A demonstrator holds by a sign that says “Booo The Gig Economy” during a march, supporting gig-economy workers, to the Court of Appeal in London, U.K., on Tuesday, Oct. 30, 2018. James Farrar and Yaseen Aslam, Uber drivers spearheading an employment lawsuit, say they should be classed as the company’s “workers,” meaning they’re entitled to the minimum wage and vacation pay. Photographer: Simon Dawson/Bloomberg

Uber Warns in IPO Filing That Its Drivers Will Be Even Less Happy

(Bloomberg) -- Uber drivers have complained over the years that they’ll get nothing when the company goes public, generating a windfall for its already-wealthy stockholders. That’s not entirely true. In a filing Thursday for its upcoming initial public offering, Uber Technologies Inc. said it would pay $300 million in cash bonuses, or what it calls “driver appreciation rewards.” About 1.1 million drivers will receive the payments in a couple weeks, with some in the U.S. getting as much as $10,000 each.

It’s a number that seems smaller than it may first appear. The total payout equates to less than 0.5 percent of the company’s value, as measured by its last private valuation. On average, an eligible driver will get about $273. They will be able to use that cash to buy stock at the IPO price. Lyft Inc., the main alternative to Uber in the U.S., also offered cash bonuses to drivers who had completed more than 10,000 rides and said it was reserving a portion of the shares in its IPO for them to purchase. 

The moves are unlikely to mollify critics. “The long-term model of driving for less than minimum wage after you pay the expenses for your car is not a model that a company can mask with a onetime bonus,” said Nicole Moore, a Lyft driver and organizer for the driver advocacy group Rideshare Drivers United – Los Angeles.

Throughout the IPO prospectus, Uber alludes to tensions that have long been obvious to anyone who has driven for or ridden in an Uber. Uber’s operations are far from profitable, and anything more than a token gesture to its unsatisfied workforce would pose a barrier to stemming the losses. The company warned the situation will get worse. “As we aim to reduce driver incentives to improve our financial performance, we expect driver dissatisfaction will generally increase,” it said in the filing.

Uber also said it faces challenges attracting drivers in sufficient numbers, while adding that an improved economy could present more problems. People with other employment options might stop signing onto the app. The company would have to offset those losses with financial incentives whose effectiveness is uncertain. Uber boosted driver incentives by $300 million last year, and warned investors that those costs may keep going up. The company has at times paid drivers more for rides than it collects from passengers and expects that to continue, especially in markets where it faces significant competition. Uber’s operating loss last year was $3 billion.

Things could get even trickier. Like its competitors, Uber’s business model relies on classifying drivers as independent contractors, who aren’t covered by protections like overtime pay and unionization rights that are afforded to employees by law in many countries. The IPO filing said Uber’s approach is being challenged in “numerous legal proceedings globally.”

Losing these fights would mean it could have to take on additional costs, such as benefits, payroll tax contributions, minimum wages and paid breaks. “Any such reclassification would require us to fundamentally change our business model,” Uber wrote. Lyft made a similar warning in its IPO filing last month.

Among the challenges cited by Uber are rulings in France and the U.K., a pending U.S. appeals court ruling in Philadelphia and more than 60,000 drivers who have filed, or signaled they will file, cases in arbitration claiming they are, in fact, employees. The company also cites a groundbreaking California Supreme Court ruling last year that deems workers to be employees under state wage law unless they are doing “work that is outside the usual course” of a company’s business.

It could be hard for Uber to make such an argument about its drivers. The company, as well as others in similar situations, have been meeting with unions and lawmakers. The hope is to cut a deal that would water down that ruling in exchange for providing workers with other perks or protections. But legislation is advancing in California that would codify the new, tougher standard and make it apply it to all sorts of state laws. 

Uber’s decision not to classify its drivers as employees kept it from offering them stock early in its history. It explored the idea of rewarding drivers in part with equity compensation as far back as 2016 but decided it couldn’t do so without running afoul of U.S. securities law. Another ride-hailing company, Juno, began offering restricted stock units to drivers as a way to lure them from Uber. But it cancelled the program when it was acquired by a competitor and offered small cash payouts instead.

Last October, Uber asked the Securities and Exchange Commission to change its rules to allow equity compensation to drivers. The commission’s decision on the rule change is still pending. For the drivers who would have acquired Uber stock when the company was small, the chance to share in the spoils has passed.

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