Transportation

Data is King!!!

Data is King

In the early days, people though Uber and Lyft were crazy to think people would ride in each other’s personal vehicles. In NYC the number of FHV’s rose dramatically since 2013. Uber and Lyft need massive supply of vehicles and driver to provide on demand service. The increase in the supply lead to an increase in demand which led to a need for more supply of vehicles. The 8.6 Million residents and over 60 million visitors are always seeking to go from point A to point B. All these vehicles are being driven primarily in the 22 square smiles of Manhattan (302 square smiles of all 5 boroughs). Manhattan has a famous grid system that dates back to 1811. What was known to be the Commissioners’ Plan of 1811, which planned Manhattan’s famous grid system, was completed at the end of the 19th century and produced 11 major avenues and 155 cross-town streets still used today. The grid begins north of Houston Street, since the area to its south was well established when the grid came to be in 1811. Broadway, one of Manhattan’s oldest thoroughfares (and the world’s longest) runs perpendicularly as it progresses north from the tip of Manhattan up into the Bronx.  As it crisscrosses the straight avenues, it creates large, open intersections (Union Square, Madison Square, Herald Square, Times Square, Columbus Circle, etc.).

Lyft and Uber seem to have a mission of improving people’s lives with the world’s best transportation. But this is more than just about technology or moving into adjacent categories like bikes and scooters. Lyft and Uber seem to see ride-hailing as a way to upend the negative aspects of automobiles. Keep in mind that they are the second highest household expense and a typical car is used only about 5% of the time. Despite all the success, Lyft and Uber are still in the early phases of its market opportunity, as rideshare networks account for roughly 1% of the miles traveled in the US. But to truly achieve the vision of transforming the transportation industry, the company will need to be aggressive with AI (Artificial Intelligence).

 

By embedding machine learning into its technology stack, Lyft and Uber have the advantage of data on over one billion rides and more than ten billion miles – which allows for training of models to improve the experience, such as by reducing arrival times and maximizing the available number of riders and creating sophisticated pricing models. But when it comes to AI, the holy grail is autonomous driving. Part One is creating the network. The nature of the Manhattan grid and the rise of Uber and Lyft created the network. The path to Autonomous vehicles is largely tied to the continued success of Uber and Lyft. This is because Autonomous vehicles will likely be most effective when managed through sophisticated routing systems which ridesharing networks have. As such, they can manage the network. Part three is autonomous vehicles. Most accident are caused by human error. Take the human partially out and then fully out of the equation and you are left with less and less accidents. The level 5 autonomous vehicle is supposed to be in operation within the next 10 years. Even if you push the timeline out further, the reality is that with partially autonomous vehicles there will be less accidents.

 

A company must have resources and scale to effectively pursue to collection of data and AI. Data is the “cash cow” of the digital age. Like gold and oil in decades past, there is a rush to accumulate as much data about consumers as quickly as possible. Companies like Facebook and Google are acquiring and making a fortune off the sale of said data. The current environment surrounding data acquisition and the proliferation of sensory technology in our vehicles is astounding. The increased presence of sensors and cameras within modern cars yield greater ability to monitor performance and surroundings. Today’s vehicles can identify which part of the car’s interior needs maintenance or if there are obstacles around us as we drive. These sensors generate data that is analyzed in the hopes of creating self-driving vehicles. Self-driving cars would generate immense amounts of data (1 gigabyte per second). The possibilities created by these acquisitions are equally immense. Vehicles will potentially be able to relay the location of specific landmarks like parking spaces in a crowded lot, for instance. While the ability to locate a parking space from a single application on your phone is beneficial, it is only one positive change self-driving vehicles could bring about.

So how does that affect the workforce. First, self-driving vehicles would remove driver necessity in the transport industry. Taxis, cargo trucks, etc. would find their once human-operated vehicles controlled by a computer receiving incredible amounts of data as it travels.  There would not be payroll discrepancies about overtime wages. Gone would be the days of driver error resulting in accidents (which result in $242 billion a year in the United States). Like the invention of the mechanized assembly line, the widespread implementation of self-driving vehicles would make the use of anything else obsolete.

The presence of affordable autonomous travel would exponentially expand the travel market. Transportation companies would be able to enter and reach people in the developing world who are unable to afford vehicles of their own or transport services operated by human drivers. The presence of vehicles always connected to the internet opens up the avenue for location and time-based advertisements. Companies could not only generate revenue from the use of vehicles and the sale of vehicle data, but also from advertisers trying to reach constituents in a particular region.

Self-driving vehicles can potentially streamline the route optimization and dispatching processes of your fleet – new orders will no longer have to be communicated from headquarters, as the car nearest a request would immediately get the request. Traffic congesting routes would be circumvented as the car receives data on the various paths towards its destination. The advent of the self-driving vehicle will be disruptive to various industries. Companies will have to adjust their processes, but the benefits should outweigh the costs. On the ever-growing hill to cutting-edge technology, there is one item to always keep in mind: Data is King.

Lawyers as Strategic Advisors in the Trucking Industry

The transportation industry is an unpredictable environment in which to do business. The trucking industry is a heavily regulated industry that involves many pitfalls and hurdles. Advisors to the transportation industry know that the best way to handle this challenge is to plan for it. Transportation entrepreneurs often need a full range of services to complement their management team. Such services often include crafting alternate carrier practices, creative planning, utilizing innovative information technology solutions and the implementation of best business practices.

Businesses today don’t need armchair philosophizers; they need business-savvy “real life” counselors who can help guide their company to success. Those in the trucking and logistics segments of the transportation industry often need advisors who can focus on business issues such as carrier profit improvement, enhancing margins, gaining efficiencies and driving down operating costs. Consultants often provide a thorough analysis of the current business operations and identify issues that need improvement. But an outside consultant usually lacks the trust of the leaders of a company and does not often grant them a seat at the decision-making table

Succeeding in the trucking industry requires allocating time and resources to the areas that your business will most benefit your bottom line. Beyond developing your services to target the market, transportation entities most often need advisors who have the heart and soul of your business in mind. The most accomplished lawyers are those that become "trusted advisors" to their transportation clients. This means that their counsel is sought not only for discrete cases, but also on an enterprise level- and not just for "legal" matters. The trusted advisor has a profound understanding of the clients’ business, the industry the client works in and can provide professional judgment, emotional intelligence, candor and experience tailored to the client’s risk tolerance and enterprise objectives. The trusted advisor must be more than just someone who knows the law or who can handle a case. The trusted advisor must be a part of the company's DNA.

Business leaders in the transportation industry today expect their lawyers to counsel them on legal matters, but not all realize that a lawyer who is knowledgeable in the business of transportation can contribute to the success of their business by serving as strategic advisors. While everyone ultimately seeks to earn a seat at the table and be considered a strategic advisor, many lawyers fall short. Nothing is more frustrating for the business team and the lawyer when this relationship doesn’t exist.

A lawyer can only be viewed as a strategic advisor to a transportation entity if they know the industry and the specific business well enough to selflessly contribute to the issues facing the company. Moreover, if the lawyer views their role as to only weigh in on legal issues or the legal implications of issues instead of the business implications, they will be viewed as a legal advisor and will not be thought of as being able to add value beyond that. The business lawyer is the one who leaders want to invite to participate in meetings which are viewed as strategic. Oftentimes, legal issues are raised in the typical “non-legal” meetings and, if a lawyer is not present, decisions may be made that need to be undone or modified in the future. A lawyer will be viewed as a strategic advisor when they are not just available, but are solution-oriented and well-respected by their peers in the company

The job of the strategic lawyer is to provide advice to the business decision makers regarding the legal risks of the various courses of action, devise practical legal and compliant solutions that get management and the company where they need to go to achieve the company’s goals, and objectives and aid the CEO, COO and Board in making those hard decisions. The strategic lawyer communicates his or her understanding of that role and who the proper decision makers. Too many lawyers think that they should be making the decisions. That’s fatal. Of course, the lawyer needs to always urge compliance with applicable laws and regulations and reports up the chain of command. The strategic advisor lawyer must be focused almost entirely on the company’s business and not just on the competitors of the company. They must be the innovator disruptors in the industry, focusing on executing plans and making the competition irrelevant.

The main reason lawyers fail at being strategic advisors is risk tolerance. Most lawyers are programmed to be risk adverse. How many attorneys have you heard of that won’t make decisions when there is a risk involved in the decision? I know a lot. While I subscribe to the general principle that corporate attorneys are advisors and not usually decision makers for business operations, corporate attorneys in the transportation field need to be ready to help the leaders make decisions and then support those decisions even when those decisions present risks. The best strategic advisors identify the risks for the business and then assist the business to mitigate and manage the risks. If the risks are extreme, a good strategic advisor will highlight those to the business as completely as possible which may include “what if” scenarios and case examples of other companies or other decisions AND if available, alternate decisions that may accomplish the same or similar purpose. A strong lawyer strategic advisor will have to work against the way he or she is programmed to avoid all risk and instead will have to consider the best interest of the company in advising management or the Board. If decisions are made by the company with the right information available and the right approach to manage the known and potential risks, the lawyer has done his or her job.

Lawyers succeed as strategic advisors by being appropriately balanced regarding risk and exercising good judgment. An excellent strategic advisor needs to constantly strive to find the right balance between supporting the business’s operational and strategic objectives and mitigating legal, regulatory, and reputational risk. The calls at either end of the spectrum are easy. The calls in the middle are typically far more nuanced and require good judgement in balancing multiple, often competing, considerations. The other way they fail is by not providing actionable advice or recommendations. A lawyer who simply describes the risks and opportunities of various options without providing a clear recommendation on which option the business ought to pursue is unlikely to be viewed as a good strategic advisor. A good strategic advisor will listen, truly understand, speak up and adapt to the changing needs of the business organization.

Properly serving the company as a trusted advisor means you have to be proactive with your business owner clients. Most lawyers who are serving business owners focus on incorporation or agreement review, intellectual property, trademarks, copyrights – things that are reactive. So they wait until one of their business owner clients comes to them with an issue and then they handle it. If there’s business litigation that’s needed, they handle it.

But what very few lawyers do – and I’m suggesting that transportation clients need – is to create a more proactive advisory relationship with your counsel.

The first thing that proactive counsel is going to do is to really get to know your clients’ business model. How do they earn their money? What types of customers do they have? How can you help them to collect payment and close deals more easily? This is one of the areas that the lawyer as trust counsel can provide, but is often overlooked by business owners. As a corporate trusted advisor, one of the things that counsel can and should do that will help the client make money (more money) right away is to help them to be able to close their deals more quickly and easily. The attorney as trusted advisor has a direct influence on this by how agreements are drafted and how counsel suggests that the agreement be signed. The Council as trusted advisor to a business owner must proactively meet with them at least one time per week. Speaking with the client on a regular basis empowers the trusted advisor to proactively make recommendations and be working on matters that will help to grow the business and secure the perimeter of the business.

The trust advisor must also meet with the company's leadership and financial team. This is one way that the trusted advisor can make a huge impact on their bottom line, by making sure that their financial systems and their financial controls are being maintained properly.

That also allows counsel to support them in getting in place a strong asset protection plan

Once you get involved in coordination and quarterbacking, transportation clients begin to see their counsel as the trusted advisor they can turn to when anything happens in their business and sometimes in their personal life. In the heavily regulated and dangerous field of trucking and transportation, there is simply too much at stake to rely upon old-school methods of business operations. Business leaders in the transportation world are always worried about disruption. Some high-tech rival might, after all, do to their sector what smartphones did to the photography industry, what e-commerce is doing to retail, and what financial technology (fintech) is threatening to do to consumer banking. 

When disruption does affect a company, it is frequently because the enterprise was already vulnerable in some fundamental way; moreover, many incumbent companies accelerate their decline through their efforts to forestall it. Panic-driven efforts to avoid or combat disruption can easily lead to hasty, reactive, short-term-oriented decisions that move a company in many directions at once, distracting its management and squandering its resources. The fear of disruption can thus be worse for a company than the actual disruption itself.

Of course, complacency or inaction can be just as problematic. Technological changes in the transportation industry, and other external competitive forces, affect many business realities in the transportation world. Proactive measures are often needed. But they should be well thought out. The best means to be proactive is to look to your trusted advisor. While many transportation entities these days have counsel to turn to when there is a problem, many do not have an attorney as a trusted advisor who can be proactive and beneficial in many more ways than the legal industry has traditionally provided service to their clients.

The disruption in the transportation, and in other industries, has also caused a disruption in the traditional modes in which business leaders seek advice. The best means to proceed with a business decision or a corporate transaction is not to seek counseling after the fact, but to receive proactive advice from someone. That someone is increasingly becoming the attorney as trusted advisor. But this type of relationship between the attorney of trusted advisor in the business owner and/or CEO does not develop overnight. Sometimes it takes many years to find a counselor as trusted advisor. This is partly due to the fact that it takes time to find someone who a business leader can share their deepest darkest secrets as well as their confidential business plans. It is also partly due to the fact that not all attorneys see themselves as the person who should be providing proactive counseling to a company.

In my experience over the past 20 years, the businesses who succeed the most and are prepared to deal with the worst-case scenario are the ones who have an attorney as their trusted advisor in the corner to help deal with all aspects of the operations of the company. The transportation industry is changing right before our very eyes. The trucking industry is in a state of flux. The peer to peer car sharing industry has provided a means by which to revolutionize the trucking industry. To stay ahead of the curve in the trucking industry you must not only have a trusted advisor, but such trusted advisor must be able to be proactive for the day-to-day operations while keeping their eye on the horizon for changes and developments in the industry. The failure to do so can lead to disastrous consequences. Remember what happened the Kodak?

 

ADA Compliance and Transportation offered via Web-Based Booking Engines

In the old days in New York City, if you wanted private for-hire ground transportation, all you had to call was call a car service call center. Some had easy to remember telephone numbers and others you could reach by calling the 311 operator or by utilizing the telephone book. With the advent and proliferation of the internet, most transportation entitles created websites by which to advertise their services. Rapid advances in technology made booking transportation over the telephone a bit outdated and time consuming. Transportation entities then started to integrate their website with a booking engine/booking platform by which people seeking transportation for-hire could check availability and costs and make bookings at lightning speed. Offering a great user experience online became the new expectation. Despite the advent of the smartphone application by which to book transportation for-hire, many car services still provide the public with the ability book private transportation on their websites.  

The ADA was enacted in 1990 to prohibit discrimination and ensure equal opportunity to people with disabilities. This applies to State and local government services, employment, commercial facilities, transportation, and places of public accommodation, which are essentially private entities that affect commerce.  These laws can be enforced by the Department of Justice (“DOJ”) and through private lawsuits. An unresolved legal issue has recently arisen which has led to uncertainty in the law. Uncertainty in the law almost always leads to costly litigation because a company does not clearly know what its legal obligations are. People with disabilities should be able to easily access the Internet, but to accomplish this, the DOJ should have issued regulations. It issued regulations for State and local governments to know what it must do to become compliant with the law, but the DOJ did not issue regulations that would apply to private business.

The lack of regulations has led to the absolute worst-case scenario. People with disabilities have not been served since most companies are unaware this is an issue. Most companies do not even realize this is a problem to consider and resolve until they receive a demand letter from a lawyer or are served with a lawsuit. This leads to a scramble to get compliant. Unfortunately, it can take up to a year to do so depending on the complexity of the website. Transportation companies have relatively complicated websites because customers are presented not just with information about the company, but are provided with a customized web reservation site that is often an extension of main website. Private, customized portals are often created for corporate accounts or large groups. These portals can also accept marketing and/or promotional codes helping to increase both customer loyalty and reservation volume.

At present, a company website that is purely informational or educational in nature is likely beyond the ADA’s accessibility requirements. But a website that sells goods or services directly to the public may be regarded either as a sales or service establishment in its own right, or as a service of such an establishment, and thus covered by the ADA. On the whole, it is hard to argue that a car service that provides a website booking engine by which the public can utilize to arrange for transportation does not engage in some form of commercial activity. Thus, it is safe to assume that car service websites are subject to the ADA. 

The most common allegation in a Website Accessibility Lawsuit is that the company website is inaccessible to visually-impaired customers (some cases now involve mobile apps). Such customers often rely on screen-reader software like JAWS or NVDA to interact with and access a site's content. If the website is not compatible with this or similar screen-reader technology, most visually-impaired customers will not be able to use the website.

Meanwhile, plaintiffs’ attorneys across the country are taking advantage of the confusion. More than 260 website accessibility lawsuits were filed in 2016, and significantly more were filed by the end of 2017. But these numbers do not even begin to cover the cases that are settled pre-litigation. 

As stated above, the DOJ has not issued regulations that apply to private businesses and the law remains unclear because there is a split among the federal courts as to whether the statute applies only to physical structures. According to the more narrow interpretation adopted by several courts outside of New York, a disabled person is entitled to the “full and equal enjoyment” of goods and services only if they are offered at a physical location. Thus, if a business operates exclusively through the internet, without any physical location where customers interact with the business, the ADA’s mandate for accessibility does not apply. Most transportation companies in New York have an office, but they do not offer their services at a physical location where a member of the public can come to book transportation for-hire. The below is just a short indication of how the courts have been ruling on this issue. It has not been uniform and certainly not favorable to businesses in New York.

In 2017, defendant Bang & Olufsen obtained a dismissal in a Florida court because the plaintiff failed to establish a nexus between the company website and its physical locations. In California, a judge dismissed a website accessibility suit against Dominoes, finding that the company had met its ADA obligations by providing a 24-hour toll-free phone line to assist visually-impaired customers. The judge further ruled that to require website accessibility without meaningful administrative guidance would violate Dominoes' due process rights. Yet three months later, another judge in the same federal district ruled otherwise in a case involving Hobby Lobby. Similarly, in the October 2017 Dave & Buster case, the court recognized that providing a disability assistance telephone number may be an alternative means to comply with the ADA, but the court refused to dismiss the lawsuit, in part because it was unclear if the ADA notice and phone number itself were accessible (i.e., could be read via screen-reader software).

On the other hand, the New York Court have been quite favorable to plaintiffs. In July, 2017, the U.S. District Court for the Southern District of New York in Marett v. Five Guys Enterprises, issued a decision directly speaking to the applicability of Title III of the ADA (Title III) to websites, denying Five Guys’ motion to dismiss, and holding that Title III does indeed apply to websites.  Facing a class action lawsuit brought by serial plaintiff, Lucia Marett, Five Guys sought to dismiss the claim that its website (which, among other things, allows customers to order food online for delivery or pick up at its brick and mortar stores) violated Title III and related state/local statutes because it is inaccessible to the blind, on the grounds that Title III does not apply to websites and, even if it did, the case was moot because Five Guys was in the process of updating its website to provide accessibility.  The Court rejected Five Guys’ arguments.  Citing both the text and the broad and sweeping purpose of the ADA, the Court held that Title III applies to websites – either as its own place of public accommodation or as a result of its close relationship as a service of Five Guys’ restaurants (which the court noted are indisputably public accommodations under Title III).  Further, the court was unmoved by Five Guys’ ongoing efforts to make its website accessible because they had yet to successfully do so and there was no absolutely clear assurance that further accessibility issues would be avoided. 

In August 2017, Judge Weinstein of the Eastern District of New York denied retailer Blick Art Materials' motion to dismiss a website accessibility lawsuit under the ADA. The court found that Blick's website was subject to the ADA, even for the goods and services that it sold independently of any physical retail location. The judge rejected Blick's arguments that the court should wait for DOJ guidance on a technical website accessibility standard, and that it would violate Blick's due process rights to require its website to comply with the ADA without any administrative standards or regulations. 

It seems clear that many of the courts that have considered these issues have been unsympathetic to businesses, and plaintiffs are taking advantage of the reality that many businesses are unaware of their obligations under the ADA and do not have fully accessible websites. Website accessibility lawsuits are proving to be challenging to defend and expensive to resolve. If a court finds that a website is inaccessible, it can order the business to make its website accessible and to pay the plaintiff’s attorneys’ fees, costs, and expenses. Additionally, in certain jurisdictions, the court can order the business to pay the plaintiff monetary damages and/or civil penalties under state and/or local law. Many courts and the DOJ have viewed the privately developed Web Content Accessibility Guidelines (WCAG) 2.0, Level AA, as the de facto standard for ADA compliance. Accordingly, transportation entities who offer a web booking engine to their customers should consider reconstructing or redesigning their websites in compliance with this standard. Even if a business successfully defends such a claim, the expense of litigation may exceed the cost of compliance.

 The good news is that the United States House of Representatives recently passed a bill aimed at stemming the floodgate of ADA lawsuits brought by a small number of serial plaintiffs. The bill, the ADA Education and Reform Act of 2017 (H.R. 620) would impose a notice requirement and would allow businesses a grace period to cure alleged accessibility barriers before a lawsuit could be filed. Although not specifically aimed at particular type of ADA lawsuit, the reforms in the bill may provide relief from the large number of website accessibility lawsuits filed over the past few years. The bill will now move to the Senate. Regardless of whether the bill ultimately become law, it reflects a growing acknowledgement that private lawsuits under the ADA have reached a critical mass and until certain reforms are enacted to limit attorney driven suits, it is important for all businesses to understand the need for ADA compliance and the pitfalls posed by non-compliance.

 

 

 

 

 

 

A New Synergy Between Automakers and TNCs

Automakers are in a complex relation­ship with Transportation Network Companies (“TNC’s”) such as Lyft and Uber. In a way, Uber and Lyft and Uber are both competitors and customers. The Uber and Lyft of today do not own vehicles. Their driver’s own them and in the short run, auto man­ufacturers will likely start producing customized vehicles for TNC drivers. In the long run or as soon as the level-5 driverless cars come on the scene, Uber and Lyft may have no choice but to go into the auto manufacturing business.

The Uber and Lyft of today are a quasi-technology company and quasi transportation service provider. They are not one to the exclusion of the other. The transportation industry, as far as the transportation of persons by ground involves 3 parties: the driver, the customer/passenger and the 3rd party intermediary that puts them together. Once the autonomous vehicle takes the driver out of the picture, Uber and Lyft will have no choice but to embrace a new business model that involves ownership of vehicles

Owning and operating a fleet of automated vehicles is vastly different from operating an app-based demand-responsive company that facilitates transportation of persons. Technological advances in transportation have made it inevitable for Motor City to move into Silicon Valley, just as the power of fleet ownership will force TNCs into partnership with vehicle manufacturers.

TNC’s are well on their way to making their vehicles more “passenger centric” by creating a com­fortable and seamless passenger experience — as opposed to today’s driver-centric vehicles. Passengers do not have to concentrate on driving and as such, there will be an increased focus on entertainment, infotainment and connectivity within existing vehicles. This effect of vehicles being more passenger centric will become even more pronounced when we have driverless vehicles. TV, audio, media, video games, video conferencing and high-speed Internet will become more commonplace.

The auto manufacturing industry is already working on the autonomous vehicle, which may place them in a better position to create their own ride-hailing service. They have the experience with vehicle creation and ownership and Uber has shown the world the way to creating a ride-hailing service for on demand ground transportation. But why would big auto create its own ride hailing platform when they can partner with Uber or Lyft. The big auto manufacturers already have name recognition and capital to make the leap and the driverless vehicle will not embroil them in the never-ending saga of whether Uber’s drivers are employees or independent contractors. This is an issue that has the potential to cause Uber to implode, especially in California, its home state. The decision in Dynamex makes that potential crystal clear.

All this points toward an era of transition where automak­ers, TNCs, software companies and other innovators in media and infotainment, such as Vugo, will operate in cooperation and some competition simultaneously. Over the next 5-10 years, they will all fumble their way through a convoluted series of new partnerships and alliances.

Regardless of whether to own or manage a fleet of vehicles, administrators are going to use and monetize their assets to the fullest. That means doing more than just connecting passengers with vehicles. It means finding new ways to unlock hidden value based on the information, communications, processing capabilities and physical location of those assets and the customers that use these vehicles. The cumulative result will be a fundamental shift in the business model for existing manufac­turers and tech companies because a new business model is growing which involves the convergence of data consumption and advertising. The vast frontier of in vehicle advertising and infotainment will create new capabilities and business models that do not quite exist yet in the consumer-produced trans­portation system of today

When driverless vehicles arrive, they will dramatically lower the cost of conveying physical things and create more opportunities for integrating entertainment and advertising into the transportation experience. Inside passenger vehicles, entertainment and retail will turn into major revenue streams. More lucrative will be the ability to mone­tize the process of physically bringing people together through dynamic pooling. All these services will also act as a plat­form for data gathering — helping companies build more sophisticated customer profiles and better understand tastes and preferences which will help advertisers target audiences even better that google already does. Since we all use computers on a regular basis, google has a semi-captive audience. What could be more captive than taking a trip in a vehicle from point A to point B and having ads targeted to you based upon a variety of data driven factors. 

This new wave of creative destruction is likely to devastate traditional auto manufac­turing and is poised to disrupt the business of car services. At the same time, mobility is the perfect hedge. While the profits of auto manufacturing might stagnate, the total revenues in the mobility space might well dwarf anything that currently exists. That is why Big Auto and many others are already betting on mobility. Investments are already in the billions. The rising masses of mobility patrons will create an opportunity for proprietors at a scale the world has never seen. The repercussions for our society and labor sectors will be far-reaching. The proprietors of tomorrow will sell trips and services rather than horsepower, and those services will be delivered more efficiently than ever before. Patrons will consume these services in new configurations. Mobile com­puting and human-dependent transportation have been a toxic cocktail from a safety standpoint, leading to distracted driving and more frequent car crashes.

On the other hand, automakers may be more determined to stop the rush to automation and focus more on the software inside the vehicle because technology can be far more profitable than auto manufacturing making. Unless auto manufacturers are well positioned, they may discourage regulatory approvals of level-5 vehicles, or they could create roadblocks to their usage by having their army of lobbyists put the proverbial brakes on the movement towards automation.

Either way, there is great hope for the future. New technology and new consumer demands already have us on the road toward a more technologically dynamic, less environmen­tally destructive and safer transportation system. Getting there depends largely on policy leadership over the coming 5 to 10 years — and a willingness of societies to bid farewell to the past and embrace the future of technology. History has taught us that if you don’t embrace technological change, you will become the next Kodak.

SCOTUS Ruling: End of the Road for Interstate Transportation Entitles as Arbitration Exemption Applies To All Employment Relationships, Including Independent Contractors

On January 15, 2019, the Supreme Court of the United States of America (“SCOTUS”) ruled on 1/15/19, in a unanimous 8-0 decision, that federal courts cannot force interstate transportation workers, whether classified as employees or independent contactors into arbitration. (See New Prime Inc. v. Oliveira). The Federal Arbitration Act (“FAA”), passed in 1925, enshrined in law a strong pro-arbitration policy. Pursuant to the FAA’s requirements, federal and state courts regularly enforce arbitration agreements. But as described below, there are exceptions. Several recently decided SCOTUS cases interpret the FAA very broadly and have enforced arbitration agreements, including in the employment context. (See Epic Systems Corp. v. Lewis) However, Section 1 of the FAA excludes “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” which the Court previously ruled to include “contracts of employment of transportation workers.”  See 9 U.S.C. § 1; Circuit City Stores v. Adams. Prior to New Prime Inc. v. Oliveira, lower courts interpreted the Section 1 exemption to apply only to employees and not to independent contractors. 

Dominic Oliveira, a truck driver brought a class action suit against New Prime alleging that the company failed to pay him minimum wage for all hours worked. Oliveira brought the suit in federal court despite a provision in his independent contractor agreement with New Prime in which the parties agreed to arbitrate their disputes. Oliveira argued that the FAA’s exemption for “contracts of employment” for interstate transportation workers refers to all contracts to do work with employees, including those signed by independent contractors. The term “contracts of employment” was interpreted by SCOTUS according the arguments made by counsel for Oliveira, which was based upon the meaning of the words from the time of the FAA’s passage in 1925. In other words, counsel for Oliveira argued that the Court must interpret the statutory language based on what the words meant at the time the statute was passed. In 1925, when the FAA was enacted, “contracts of employment” referred generally to all agreements to perform work and included both employment agreements and independent contractor agreements. Because labor strife in the 1920s served as partial motivation for passage of the FAA, and because both employees and independent contractors can cause labor strife, it was argued that it would make no sense for them to be treated differently.

The SCOTUS decision was decided unanimously in workers’ favor. On the first issue, the Court ruled that a judge, rather than an arbitrator, should decide the applicability of the Section 1 exemption. In doing so, Justice Neil Gorsuch (writing for the majority) rejected the employer’s delegation clause argument, and instead cited the fact that Sections 3 and 4 of the FAA—which in part require a court to stay litigation and compel arbitration—are limited by the exceptions defined in Section 1 of the FAA. Thus, Justice Gorsuch reasoned that a court should decide whether the Section 1 exclusion applies before ordering arbitration. Justice Gorsuch explained that, in order to invoke its statutory powers under Sections 3 and 4 to stay litigation and compel arbitration, a court must first know whether the contract itself falls within or beyond the boundaries of Sections 1 and 2.

On the second and more critical issue, SCOTUS ruled that the term “contracts of employment” pertains to contracts with employees AND independent contractors.  In reaching this conclusion, Justice Gorsuch explained that then the FAA was enacted in 1925, a “contract of employment” meant nothing more than an agreement to perform work.  So, at the time, the common understanding of the Section 1 exemption meant that Section 1 applied to both agreements between employers and employees as well as agreements for independent contractors to perform work. Justice Gorsuch reinforced his decision by looking at dictionaries from the relevant time period and comparing the word “employment” as a synonym for “work;” with all work being treated as employment. Further, the Court looked at legal authorities from the time period and saw no evidence that a “contract of employment” strictly meant that an employer-employee relationship was formed. 

SCOTUS’s decision to hold that “contracts of employment” in Section 1 of the FAA include independent contractor agreements, transportation employers will now find that the arbitration agreements and class action waivers they signed with their independent contractors are mostly likely to be considered invalid. Further, some state courts applying state law have refused to uphold certain arbitration provisions, such as class action waivers, on unconscionability grounds. This means that a wave of class and collective actions can threatening to overwhelm transportation entities engaged in interstate commerce.

Arbitration is a means to permit disputes to be resolved with less litigation expense. SCOTUS’s ruling will likely raise legal and operational costs for transportation companies. These companies may be forced to pass on the higher costs to consumers who depend on interstate trucking/transportation for the delivery of commercial goods. This decision is a victory for transportation workers’, but if the costs of the goods being transported are increased due to the increased costs of litigation, it will be the public that pays the ultimate costs.

 

Congestion Surcharge on For-Hire Vehicles is a Sham

A lawsuit was filed against the State and City of New York as a result of the Congestion Surcharge that is set to go into effect on January 1, 2019. The congestion fee on taxis and for-hire vehicles was enacted under false pretense of reducing congestion but is really just a cash source for the strapped MTA. A judge issued a temporary restraining order preventing the Congestion Surcharge from going into effect. A hearing is set for January 3, 2019 for the Court to determine if the Congestion Surcharge should go into effect, as the state wants, or order a stay until the court case is resolved.

The court case was filed by yellow taxi owners, who argue the law discriminates against them.  The fact is, it’s also bad for the for-hire livery industry.  The law, set up to favor behemoths like Uber and Lyft, could put it out of business; residents of Northern Manhattan and the boroughs, who have long relied on local liveries to get around, will also suffer.

Fortunately, there's still time for the state to act and save these small businesses and protect riders. In its rush to pass it, the state ignored the law’s impact on hundreds of for-hire livery bases and some 15,000 drivers. 

Here’s how: the Congestion Surcharge law requires a $2.75 fee to be added to rides below 96th street in Manhattan. The financial responsibility of remitting the money to the state rests with companies, not drivers. This fits perfectly with companies like Uber and Lyft because they collect the fee from the passenger through their apps.

On the other hand, the law is completely incompatible with the livery base model. In our business, the driver, NOT the base, collects the fee (in cash) from passengers. The livery base is then dependent on the driver passing the fee to it before the base can pass it along to the state.

Livery bases will be penalized financially for failing to pass on the collected congestion fees. Yet, the law carries not a single provision protecting livery bases against driver refusal to pass the collected fee. All this for a sector that probably services 1% of its' trips below 96th Street. We can still fix this law and help small car services survive in the age of Uber.

If the judge today allows the law to move forward, New York State should amend the law to either exempt neighborhood livery service, given the very few trips that will apply to them, or replace the per-trip fee with an annual congestion fee that is paid by the driver at the beginning of each year.

This kind of regulatory support will not have a negative financial implication to the state, but will go a long way towards protecting small livery businesses.

To do any less would essentially lead to the extinction of the industry and fewer transportation options for New Yorkers.

Evolution of Transportation and Insurance and The Impact of Technology on The Future of Both (Innovation and Its implications upon Risk and Society)

It is quickly approaching: a world where we can get into a vehicle anytime and anywhere, but do not own it. It is a world where we are all passengers. Where we do not have to worry about dangerous drivers and accidents are drastically reduced due to the lack of human involvement. Where we can talk on the phone, review a report for a meeting, watch TV or do anything you want on your morning commute to work. Vehicles and vehicular transportation are changing drastically and quickly. While automakers and other stakeholders have invested an estimated $80 billion into autonomous vehicle technology, it remains unclear when this technology will achieve widespread consumer adoption. The when is up in the air, but the if is no longer in doubt.  Regardless of the precise timeline for its widespread adoption, it is clear that autonomous-vehicle (AV) technology will continue to improve safety and reduce risk. It is only a matter of when, not if it becomes ubiquitous.

Alongside the transformation of vehicles and differing modes of vehicular transportation, investment in autonomy, electric technology, and mobility services continues. The convergence of these three trends is set to transform how consumers and companies think about vehicles as they relate to rick, safety, and insurance. As the automobile is quickly evolving before our very eyes, we should take a moment to consider where we were, how we got here, where are we going and imagine the future possibilities.

Since the Ford Model T came off the production line in 1908 cars have been continuously evolving. Changes to vehicles over time have had the dual effect of not just improving driver experience, but has forced the automobile industry to balance innovation with safety. For example, in 1911 rear view mirrors were used for the first time. In 1921 the headrest was invented to reduce the harm caused by whiplash in rear-end collisions. 1947 saw the first car with padded dashboards, which was intended to minimize chest damage when hit head-on. In 1956, power steering became a standard feature for drivers which made maneuvering a vehicle more comfortable and improved safety. In 1958, cruise control improved user experience and paved the way for what will is the modern-day autonomous features. In 1963 the inertia-reel seatbelt was initiated by allowing the seatbelt to re-adjust to the preference of the passenger. In the US made it mandatory to have collapsible steering columns and side marker lights in all vehicles. In 1974, General Motors provided optional airbags for the driver and passenger’s seats. In 1978 the first electronic anti-lock braking system was introduced. 1981 saw the release of the first production car with supplemental restraint system airbags for the driver’s seat. By 1984, most vehicles came equipped with airbags. The 1990s saw an increasing amount of electronic systems being installed in vehicles. In 1994 side-impact airbags were introduced. In 1996 the Brake Assist System was introduced.

The turn of the century introduced new protection measures for pedestrians and development of computer technology continued. In 2000 the Lane Departure Warning System was developed. This technology which used audible, vibration  and visual warnings to alert the driver if they are leaving their lane. 2004 saw the introduction of the blind spot information system using cameras and motion sensors to avoid accidental collisions when the driver is parking or switching lanes. In 2010 the pedestrian detection system was first utilized, causing cars to brake automatically when they detect a pedestrian. It uses camera and radar technology to keep an eye out for other vehicles as well. Today, multiple safety features aided by computers are able to keep drivers from swerving out of a lane, backing up into another vehicle, running into a vehicle in front of us, flipping over, spinning out, or generally doing anything dumb. And if future predictions are correct, we can soon look forward to cars that will be able to drive themselves. There will not be an overnight change to driverless cars. Human drivers will continue to mix with autonomous vehicles on the road, and there will be various stages until we reach full autonomy. With the march of time, the modern-day automobile will support evolution until it eventually becomes fully automated.

It is best to consider AV capabilities along five levels. For example,  Level 0 means no autonomy; the human is at the wheel. Level 2 (partial automation) indicates the vehicle can steer, brake and accelerate under some circumstances. Level 3 (conditional automation) is when the vehicle can monitoring the environment as well as manage almost all driving functions. Under this technology, the driver will need to be available to take over if the vehicle confronts a situation it is not programmed to handle. Level 4 (High Autonomy) is when the vehicle can operate without human input under select conditions such as geographic area and road type. Level 5 (Full Autonomy) is where a destination is entered, but the AV operates on in any conditions and on any road than a human driver could negotiate. While full adoption of Level 5 vehicles may be some way off, onboard computers will increasingly take over, particularly for city driving. 

With these onboard computers, vehicles will become more proficient at communicating with one another and control centers will harness data to improve safety and traffic flow. Wireless technology will allow each vehicle to broadcast their position and speed to nearby cars. This will let each vehicle understand their surroundings, better identify potential perils, and determine possible corrective actions to take if such a hazard occurs. Also, communication with control centers will allow cars to broadcast their location and receive the areas of other vehicles, thus allowing the vehicle to choose a route with less traffic, which would speed up travel times and decreasing the risk of accidents.

Much of the potentialities around the AV is their potential to reduce fatalities on the road dramatically. The National Highway Traffic Safety Administration estimates that 94 percent of the estimated 2.2 million crashes in 2015 were the result of driver error, 2 percent were due to the environment, and the remaining 4 percent were due to unknown reasons/causes. The number of accidents through driver fault will continue to drastically decrease as vehicles become more autonomous. If a car accident occurs today the fault usually on the driver. With AV’s, in the future more of the liability will fall on the technology and manufacturer of the vehicle. Not coincidentally, it is estimated that as the number of autonomous vehicles increases, the number of motor vehicle accidents is anticipated to decrease substantially. Less motor vehicle accidents translates in fewer insurance claims. This should increase the insurability of highly autonomous cars. As a result of the increasing use of telematics and black-box technology, the cause of the motor vehicle crashes will be easier to determine. Onboard technologies will bring much more certainty in determining each vehicle’s contribution to a crash event. This can considerably accelerate insurance claim resolution and reduce unnecessary legal costs.

Connected cars will collect massive amounts of data. The frequent use of advanced driver assistance systems will grow exponentially and the evaluation of such data will significantly increase the knowledge and understanding of an insurance carrier's risk.  If the 94 percent of accidents are related to human error, if you take the human out of the equation, the advancement of autonomous technology will then cause the risk to insurance carriers to decrease. This should cause insurance premiums to be reduced over time. Although it remains unclear when the AV will achieve mass adoption, the risk will inevitably shift dramatically. AV’s that take human motorists out of the equation entirely will result in fewer traffic accidents. As such, the switch to autonomous vehicles is likely to alter our lives in remarkable ways. While technology continues to evolve, making accidents far less likely, an accident can still happen. But the risk of serious injury is far lower than it used to be thanks to the introduction of several safety features since the Model T was introduced. The advanced driver assistance system is the culmination of over a century of innovation in safety features.

AVs also have the potential to overturn more than a century of not just vehicle design but urban planning as well. The possibilities include connecting vehicles wirelessly to share information on roads, setting up electricity grids that manage energy supply and demand, impose real-time pricing and travel-on-demand services that give people greater flexibility. All this can reduce the cost of transportation. Self-driving cars will also enable vehicles to travel closer together, which would cut down on traffic congestion. The impact of the AV will be profound and impact almost every part of our lives.

A driverless future, based on increasing technological advances, may very well lead to the following:

1. People will not own vehicles. Transportation will be provided as a service from companies who own fleets of AVs;

2. Technology companies will hold more of the world’s economy as companies like Amazon, Google, Facebook will turn transportation into a pay-as-you-go service. These companies may own the world. Over time, they will own so much data about people, repetitions, obstructions and routes that new entrants will have insurmountable barriers to enter the market;

3. Parking lots and parking spaces on roads or in buildings will become unnecessary;

4. Local auto mechanics, car dealers, car washes, auto parts stores and gas stations will be unwarranted;

5. Gas will become much less valuable as electric cars replace fuel powered vehicles;

6. The same vehicles that transport people will start to transport goods as well. We already see this with companies as Uber and Uber eats.  Computer algorithms will optimize routes of travel;

7. AVs will need much less space between which will allow traffic flow to be better regulated and will maximize infrastructure utilization;

8. The public will undoubtedly have less privacy as interior cameras, and usage logs will track when, where and how often you go somewhere;

9.  Litigation over car accidents will not be individuals vs. individuals but will be more likely be big company versus big company. Forced arbitration clauses will become a mandated component of the contractual relationship with transportation providers;

10. There is already talk of in-transit purchases such as food and merchandise;

11. Traffic accidents from human error will be no more, but non-malicious software and technical issues will likely be the leading cause of delays.  One of the most serious of issues will be the hacking of computer systems in AVs. This will significantly increase the need for cyber insurance;

12. AVs will likely be filled with advertising of all sorts which will decrease the cost of the ride, although there will probably be a way to pay more to have advertising-free travel experience;

13. Sensors of all kinds will be embedded in AVs that will have other ancillary uses such as improving weather forecasting, crime detection, and prevention, finding fugitives, infrastructure conditions. Of course, all this data will be monetized, likely by the companies who own the transportation services;

14. Google and Facebook will add everything about customer movements and locations to their massive databases. Unlike GPS chips that only tell them where someone is at the moment, AVs will know where you have been, where you are going and likely with whom.

There is little doubt that the widespread adoption of AV will have a massive impact on the automobile insurance industry. Since insuring privately owned vehicles is what the auto insurance industry is all about, insurers have every reason to be happy that the number and severity of accidents and insurance claims will drop. The widespread use of telematics and sensor data will lead to lower premiums as insurers learn to price by real risk. In a future where AVs are prevalent, auto insurers will change their way of thinking, their business models and will adapt to new realities of the risks involved. The speed of the evolution to an AV environment is impossible to predict, but insurance carriers are already starting to create actuarial models based upon real-time and actual driving data that better determine risk and pricing for different stages of autonomous vehicle evolution.  Many insurers already offer premium discounts for these features, but as the effects of increased safety become apparent, insurers will likely to lower premiums or risk being undercut by competitors. Other forms of artificial intelligence will be highly useful for insurers to fine-tune data collection. This new information will help price premiums better and provide more valuable services to customers instead of going the way of Kodak and Blockbuster.

Insurance carriers are developing new product offerings in areas including product liability for software and sensors. Market participants who collect, organize and analyze this data will have inherent advantages over those with less developed capabilities. Carriers can and should develop the needed actuarial framework and models.  We have already seen partially autonomous safety features such as automatic emergency braking systems change the safety profile of newer vehicles.  Insurers will likely use sophisticated actuarial and modeling techniques to be ready as vehicles add more and more autonomous features. Insurers will also probably be identifying and collaborating with ecosystem partners such as automakers, communication service providers and software systems.

Finally, carriers will think about new business models. Numerous aspects of the insurance industry will be impacted as the AV advances. Until the vehicle is fully autonomous, liability coverage will be mandated. Over time, as the vehicle advances to stage 5 autonomy,  the coverage will change, as manufacturers, suppliers and even municipalities are called upon to take responsibility for an accident. Self-driving cars raise complex questions for insurers. Answering those questions will take time. The industry has time to research and make changes accordingly. But the proverbial ball is in insurers’ courts to make the most of the next 5 to 10 years and shift their business models to accommodate the coming changes in technology. One day, human driving may not just become uncommon, but eventually illegal. Change is afoot to our vehicles, our roads, our modes of transport, our urban footprint, our way of thinking about transportation and our insurance processes. This is one journey consumers, and insurance companies should not want to navigate on autopilot.

By: Steven J. Shanker, Esq.

 

One day, Hopefully soon...Uber Will Have Its Day of Reckoning

What does an Uber ride actually cost? That simple question is often lost among the many controversies facing Uber, but it is surely one of the most important question of all when it comes to determining the value of Uber which has built its business on massive subsidies to both riders and drivers, producing huge losses in the process, and has yet to show that it can maintain growth without them.

Although a private company dos not need to release its financial data, Uber has started releasing limited financial data, and in May reported a loss of $708 million for the first quarter, down from $991 million in the fourth quarter. While their upcoming financial report may show further improvement on margins, Uber continues to spend heavily on subsidized rides.

The question vexing everyone is what the company is worth. Truthfully, I really don't care. Not just because I am anti-Uber but because their entire business model is based upon explanation of persons and creating the myth of providing jobs when their true intent is to totally divest itself, in due course, of all drivers. How drivers do not see this and continue to driver for them is beyond me. Maybe I am wrong in my forecast or perhaps I just simply do not like illegal monopolies.

Uber’s losses stem from its drive to win global market share at almost any cost. That strategy was built on the assumption that Uber could achieve a dominant position in many big cities quickly and eventually raise prices. Kalanick himself said low fares were temporary. But eight years in, the strategy is now in doubt as competition in many markets continues to intensify. Uber must solve the problem of how to eliminate subsidies without losing customers and thereby undercutting its valuation.

At some point in time, Uber will have its day of reckoning as they will eventually have to raise prices and get rid of driver subsidies. And we all know what happens when you raise prices - demand goes down. And when you give up driver subsidies - supply of drivers goes down.

Regardless of their Valuation, in my humble opinion, Uber has become an illegal monopoly. I have conducted my fair share of research on the Sherman Act and its progeny since the late 1800's when certain monopolies were declared illegal. Monopolies are bad for the public, bad for the economy and bad for competition. Uber will eventually raise its prices and do away with driver subsidies...and then the riding public will see Uber for what it truly is. Not an aid to the Salvation Army, but a money hungry technological monopoly that is built on a house of cards. When one of the cards start to fall, the others shall follow. Then I hope to see Kalanick himself driving around in his own vehicle with the stupid "U" in the front window.

Time for the Public to see Uber for What they Really Are.....and to go elsewhere

Uber’s global pattern of driver mistreatment, corporate bullying and legal transgressions should be tolerated no more.  For years, Uber managed to conceal its bad behavior with expensive P.R. campaigns and by claiming they are a technology company and not a transportation provider. Their games may have worked for a while, but their grand plan is quickly unraveling.

Uber is convenient and fast in New York City. The combination of cashless transactions and location technology make for a great service. But no amount of convenience can cover up the toxic culture that has taken hold at Uber. This hold true now not only in the treatment of its huge driver workforce, but at the company’s headquarters as well. Uber’s CEO has finally been forced to resign, but this is simply not enough.

We all know by now that Uber’s wrongdoing does not end at the door of its corporate headquarters. Just as evil is Uber’s model of “employment”. In my opinion, under New York law, Uber is an employer, but offers no employee benefits to its drivers and does not pay the taxing and regulatory costs associated with employing persons. In the vast majority of cases, Uber drivers are offered low pay, no sick pay, no vacations, no 401K. In return, they are promised “flexibility”, or the freedom to work whatever hours suit them. In practice, many Uber drivers are working long, long shifts for extremely poor pay in order to try to make ends meet. On the other hand, Uber continues to operate outside of the law with impunity.

Politicians are yet to condemn Uber. Perhaps their political contributions are just too large to refuse. I am at the point where I refuse to believe politicians will intervene and Uber is surely not going to change its business model on its own volition. But not using the app will surely send them a clear message. The consuming public needs to use its power as customers to force Uber to change their behavior. The workforce of drivers need to stand up to Uber and say “no more”, by disaffiliating with them and refusing to accept their dispatches.

 While Uber is convenient and fast in New York City due to their combination of cashless transactions and location technology, there are plenty of other car services in New York City that do the same exact thing. The only difference is that Uber operates outside of the law, while the car services that provide the same type of service in New York City have been in business for decades and know who to operate a transportation business. The consuming public and the drivers affiliated with Uber should use their collective power and go elsewhere. Uber is not going to change on its own, but you do have the power to “vote” by not using their service. Uber is no longer the sexy newcomer with a cool service. It is a lawless entity that uses drivers like slaves and laughs at the consuming public along the way. Why should anyone put up with this type of service. The time has come for the public to consider that Uber did force many of the incumbents in the industry in New York City to revolutionize and create their own technology to meet the demands of the public. It is now time to go back to these companies and use their service. You deserve better

The Gig Economy Is Here to Stay

Lets face it. The gig economy is here to stay. If it was not a good idea, then the entire market of new companies that have been created would not be flourishing…and they are not all flourishing because they are taking advantage of loopholes in the law. When something does not go the way they expect it, the layperson calls it a “loophole in the law”. When someone or some company escapes legal liability on a “technicality” the public calls it unfair. It is almost always an afterthought reaction when a group of persons file a class action lawsuit against a company alleging that the company misclassified them as independent contractors. Of course, they don’t seek “justice” by making the market reform to the existing laws and they don’t petition their elected leaders to change the law, but they seek the usual object of a lawsuit….MONEY (compensation for missed lunch breaks, minimum wage compensation, reimbursement for business expenses, and overtime, in addition to other penalties). While a lawsuit and the payment of money may have the unintended result of making a company reform its business practices, the current wave of class action lawsuits will not change an entire industry that has been created in the past 5-6 years.

Lawsuits against companies utilizing the “gig economy” are like a threatening cloud in a brewing storm. People who provide services surely deserve respect, fair treatment, and open communication, but that does not mean that all persons who provide services are employees, as opposed to independent contractors. Yes, there surely are many companies that misclassify their workers as independent contractors as opposed to employees in order to avoid the legal and financial liabilities associated with hiring an employee. But there are also many who follow the law and do utilize independent contractors, but still have to navigate the legal maze of bottom feeding lawyers that seek out these class action lawsuits, not to reform an industry or a market, but to get money.      

This rising legal retribution is a huge threat to the gig economy. Not being responsible for employees’ taxes and benefits allows companies to operate with 20% to 30% less in labor costs than the incumbent competition. If they lose this workforce structure either via class-action lawsuits or intervention by regulators, or through the collective action of disgruntled workers, and you will surely lose the gig economy.

The lawmakers may need to alter the very definition of “employee” in order to meet the demands of the in a tech-enabled, service-driven economy in the 21st century American Gig economy. Many companies do not own cars, hotels, or even their workers’ cleaning supplies. What they own is a marketplace with two sides. On one side are people who need a job done–a ride to the airport, a clean house, a lunchtime delivery. On the other are people who are willing to do that job. In the middle is a broker. This is the one that puts the two parties together and takes a “piece of the action”. Little or no direction and control over the means by which a person provides their service is the legal equivalent of an independent contractor. If you don’t like being an independent contractor, then go out and get a job as an employee, which involves more supervision, more direction and less autonomy. There is nothing wrong with that, but just don’t complain later on that you were cheated after you speak to a scum sucking ambulance chaser.

Some say a new deal has to be worked out and one that squares the legal rules governing work with new products and new services. Some believe the gig economy created a marketplace where people who provide services do not fit neatly into the traditional definition of employee or independent contractor. Right now, one who provides services is not sure what benefits to expect from a quasi-employer. For those who want to know, all you have to do is ask. If you don’t like the answer, then don’t accept the job or don’t provide the service. I believe one can be both independent and tethered to an app-based company. The social contract between gig economy workers and employers may be outdated, but it is far from broken. Who will fix it, and how, will determine the fate of many thousands of workers and billions of dollars.

Thanks to these new on-demand startups, though, whether you’re a stay-at-home mom with a few odd hours to spare or a recently unemployed fast-food worker who needs to make ends meet while looking for a job, you can work whenever you want, doing whatever you want. Many like the flexibility and feel like it gives them a better work and life balance. In the gig economy, you’re better than an employee; you’re a little business. We now live in a world where people can be entrepreneurs or micro-entrepreneurs, Just like the government didn’t begin to regulate the Internet before it became a behemoth, regulating this new economy before it’s fully created could halt innovation. Perhaps I just don’t have much faith in regulators whose job is not to ensure a properly working system, but to regulate for the sake of regulation by implementing more and more rules of operation to the point of choking a business to death. Just like the New York City Taxi and Limousine Commission did to the for-hire vehicle industry in New York City.

 

I believe the gig economy has been improperly interpreted as a loophole for avoiding labor laws. There is little economic security or predictability in being an independent contractor, but then again, there is the promise of starting off with your own small entity and creating something new and ever bigger and better than before. If you want security and predictability, then go get a job teaching 4th grade in an elementary school. If you want to take a risk and be your own boss and possibly fulfill your dreams, then start your own business and make it rain…and don’t come complaining later when your own ideas and inventions don’t work out because it is not the fault anyone other than you and your own choices. Some don’t like the gig economy because there is no power among workers to get a fair share of the profits. For those who believe this, take a step back and realize that you don’t get the profits of a private company by being an employee or a person that provides services.  Many people try and fail to make money with gig economy jobs, and then complain that their legal rights were violated. Why did they not think of this when they signed on to be an independent contractor in the first place

It’s safe to say that there are advantages to being an employee (security, safety laws, minimum wage, benefits) and that there are also advantages to being an independent contractor (freedom, independence, opportunity for more profit). Similarly, there are advantages to hiring employees (quality control, dependable workers) and hiring contract workers (cheaper, don’t need to guarantee work). Where platforms and new markets get into legally dubious territory is when they try to claim the advantages of both systems at the same time. But just remember that simply because you utilize the platform of another company does not mean that you don’t have control over the work you did. If the company that provided the platform or means to access the marketplace, then you would not have the option to be an independent contractor.

The laws that determine independent contractor and employee status vary from state to state and from situation to situation, but many of them focus on the question of how much control workers have over their work. If their employer is mainly focused on the outcome of that work, there’s a very good chance they’re fairly being classified as an independent contractor. When their employer begins to control not only what work they do, but how they do it, that classification gets murky. Giving persons suggestions for how to do their work should not made the company more vulnerable to a lawsuit. Similarly, though traditional taxi drivers are often independent workers rather than employees, a platform like Uber takes a certain amount of control when it fires them for low ratings or changes their fare prices. Some don’t like the idea of going into work one day and your “boss” telling you that you’re going to have to do the exact same job you did last week but make less money”. But ”firing” someone for low ratings does not necessarily make them an employee, it may just means that the company no longer desires to utilize their services.

Right now, our legal system only has two buckets for workers who aren’t volunteers or interns. You are an employee. Or you are an independent contractor. The risk of being sued has led many in the gig economy to place workers into the employee bucket. This also drives costs to the consumer up because the cost structure for these companies increases by about 30% by paying for taxes and benefits that they may not have to, but they just want to be cautious. Other companies in the gig economy place workers into the independent contractor bucket, which entails the risk of worker misclassification claims for disgruntled persons who formerly provided services and/or tax hungry governmental entities that have every intention of finding an employer-employee relationship so they can increase revenue for the city, state and/or federal government. The legal risk, the risk of being asked to pay back-taxes by the IRS or Department of Labor is a battle that everyone knows is coming and each entity that utilizes independent contractors should make budgetary preparations, emotional preparations and legal preparations to fight and defend.

The pressure in the marketplace right now is to push workers into one bucket or another (employees or independent contractors). This creates an inherent fear of the governmental fines if you are wrong and the fear of the cost of defending a class-action lawsuit where a group of former disgruntled persons allege that a company misclassified its workers. But on the other hand, classifying a person as an employee will raise the cost to consumers in many situations when the worker is not an employee and thus, the increased cost to the consumer for no good reason.

But some wonder if there is some room for compromise in this system. The question is whether there is some sort of a new middle ground that works for everybody. Forcing all companies to use these old constructs (employees or independent contractors) may not quite be the right thing for the worker and for the growth of the economy. After all, the answer to decreasing employment is not to get more people deemed as misclassified.

One answer, of course, is that the gig economy should be destroyed if it can’t follow existing labor laws. These legal protections have been put in place for the protection of workers and have evolved over a century and surely were not accidental. Others call for change where parts of the sharing economy could self-regulate, with oversight from the government. Others have supported creating a third category of worker that falls between an independent contractor and employee, which would allow companies to give their independent workers some benefits without fear of being sued for treating them as employees.

Lawsuits are a big, visible threat to the gig economy, but even if none are successful, there’s another, slower-burning problem that will corrode the gig economy if left unresolved. It’s a problem that gets worse every time a worker completes hundreds of jobs via a platform with nearly unanimous perfect reviews of his work, is let go and then the person becomes disgruntled and there is nothing that the company could ever do to win him back as a dedicated service provider.

In my humble opinion, the most important thing a corporation can do is to have an experienced lawyer perform a full exam of your corporation to see if it is properly classifying its workers/service providers. Do not wait until you are sued or the government performs an audit. By that time, it is too late to do anything other than damage control. The most important thing a person can do before they take a job, is to determine whether they will be classified as an employee or an independent contractor. Go into the job with your eyes wide open, knowing what your benefits and rights are based upon who you are being classified. Speak up and ask questions and make a fully informed decision before taking the job. Don’t cry the blues later on because you were fired and failed to do your homework before taking the job. Finally, the most important thing is what the government can and should do. This means to stop the audits and put aside the money grab for the moment. Take the time to involve leaders and stakeholders in each major industry that straddles the line between hiring employees and utilizing independent contractors. Figure out a way to make the line clearer for businesses and help them understand their potential legal liabilities all while another last option is pursued. That option is to bring the same leaders and stakeholders in each major industry together with the government regulators to figure out a way to find a middle ground that works for everybody. Utilizing old constructs of what it means to be an employee or an independent contractor will not work when analyzing the new gig economy. We have to come up with new constructs and figure out a way for the companies of the nation to know its legal rights and responsibilities all while giving the independent contractor some benefits that they ordinarily would not be entitled to under the current system.

There is middle ground and finding that middle ground will be a better solution for the worker, the business and the economy in general. To do otherwise is to be trapped by dogma, which is living life with the results of other people’s thinking.