Sherman Act and AB 5 vs. Uber, Lyft, and DoorDash

While California AB 5 may seem like a great solution, it doesn’t resolve the core problem of price-fixing in the “gig economy” around the world. This global shift to economic equality must happen organically with the use of next-generation Open Marketplaces designed in Silicon Valley.

The California AB 5 debate is about to get interesting with “job” postings such as this one:

Example of a typical online “job” posting originated by DoorDash.

To any reasonable job seeker, this is a real job posting titled: Jobs hiring near me — Delivery-driver — Become a Dasher.

However, DoorDash Terms of Service states:

“You understand and agree that DoorDash provides a technology platform connecting you with independent foodservice providers and others that provide the products offered through the Services (“Merchants”), and independent third-party contractors who provide delivery services (“Contractors”).”

While DoorDash seems to want to “hire” delivery drivers, at the same time, it claims that these individuals are not hired and are simply “independent third-party contractors” that DoorDash matches with others to provide delivery services.

FedEx has already paid for misclassifying Home Delivery and Ground Division drivers as independent contractors not long ago. The caveat is that FedEx never claimed that contractors don’t work for them, it simply claimed that FedEx directly hires their workforce as contractors and that these people are not employees.

DoorDash, on the other hand, claims that delivery drivers are contractors and that they are NOT working for DoorDash, to begin with.

If DoorDash is posting ads for delivery drivers under a job category titled “Couriers and Messengers” this becomes the evidence that drivers are contractors who DO work for DoorDash. Hence, DoorDash is no longer “a platform that connects” contractors and consumers.

The bigger question is that if contractors are working directly for DoorDash, then why pass California AB 5?

Delivery drivers can simply take DoorDash to court under the same legal doctrine FedEx was taken to court — employee misclassification.

AB 5 states that: “a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation, or business.”

Remarkably, DoorDash, Uber, and Lyft still can theoretically meet this test, simply by claiming that drivers do not work for these platforms directly. Hence, the California AB 5 does nothing unless there is a ruling that confirms that service providers work for the platform as contractors and do NOT work for themselves as contractors, with “help” from a platform.

In April 2019, National Labor Review Board has stated that drivers providing personal transportation services using app-based ride-share platforms are independent contractors. The reasoning was that “the Uber system afforded drivers significant opportunities for economic gain and, ultimately, entrepreneurial independence.” This reasoning, however, doesn’t take into account the fact that Uber determines price for each trip serviced by individual drivers. Of course, “entrepreneurial independence” requires each independent driver to offer prices independently of Uber.

In case of Uber, for example, a confirmation that service providers work directly for the platform would require the company to restructure itself as an actual Passenger Carrier (TCP) instead of a Transportation Network Company (TNC) in California.

An Internet must offer a setting for a platform that offers to connect independent service providers with consumers without taking control of the service and/or pricing. A platform must be able to sell tickets to a concert, for example, without having to hire performers. For a genuine “matching” platform the California AB 5 does not apply, but the Sherman Act very much does.

This is why the antitrust price-fixing route is a much easier fix to regain equality in this “gig economy” hiring process. “Gig economy” platforms operate in a violation of the Sherman Act because they aim to establish price-fixed rates for independent contractors, instead of letting each participant define their prices independently.

Once the Federal Trade Commission and the Department of Justice begin their prosecution of online marketplaces for the acts of price-fixing of services of independent contractors, new sensible “gig economy” solutions can be established where all participants are, in fact, independent and can ask for and earn market rates for their services.

Moreover, once market rates for independent contractors are established, exigent rakes will become a thing of the past (Uber, for example, at times imposes a 40% rake on certain trips.) New startups will be able to undercut highly raked marketplaces and offer consumers lower overall pricing.

Such as it is, the power of the Internet is the ability to deliver excellent information cheaply and efficiently. Uber, Lyft, DoorDash, and others simply harness this power incorrectly by aiming to hide exigent rakes imposed on the price-fixed services of others.

While California AB 5 may seem like a great solution, it doesn’t resolve the core problem of price-fixing in the “gig economy” around the world. This global shift to economic equality must happen organically with the use of next-generation Open Marketplaces designed in Silicon Valley.

Author: Litesand

Antitrust, real estate, e-commerce, fintech, proptech, bigtech

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