The Uber Fare to Pay Gap and Lawsuits


(Harry) #1

As usual, a week goes by, and there is plenty of new items and updates in the media surrounding Uber. We do occasionally report about Lyft, but it seems that Uber is the bad boy in this sector, and most of the action is with them.

Uber's Wage Discrepancy

New York 2016, a lawsuit was fiedagainst Uber stating that they made an intentional error in how they calculated the wages and took taxable income as part of their commission fees.In short, if a ride is worth $20, and Uber's commission is 20%, then Uber should take this off the amount left after taxes. New York state taxes (sales tax and municipal transportation taxes) come to around 8.85% which adds up to $1.77. The extra $1.77 was the drivers for calculating into their total taxable return. The difference in commission would be $3.646 which is $0.354 per $20 ride. Now when you add all these amounts up and consider we are talking about billions of rides per annum, it means that Uber has taken nearly if not more than $300 million per year.

Uber claimed it made a mistake, but when viewing Kalanick and Bhairavi Desai's video (that went viral) you see that they didn't make any errors, it was a direct attack on the tax authority. This video strengthened the Plaintiff's case considerably.

The final verdict of this case will affect Uber all over the US and might, in fact, have implications worldwide, this kind of "tax fraud" can destroy the company, so the new CEO has a lot to prepare for and can only hope that they do not fall on this issue. With over 100 lawsuits in the jar and over200 lawyers working these cases fro Uber it's no wonder they need billions of dollars of private equity injected into their operations. Based just on this on the issue, it looks like Uber has a very bleak future.

The Uber Fare to Pay Gap

A lot of drivers are complaining about the recent up-front fare taken by Uber from passengers without distributing the extra income with the drivers. The truth finally came out when Uber categorically stated that they needed to inject more income. This means that Uber's rates are too low and the company only succeeded in becoming a global giant because their business model was based on investor financing rather than actual profit making.

While this doesn't comfort the drivers, it explains why Uber bunkered behind the driver's contract, pointing out that legally, the drivers were making what they signed up for. They were earning per mile and per minute what the ride rates were set at. The extra income from a pre-quote paid by a passenger was a passenger gamble that the price was better than in reality. However, there is proof that the pre-quote prices were weighted in favor of Uber (obviously).

Drivers complained en-mass to no avail since Uber claimed that the driver's contracts, which are "independent contracts" were met to the letter. It remains to be seen if this is true since contracts can always be open to interpretation unless they are worded draconic and concisely.

So, in reality, this case as with the above one, goes to show how far off Uber was in being a viable business company. In fact, based on all the information coming in from various sources, Uber only exists due to the $17 billion it managed to raise, which goes to prove that suckers exist even in the high financial windows. Not every idea that is farted out of Silicon Valley is a good one, in fact, only 30% ever reach maturity, and even less 10% succeed in becoming profitable, and even less 1% become billion dollar businesses from profit and successful IPO. Uber jumped to the 1% level only because Kalanick could fool everyone all the time, but as the time grew longer people grew cleverer, and now this wonderful house of cards is only being held together by the money injected and by the new CEO.

Uber's in-house Legal Culture

Not all lawyers are ethical, and not all lawyers use their knowledge for good legal practice. Ubers ex CLO (chief legal officer) Salle Woo resigned recently, and now this department is under fire too since it seems that Uber's legal activities are highly questionable. The so-called 'greyball and VTOS' software programs put this issue into the limelight as well as the few moments where in-house legal counselors (2 to be exact in one instance) were fired for releasing information regarding storage space issues to outside offices for representation. This transfer of information outside the company was grounds to have them fired, even though the information would be strictly confidential as per standard Federal and State requirements. The fact that there was so much to hide up and cover over makes the file "The Pelican Brief" look like a ride in the park.

With cases varying from tax evasion to industrial espionage, from shortchanging drivers to investor fraud, the list is so long; one wonders if Uber did anything correctly under the books. One big case is Alphabets suit claiming Uber stoled information from their company Waymo, now with all Ubers might they are no match for Google and honestly, had to be a bit of an idiot to even think of screwing with this giant.

Bottom line, Uber employs 200 lawyers in-house, it also employs an outside law firm and with all the cases mounting up at home and abroad, it looks like the only profitable business the Uber is in is the legal one.

Conclusions

Uber is in a war for survival, it has legal fronts with the government, with corporate giants, with thousands of drivers and from within. While many big companies try to survive (like AIG did) legal crisis of this measure, even bigger ones have fallen in the past, Uber is not impregnable, far from it, and it's up to the new CEO to manage to reach the 2019 IPO with a minimum of decency. Otherwise, that will be the end of Uber.