have become more common during the outbreak.
In China, Alipay announced that it expected to radically expand its services to new sectors – restaurants, cinema bookings, real estate purchases – in an attempt to compete with WeChat.
PayPal has also witnessed an uptick in transactions, though this growth might ultimately be weighed-down by declining economic activity.
In the past, Facebook had revealed plans to offer mobile payments across its platforms – Facebook, WhatsApp, Instagram & Libra. Those plans may not have been politically viable at the time. The COVID-19 could conceivably change this.
In short, the COVID-19 outbreak has increased our reliance on digital payments, as these can both take place remotely and, potentially, limit contamination via banknotes. None of this would have been possible twenty years ago when industry pioneers, such as PayPal, were in their infancy.
3. High speed internet access
Similarly, it goes without saying that none of the above would be possible without the tremendous investments that have been made in broadband infrastructure, most notably by internet service providers. Though these companies have often faced strong criticism from the public, they provide the backbone upon which outbreak-stricken economies can function.
By causing so many activities to move online, the COVID-19 outbreak has put broadband networks to the test. So for, broadband infrastructure around the world has been up to the task. This is partly because the spike in usage has occurred in daytime hours (where network’s capacity is less straine), but also because ISPs traditionally rely on a number of tools to limit peak-time usage.
The biggest increases in usage seem to have occurred in daytime hours. As data from OpenVault illustrates:
Anecdotal data also suggests that, so far, fixed internet providers have not significantly struggled to handle this increased traffic (the same goes for Content Delivery Networks). Not only were these networks already designed to withstand high peaks in demand, but ISPs have, such as Verizon, increased their capacity to avoid potential issues.
For instance, internet speed tests performed using Ookla suggest that average download speeds only marginally decreased, it at all, in locked-down regions, compared to previous levels:
However, the same data suggests that mobile networks have faced slightly larger decreases in performance, though these do not appear to be severe. For instance, contrary to contemporaneous reports, a mobile network outage that occurred in the UK is unlikely to have been caused by a COVID-related surge.
The robustness exhibited by broadband networks is notably due to long-running efforts by ISPs (spurred by competition) to improve download speeds and latency. As one article put it:
For now, cable operators’ and telco providers’ networks are seemingly withstanding the increased demands, which is largely due to the upgrades that they’ve done over the past 10 or so years using technologies such as DOCSIS 3.1 or PON.
Pushed in part by Google Fiber’s launch back in 2012, the large cable operators and telcos, such as AT&T, Verizon, Comcast and Charter Communications, have spent years upgrading their networks to 1-Gig speeds. Prior to those upgrades, cable operators in particular struggled with faster upload speeds, and the slowdown of broadband services during peak usage times, such as after school and in the evenings, as neighborhood nodes became overwhelmed.
This is not without policy ramifications.
For a start, these developments might vindicate antitrust enforcers that allowed mergers that led to higher investments, sometimes at the expense of slight reductions in price competition. This is notably the case for so-called 4 to 3 mergers in the wireless telecommunications industry. As an in-depth literature review by ICLE scholars concludes:
Studies of investment also found that markets with three facilities-based operators had significantly higher levels of investment by individual firms.
This may seem like a trivial problem, but it was totally avoidable. As a result of net neutrality regulation, European authorities and content providers have been forced into an awkward position (likely unfounded) that unnecessarily penalizes those consumers and ISPs who do not face congestion issues (conversely, it lets failing ISPs off the hook and disincentivizes further investments on their part). This is all the more unfortunate that, as argued above, streaming services are essential to locked-down consumers.
Critics may retort that small quality decreases hardly have any impact on consumers. But, if this is indeed the case, then content providers were using up unnecessary amounts of bandwidth before the COVID-19 outbreak (something that is less likely to occur without net neutrality obligations). And if not, then European consumers have indeed been deprived of something they valued. The shoe is thus on the other foot.
These normative considerations aside, the big point is that we can all be thankful to live in an era of high-speed internet.
4. Concluding remarks
Big Tech is rapidly emerging as one of the heroes of the COVID-19 crisis. Companies that were once on the receiving end of daily reproaches – by the press, enforcers, and scholars alike – are gaining renewed appreciation from the public. Times have changed since the early days of these companies – where consumers marvelled at the endless possibilities that their technologies offered. Today we are coming to realize how essential tech companies have become to our daily lives, and how they make society more resilient in the face of fat-tailed events, like pandemics.
The move to a contactless, digital, economy is a critical part of what makes contemporary societies better-equipped to deal with COVID-19. As this post has argued, online delivery, digital entertainment, contactless payments and high speed internet all play a critical role.
To think that we receive some of these services for free…
Last year, Erik Brynjolfsson, Avinash Collins and Felix Eggers published a paper in PNAS, showing that consumers were willing to pay significant sums for online goods they currently receive free of charge. One can only imagine how much larger those sums would be if that same experiment were repeated today.
Even Big Tech’s critics are willing to recognize the huge debt we owe to these companies. As Stephen Levy wrote, in an article titled “Has the Coronavirus Killed the Techlash?”:
Who knew the techlash was susceptible to a virus?
The pandemic does not make any of the complaints about the tech giants less valid. They are still drivers of surveillance capitalism who duck their fair share of taxes and abuse their power in the marketplace. We in the press must still cover them aggressively and skeptically. And we still need a reckoning that protects the privacy of citizens, levels the competitive playing field, and holds these giants to account. But the momentum for that reckoning doesn’t seem sustainable at a moment when, to prop up our diminished lives, we are desperately dependent on what they’ve built. And glad that they built it.
While it is still early to draw policy lessons from the outbreak, one thing seems clear: the COVID-19 pandemic provides yet further evidence that tech policymakers should be extremely careful not to kill the goose that laid the golden egg, by promoting regulations that may thwart innovation (or the opposite).
On Tuesday, August 28, 2018, Truth on the Market and the International Center for Law and Economics presented a blog symposium — Is Amazon’s Appetite Bottomless? The Whole Foods Merger After One Year — that looked at the concerns surrounding the closing of the Amazon-Whole Foods merger, and how those concerns had played out over the last year.
The difficulty presented by the merger was, in some ways, its lack of difficulty: Even critics, while hearkening back to the Brandeisian fear of large firms, had little by way of legal objection to offer against the merger. Despite the acknowledged lack of an obvious legal basis for challenging the merger, most critics nevertheless expressed a somewhat inchoate and generalized concern that the merger would hasten the death of brick-and-mortar retail and imperil competition in the grocery industry. Critics further pointed to particular, related issues largely outside the scope of modern antitrust law — issues relating to the presumed effects of the merger on “localism” (i.e., small, local competitors), retail workers, startups with ancillary businesses (e.g., delivery services), data collection and use, and the like.
Steven Horwitz opened the symposium with an insightful and highly recommended post detailing the development of the grocery industry from its inception. Tracing through that history, Horwitz was optimistic that
Viewed from the long history of the evolution of the grocery store, the Amazon-Whole Foods merger made sense as the start of the next stage of that historical process. The combination of increased wealth that is driving the demand for upscale grocery stores, and the corresponding increase in the value of people’s time that is driving the demand for one-stop shopping and various forms of pick-up and delivery, makes clear the potential benefits of this merger.
Others in the symposium similarly acknowledged the potential transformation of the industry brought on by the merger, but challenged the critics’ despairing characterization of that transformation (Auer, Manne & Stout, Rinehart, Fruits, Atkinson).
At the most basic level, it was noted that, in the immediate aftermath of the merger, Whole Foods dropped prices across a number of categories as it sought to shore up its competitive position (Auer). Further, under relevant antitrust metrics — e.g., market share, ease of competitive entry, potential for exclusionary conduct — the merger was completely unobjectionable under existing doctrine (Fruits).
To critics’ claims that Amazon in general, and the merger in particular, was decimating the retail industry, several posts discussed the updated evidence suggesting that retail is not actually on the decline (although some individual retailers are certainly struggling to compete) (Auer, Manne & Stout). Moreover, and following from Horwitz’s account of the evolution of the grocery industry, it appears that the actual trajectory of the industry is not an either/or between online and offline, but instead a movement toward integrating both models into a single retail experience (Manne & Stout). Further, the post-merger flurry of business model innovation, venture capital investment, and new startup activity demonstrates that, confronted with entrepreneurial competitors like Walmart, Kroger, Aldi, and Instacart, Amazon’s impressive position online has not translated into an automatic domination of the traditional grocery industry (Manne & Stout).
Symposium participants more circumspect about the merger suggested that Amazon’s behavior may be laying the groundwork for an eventual monopsony case (Sagers). Further, it was suggested, a future Section 2 case, difficult under prevailing antitrust orthodoxy, could be brought with a creative approach to market definition in light of Amazon’s conduct with its marketplace participants, its aggressive ebook contracting practices, and its development and roll-out of its own private label brands (Sagers).
Skeptics also picked up on early critics’ concerns about the aggregation of large amounts of consumer data, and worried that the merger could be part of a pattern representing a real, long-term threat to consumers that antitrust does not take seriously enough (Bona & Levitsky). Sounding a further alarm, Hal Singer noted that Amazon’s interest in pushing into new markets with data generated by, for example, devices like its Echo line could bolster its ability to exclude competitors.
More fundamentally, these contributors echoed the merger critics’ concerns that antitrust does not adequately take account of other values such as “promoting local, community-based, organic food production or ‘small firms’ in general.” (Bona & Levitsky; Singer).
Rob Atkinson, however, pointed out that these values are idiosyncratic and not likely shared by the vast majority of the population — and that antitrust law shouldn’t have anything to do with them:
In short, most of the opposition to Amazon/Whole Foods merger had little or nothing to do with economics and consumer welfare. It had everything to do with a competing vision for the kind of society we want to live in. The neo-Brandesian opponents, who Lind and I term “progressive localists”, seek an alternative economy predominantly made up of small firms, supported by big government and protected from global competition.
And Dirk Auer noted that early critics’ prophecies of foreclosure of competition through “data leveraging” and below-cost pricing hadn’t remotely come to pass, thus far.
Meanwhile, other contributors noted the paucity of evidence supporting many of these assertions, and pointed out the manifest value the merger seemed to be creating by pressuring competitors to adapt and better respond to consumers’ preferences (Horwitz, Rinehart, Auer, Fruits,Manne & Stout) — in the process shoring up, rather than killing, even smaller retailers that are willing and able to evolve with changing technology and shifting consumer preferences. “For all the talk of retail dying, the stores that are actually dying are the ones that fail to cater to their customers, not the ones that happen to be offline” (Manne & Stout).
At the same time, not all merger skeptics were moved by the Neo-Brandeisian assertions. Chris Sagers, for example, finds much of the populist antitrust objection more public relations than substance. He suggested perhaps not taking these ideas and their promoters so seriously, and instead focusing on antitrust advocates with “real ideas” (like Sagers himself, of course).
Coming from a different angle, Will Rinehart also suggested not taking the criticisms too seriously, pointing to the evolving and complicated effects of the merger as Exhibit A for the need for regulatory humility:
Finally, this deal reiterates the need for regulatory humility. Almost immediately after the Amazon-Whole Foods merger was closed, prices at the store dropped and competitors struck a flurry of deals. Investments continue and many in the grocery retail space are bracing for a wave of enhancement to take hold. Even some of the most fierce critics of deal will have to admit there is a lot of uncertainty. It is unclear what business model will make the most sense in the long run, how these technologies will ultimately become embedded into production processes, and how consumers will benefit. Combined, these features underscore the difficulty, but the necessity, in implementing dynamic insights into antitrust institutions.
Offering generous praise for this symposium (thanks, Will!) and echoing the points made by other participants regarding the dynamic and unknowable course of competition (Auer, Horwitz, Manne & Stout, Fruits), Rinehart concludes:
Retrospectives like this symposium offer a chance to understand what the discussion missed at the time and what is needed to better understand innovation and competition in markets. While it might be too soon to close the book on this case, the impact can already be felt in the positions others are taking in response. In the end, the deal probably won’t be remembered for extending Amazon’s dominance into another market because that is a phantom concern. Rather, it will probably be best remembered as the spark that drove traditional retail outlets to modernize their logistics and fulfillment efforts.
For a complete rundown of the arguments both for and against, the full archive of symposium posts from our outstanding and diverse group of scholars, practitioners, and other experts is available at this link, and individual posts can be easily accessed by clicking on the authors’ names below.
What actually happened in the year following the merger is nearly the opposite: Competition among grocery stores has been more fierce than ever. “Offline” retailers are expanding — and innovating — to meet Amazon’s challenge, and many of them are booming. Disruption is never neat and tidy, but, in addition to saving Whole Foods from potential oblivion, the merger seems to have lit a fire under the rest of the industry.
This result should not be surprising to anyone who understands the nature of the competitive process. But it does highlight an important lesson: competition often comes from unexpected quarters and evolves in unpredictable ways, emerging precisely out of the kinds of adversity opponents of the merger bemoaned.
Even with these caveats, it’s still worth looking at the recent trends. Whole Foods’s sales since 2015 have been flat, with only low single-digit growth, according to data from Second Measure. This suggests Whole Foods is not yet getting a lift from the relationship. However, the percentage of Whole Foods’ new customers who are Prime Members increased post-merger, from 34 percent in June 2017 to 41 percent in June 2018. This suggests that Amazon’s platform is delivering customers to Whole Foods.
Carl Shapiro, the government’s economics expert opposing the AT&T-Time Warner merger, seems skeptical of much of the antitrust populists’ Amazon rhetoric: “Simply saying that Amazon has grown like a weed, charges very low prices, and has driven many smaller retailers out of business is not sufficient. Where is the consumer harm?”
On its face, there was nothing about the Amazon/Whole Foods merger that should have raised any antitrust concerns. While one year is too soon to fully judge the competitive impacts of the Amazon-Whole Foods merger, nevertheless, it appears that much of the populist antitrust movement’s speculation that the merger would destroy competition and competitors and impoverish workers has failed to materialize.
In a recent long-form article in the New York Times, reporter Noam Scheiber set out to detail some of the ways Uber (and similar companies, but mainly Uber) are engaged in “an extraordinary experiment in behavioral science to subtly entice an independent work force to maximize its growth.”
That characterization seems innocuous enough, but it is apparent early on that Scheiber’s aim is not only to inform but also, if not primarily, to deride these efforts. The title of the piece, in fact, sets the tone:
How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons
Uber and its relationship with its drivers are variously described by Scheiber in the piece as secretive, coercive, manipulative, dominating, and exploitative, among other things. As Schreiber describes his article, it sets out to reveal how
even as Uber talks up its determination to treat drivers more humanely, it is engaged in an extraordinary behind-the-scenes experiment in behavioral science to manipulate them in the service of its corporate growth — an effort whose dimensions became evident in interviews with several dozen current and former Uber officials, drivers and social scientists, as well as a review of behavioral research.
What’s so galling about the piece is that, if you strip away the biased and frequently misguided framing, it presents a truly engaging picture of some of the ways that Uber sets about solving a massively complex optimization problem, abetted by significant agency costs.
So I did. Strip away the detritus, add essential (but omitted) context, and edit the article to fix the anti-Uber bias, the one-sided presentation, the mischaracterizations, and the fundamentally non-economic presentation of what is, at its core, a fascinating illustration of some basic problems (and solutions) from industrial organization economics. (For what it’s worth, Scheiber should know better. After all, “He holds a master’s degree in economics from the University of Oxford, where he was a Rhodes Scholar, and undergraduate degrees in math and economics from Tulane University.”)
In my retelling, the title becomes:
How Uber Uses Innovative Management Tactics to Incentivize Its Drivers
My transformed version of the piece, with critical commentary in the form of tracked changes to the original, is here (pdf).
It’s a long (and, as I said, fundamentally interesting) piece, with cool interactive graphics, well worth the read (well, at least in my retelling, IMHO). Below is just a taste of the edits and commentary I added.
For example, where Scheiber writes:
Uber exists in a kind of legal and ethical purgatory, however. Because its drivers are independent contractors, they lack most of the protections associated with employment. By mastering their workers’ mental circuitry, Uber and the like may be taking the economy back toward a pre-New Deal era when businesses had enormous power over workers and few checks on their ability to exploit it.
With my commentary (here integrated into final form rather than tracked), that paragraph becomes:
Uber operates under a different set of legal constraints, however, also duly enacted and under which millions of workers have profitably worked for decades. Because its drivers are independent contractors, they receive their compensation largely in dollars rather than government-mandated “benefits” that remove some of the voluntariness from employer/worker relationships. And, in the case of overtime pay, for example, the Uber business model that is built in part on offering flexible incentives to match supply and demand using prices and compensation, would be next to impossible. It is precisely through appealing to drivers’ self-interest that Uber and the like may be moving the economy forward to a new era when businesses and workers have more flexibility, much to the benefit of all.
Elsewhere, Scheiber’s bias is a bit more subtle, but no less real. Thus, he writes:
As he tried to log off at 7:13 a.m. on New Year’s Day last year, Josh Streeter, then an Uber driver in the Tampa, Fla., area, received a message on the company’s driver app with the headline “Make it to $330.” The text then explained: “You’re $10 away from making $330 in net earnings. Are you sure you want to go offline?” Below were two prompts: “Go offline” and “Keep driving.” The latter was already highlighted.
With my edits and commentary, that paragraph becomes:
As he started the process of logging off at 7:13 a.m. on New Year’s Day last year, Josh Streeter, then an Uber driver in the Tampa, Fla., area, received a message on the company’s driver app with the headline “Make it to $330.” The text then explained: “You’re $10 away from making $330 in net earnings. Are you sure you want to go offline?” Below were two prompts: “Go offline” and “Keep driving.” The latter was already highlighted, but the former was listed first. It’s anyone’s guess whether either characteristic — placement or coloring — had any effect on drivers’ likelihood of clicking one button or the other.
And one last example. Scheiber writes:
Consider an algorithm called forward dispatch — Lyft has a similar one — that dispatches a new ride to a driver before the current one ends. Forward dispatch shortens waiting times for passengers, who may no longer have to wait for a driver 10 minutes away when a second driver is dropping off a passenger two minutes away.
Perhaps no less important, forward dispatch causes drivers to stay on the road substantially longer during busy periods — a key goal for both companies.
Uber and Lyft explain this in essentially the same way. “Drivers keep telling us the worst thing is when they’re idle for a long time,” said Kevin Fan, the director of product at Lyft. “If it’s slow, they’re going to go sign off. We want to make sure they’re constantly busy.”
While this is unquestionably true, there is another way to think of the logic of forward dispatch: It overrides self-control.
* * *
Uber officials say the feature initially produced so many rides at times that drivers began to experience a chronic Netflix ailment — the inability to stop for a bathroom break. Amid the uproar, Uber introduced a pause button.
“Drivers were saying: ‘I can never go offline. I’m on just continuous trips. This is a problem.’ So we redesigned it,” said Maya Choksi, a senior Uber official in charge of building products that help drivers. “In the middle of the trip, you can say, ‘Stop giving me requests.’ So you can have more control over when you want to stop driving.”
It is true that drivers can pause the services’ automatic queuing feature if they need to refill their tanks, or empty them, as the case may be. Yet once they log back in and accept their next ride, the feature kicks in again. To disable it, they would have to pause it every time they picked up a new passenger. By contrast, even Netflix allows users to permanently turn off its automatic queuing feature, known as Post-Play.
This pre-emptive hard-wiring can have a huge influence on behavior, said David Laibson, the chairman of the economics department at Harvard and a leading behavioral economist. Perhaps most notably, as Ms. Rosenblat and Luke Stark observed in an influential paper on these practices, Uber’s app does not let drivers see where a passenger is going before accepting the ride, making it hard to judge how profitable a trip will be.
Here’s how I would recast that, and add some much-needed economics:
Consider an algorithm called forward dispatch — Lyft has a similar one — that dispatches a new ride to a driver before the current one ends. Forward dispatch shortens waiting times for passengers, who may no longer have to wait for a driver 10 minutes away when a second driver is dropping off a passenger two minutes away.
Perhaps no less important, forward dispatch causes drivers to stay on the road substantially longer during busy periods — a key goal for both companies — by giving them more income-earning opportunities.
Uber and Lyft explain this in essentially the same way. “Drivers keep telling us the worst thing is when they’re idle for a long time,” said Kevin Fan, the director of product at Lyft. “If it’s slow, they’re going to go sign off. We want to make sure they’re constantly busy.”
While this is unquestionably true, and seems like another win-win, some critics have tried to paint even this means of satisfying both driver and consumer preferences in a negative light by claiming that the forward dispatch algorithm overrides self-control.
* * *
Uber officials say the feature initially produced so many rides at times that drivers began to experience a chronic Netflix ailment — the inability to stop for a bathroom break. Amid the uproar, Uber introduced a pause button.
“Drivers were saying: ‘I can never go offline. I’m on just continuous trips. This is a problem.’ So we redesigned it,” said Maya Choksi, a senior Uber official in charge of building products that help drivers. “In the middle of the trip, you can say, ‘Stop giving me requests.’ So you can have more control over when you want to stop driving.”
Tweaks like these put paid to the arguments that Uber is simply trying to abuse its drivers. And yet, critics continue to make such claims:
It is true that drivers can pause the services’ automatic queuing feature if they need to refill their tanks, or empty them, as the case may be. Yet once they log back in and accept their next ride, the feature kicks in again. To disable it, they would have to pause it every time they picked up a new passenger. By contrast, even Netflix allows users to permanently turn off its automatic queuing feature, known as Post-Play.
It’s difficult to take seriously claims that Uber “abuses” drivers by setting a default that drivers almost certainly prefer; surely drivers seek out another fare following the last fare more often than they seek out another bathroom break. In any case, the difference between one default and the other is a small change in the number of times drivers might have to push a single button; hardly a huge impediment.
But such claims persist, nevertheless. Setting a trivially different default can have a huge influence on behavior, claims David Laibson, the chairman of the economics department at Harvard and a leading behavioral economist. Perhaps most notably — and to change the subject — as Ms. Rosenblat and Luke Stark observed in an influential paper on these practices, Uber’s app does not let drivers see where a passenger is going before accepting the ride, making it hard to judge how profitable a trip will be. But there are any number of defenses of this practice, from both a driver- and consumer-welfare standpoint. Not least, such disclosure could well create isolated scarcity for a huge range of individual ride requests (as opposed to the general scarcity during a “surge”), leading to longer wait times, the need to adjust prices for consumers on the basis of individual rides, and more intense competition among drivers for the most profitable rides. Given these and other explanations, it is extremely unlikely that the practice is actually aimed at “abusing” drivers.
Today, thirty-nine different companies and policy experts from a wide swath of the political spectrum signed a letter urging lawmakers to create a “portable benefits” platform that will enable sharing economy companies to continue innovating while simultaneously providing desirable social safety net benefits to workers. This is well timed, as there is a growing consensus among lawmakers (such as Senator Warner) that “something must be done” to provide benefits to workers in the so-called “gig economy.”
In total, the thirty-nine signatories to the letter are pushing for changes to existing law based on a set of principles holding that benefits should be:
Independent;
Flexible and pro-rated;
Portable;
Universal; and
Supportive of innovation
In a nutshell, this would effectively mean that there is some form of benefits available to gig economy workers that follows them around and is accessible regardless of who employs them (or, ostensibly, whether they are employed at all).
Looking past the text of the letter, this would likely entail a package of changes to existing law that would allow individual workers to utilize some form of privately created platform for managing the benefits that are normally obtained in a traditional employee-employer relationship. Such benefits would include, for instance, workers’ compensation, unemployment, disability, professional development, and retirement. A chief advantage of a portable benefits platform is that–much as in an underlying justification of the ACA–workers would no longer be tied to particular companies in order to enjoy these traditionally employer-based benefits.
Although platform-based work facilitated by smartphone apps is cutting edge, there is historical precedent for this approach to the provision of benefits. Unions have long relied upon multi-employer plans for providing benefits, and the healthcare industry developed portable health savings accounts as a means to free individuals from employer-bound health insurance plans. And the industry has been seeking fully private solutions to these sorts of problems for some time. For instance, Uber recently partnered with Stride Health to provide health insurance benefits to verified drivers.
There will, of course, be some necessary legislative changes in order to make these portable benefits platforms a reality. First, there probably needs to be a provision in the tax code that allows for workers’ contributions to their own plans to receive the same tax-favored treatment that traditional employer-based benefits receive (or, even better, the political give-away would need to be removed from employer-based benefits). Additionally, companies would need to be able to make optional matching contributions with a similar tax treatment. And lurking in the background of all of this is the specter of a large number of employer obligations. Thus, a necessary quid pro quo to get sharing economy companies to pay into these platforms will be some form of safe harbor shielding them from further obligations.
This is a win for both companies and workers. The truth is that our labor market is very fractured–labor force participation rates are at a low, and those who are working remain chronically underemployed. Coupled with this reality, the technology that enables work is becoming ever more flexible and, as shown by their expressed preferences, individuals are clearly interested in the gig economy as a means of easily obtaining work as needed. A portable benefits platform could provide the sort of support to make flexible work a viable alternative to employee status.
And for many employers–sharing economy and non-sharing economy alike–removing antiquated legal strictures from the employment relationship promises a number of increased efficiencies. Particularly in the context of sharing economy companies, this will include the ability to exert some form of control over platform workers without being sucked into an onerous employer-employee relationship.
For instance, Instacart recently moved a number of its platform workers to part-time employee status. Although the decision was very likely multi-faceted, a big part of it had to be Instacart’s desire to give training and guidance to the shoppers who provided services to the platform’s consumers (for instance, instructing them on the best sequence in which to pick groceries in order to ensure maximum freshness). However, to provide any modest degree of oversight would likely mean that Instacart would move from empowering contractors to directing employees, and thereby run into a thicket of labor laws.
Yet why should this particular employee classification be necessary? Platform-based work is a revolutionary way to defeat the traditional transaction costs that justified large, centrally-organized firms. Companies like Uber and Instacart enable what otherwise would have been fallow resources–spare labor, unused cars, and the like–to be fitted to consumer demand.
Moreover, forcing rigid employee classifications upon sharing economy workers will only reintroduce inefficiency into the worker-company relationship. Instead of allowing workers to sign on just for the amount of work they are willing to do, and allowing consumers just to purchase the amount of work they desire, an employee classification essentially requires companies to purchase labor in blocks of hours. At scale, this necessarily introduces allocation and pricing errors into the system. If a smart safe harbor is included in any legislative push for a portable benefits platform, companies could have much more flexibility in directing platform workers.
I am excited to see this development emerging from the industry and from policy makers, and I look forward to the response of our lawmakers (although, this being election season, I don’t expect too much from that response — at least not yet). There is understably a lot of concern about the welfare of workers in the new economy. But it’s important not to lose the innovative new ways of working, producing, and consuming that the modern digital economy affords by resorting to ill-fitted legal regimes from the past.
Uber is currently facing a set of plaintiffs who are seeking class certification in the Northern District of California (O’Connor, et. al v. Uber, #CV 13-3826-EMC) on two distinct grounds. First, the plaintiffs allege that Uber systematically deprived them of tips from riders by virtue of how the service is presented to end-users and how compensation is given to the riders in violation of the California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq. Second, the plaintiffs claim that Uber misclassified its drivers – all 160,000 of them in California over the last five years – by failing to give them the legal definition of “employee” and, following from this, deprived said “employees” of reimbursement for things like mileage, gas, and other wear-and-tear on their vehicles (not to mention the shadow of entitlements like benefits and worker’s comp).
Essentially, claim one is based on the notion that Uber informs passengers that gratuity is included in the total cost of the car service and that there is no need to tip the driver. However, according to the plaintiffs, Uber either failed to collect this gratuity, or by failing to differentiate between the gratuity and the fee for the ride, and then collecting its own 20% cut of the total fee, the company improperly retained some of the gratuity for itself. In truth, it’s not completely clear from the complaint exactly how the plaintiffs are calculating allegedly withheld tips. Uber does a good job in its motion to defeat certification of pointing out, on the one hand, that there is no such thing as a “standard tip,” and, on the other hand, that the assessment of the tip issue would require so much individualized examination — from figuring out whether drivers were told that they could be tipped or not, to figuring out if drivers actually were consistently tipped — that the common issues proper to class examination would be overwhelmed.
The real meat of this case, however, and the issue with the most effect on both Uber’s bottom line as well as on the future of sharing platforms generally, is whether the drivers should be classified as employees or not.
Uber’s motion to defeat certification is, logically enough, based on attacking the commonality and typicality requirements of Rule 23. The main thrust of Uber’s motion is that not only would the four named plaintiffs be inappropriate to represent the 160,000 member class of allegedly harmed drivers, but also no such plaintiffs could represent such a class as the relationship between Uber and its drivers is so diverse that no common questions or issues would control the proceeding. In support of its position, Uber introduced the sworn declarations of over 400 Uber drivers from California, each detailing a unique situation that would either make them not in line with the harms alleged by the named plaintiffs, or squarely opposed to them.
Further, there were seventeen different contracts involved in the relationship between Uber and the 160,000 drivers swept up into the suit, which would make identifying common questions exceedingly difficult. Even terms that are common across agreements, Uber claims, would have enough distinction between them to make class certification impossible. For instance, Uber cited numerous examples from its different agreements where tipping was permitted, and others where it was not mentioned at all. Similarly, Uber cited examples where the right to terminate rested solely with Uber, and others where the right to terminate was by mutual consent between Uber and the driver. Further, Uber claims that the employment test from Borello (the case that governs employee classification in California) requires a fact-based examination of each driver’s particular circumstances owing to the wide variation in contract terms — further making class certification inappropriate.
Uber’s arguments are all sound, and I sincerely hope that it defeats the class certification. But the case itself represents an ongoing and persistent problem for Uber and sharing economy platforms across the United States (and the world, really). The core of that problem is simply this: are you an employee or a contractor? A heading from Uber’s motion stands out to me as emblematic of this problem:
The Named Plaintiffs Are Not Typical Of the Putative Class Because There Is No Typical Uber Driver
There is no typical Uber driver because Uber is just a platform, the definitions of our antiquated legal system notwithstanding. The real value proposition of sharing platforms is that they enable normal folks — that is, people outside of a typically defined industry — to take part in an industry that was previously dominated by firms (and replete with considerable barriers to entry). As the Northern District of California observes in Cotter v. Lyft, trying to fit a sharing economy worker of today into yesterday’s notion of “employees” and “contractors” is akin to “be[ing] handed a square peg and asked to choose between two round holes.” In the same passage, that court observed that “[t]he test the California courts have developed over the 20th Century for classifying workers isn’t very helpful in addressing this 21st Century problem.”
Indeed.
The claims of the plaintiffs in the Uber class action notwithstanding, there is nothing inherently “employee”-like about an Uber driver, and there are plenty of opportunities for sharing economy workers to not be quite so “contractor”-like either. What we really need is some creative thinking, and an application of legal principles (as opposed to tired categories) to the new reality of the 21st century in order to come up with a third way (and maybe a fourth and fifth way, as well…) of regulating labor relationships. If we must have classes, consider it the entrepreneurial class.
Uber’s business model is a great example of how an employee definition doesn’t quite make sense. The party that contracts with Uber might not even be an individual, but a corporation that, even without Uber’s platform, would be providing private ride services. Particularly with UberBlack, private companies use Uber’s lead generation platform merely to supplement their own marketing efforts. Obviously converting these companies and their own employees into “employees” of Uber is ludicrous.
However, even for the more common example that many people will first think of — the guy down the street with a car and some time on his hands — sticking him into the employee category may or may not make sense. First, as an employee he will be handed a whole raft of potential benefits that have corresponding obligations for Uber. Those obligations — like disability, health benefits, time off, etc — will come at a cost, which will typically mean less money earned for that sometimes-driver as those costs are passed on in the form of either increased prices (and a reduction in ridership) or reduced wages. For many people, this will decrease their marginal earnings to the point where it won’t make sense for them to drive anymore.
Second, for many people it may lead to an outright conflict that either prevents them from being a driver, or else locks them into a single platform, thus harming competition in the marketplace. A driver who is Uber’s “employee” may be in violation of her duties of loyalty to Uber if she takes rides from the Lyft platform (and multi-homing is extremely common in this space). Similarly, employers – in particular state and municipal governments – frequently have strict rules on outside employment, and a determination that driving for Uber makes you an “employee” of the company may effectively preclude drivers by virtue of their actual employer’s policies.
Further, I believe it’s notable that many employment tests in the United States are extremely multi-factor; the Borello case from CA outlines thirteen distinct considerations, for instance. The utter complexity of fitting a worker into an “employee” classification suggests that even this old, familiar notion of what it is to be an “employee” is not quite as clear as we often presume, but is more of a “catch-all” category. The sharing-economy platforms from companies like Uber and Lyft will only exacerbate this problem — and serve to make its problematic consequences more pointed.
But even the definition of “contractor” is inapplicable to these drivers. In the case at hand, Uber was accused of treating drivers as employees because it provided suggestions about how to earn higher ratings from riders, and because it offered “on-boarding” programs that give new drivers an orientation. This general training is not a need unique to Uber, however. Consider Instacart’s recent announcement that it would re-classify some of its employees in Boston as part-time workers. In large part, it seems clearly to be the case that the company decided to make this move for purely strategic, legal reasons. In actuality, it wanted simply to be able to guarantee that there would be some minimum level of quality for the people who provided services through its network. This might involve orientation meetings, intermittent trainings, and some minor direction on how a shopper should perform his or her work (for instance, pick produce last so that it remains fresh). There is no obvious reason why providing this sort of guidance should force a company to destroy all of the unique and socially beneficial qualities of its offerings by being forced into classifying on-demand workers as “employees.”
The sharing economy promises to remove the transaction costs that have for quite a long time chained employees to firms. On their own, individuals simply cannot obtain enough information that would enable them to realize a fully self-defined work environment. It’s an accident of history (and technology) — of scarce resources and scarcer information — that the model of work has revolved around selling one’s services to an employer. But technology is now rendering this model inefficient compared to the alternatives — and our legal system should not get in its way. Canadian courts have begun experimenting with a third classification of worker — the “dependent” worker, a classification that may or may not work here — and so too should our courts and legislatures start thinking about a new classification. It makes no sense to drag down cutting-edge 21st century work and life models with depression-era notions of what it means to earn a living.
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