Uber Case

Although it seems uber has had extreme success in the past couple years, they seem to be caught in a situation that poses a huge threat against their company, which many believe they might not make it out of. As of recently, a new law was passed in California on September 10th, 2019 that has drastically changed the rules to our so-called gig economy. This bill is called Assembly Bill 5 and its main purpose is to reclassify hundreds of thousands of independent contractors as employees. The reason this poses such a huge threat to Uber is due to their business model which classifies their drivers as independent contractors. The difference between the two is with an employee, the company withholds income tax, social security, and Medicaid from wages paid. For an independent contractor, there is no need for the company to withhold taxes. Also, independent contractors are exempt from Labor and employment laws.

Uber's business model is very simple, Uber gets a cut of 15-30% commission depending on the market. Uber connects the passenger to the driver which generates supply and demand. If Uber was to have to file their independent contractors as employees their business model would crumble. Not only would Uber have to pay their employees’ wages, but they would also be faced with increased liability of their drivers. They would also have to pay taxes and when you add up all of the new expenses, Uber would not be able to sustain their company under these new rules.

The big problem is, Uber has become a service that many people in our society rely on. If Assembly Bill 5 was to permanently be implemented, Uber would unfortunately be forced to pull out of California permanently. Solving this problem is important because so many people and drivers have come to rely on Uber. If Uber was to pull out, many individuals would lose their jobs and be forced to look for work elsewhere. Passengers would also be forced to pay a higher price for driving services, and everyone would be left unhappy. However, there is opportunity in this problem, and we believe that we can discover and harness a solution.