As 2017 draws to a close, we reviewed one of Uber's major mistakes in the year, and boy was there a lot to choose from. We decided to go down the humanitarian road and picked out the $20 million settlement that Uber paid out to the Federal Trade Commission (FTC) when they argued the case of misdirecting their drivers through advertising.
Uber advertised online in a number of sites and boldly stated that their drivers could earn as much as $90,000 a year in New York and up to $74,000 a year in California. The FTC investigated these claims after many drivers complained that they never reached these levels of income. The results of the investigation showed that only 10% of all Uber drivers reached this level of income. From their findings, most of the driver sin NY earned an average $61,00 a year, while drivers in California earned an average of $53,000 per annum. Based on these findings and the media trouble it was created through the FTC claims that Uber was "false, misleading, or unsubstantiated claims regarding driver earnings," Uber agreed to pay a $20 million fine to the FTC. (Which is small change for a $60 billion company).
During the procedures, Uber's legal counsel on this case was Covington & Burling Law Offices attorney's Andrew Smith and John Graubert. They sent the FTC a number of defense letters, one of which stated that drivers could reach the advertised amounts, in fact 10% did, 50% of all drivers stopped working for Uber within 12 months, and the remaining 40% did not work full time, and as such, as part-time drivers working for up to 10 hours a week, could not reach the levels of income that a 40-hour week would earn them. Uber's counsel stated:
"It bears emphasis that keeping prices low for riders requires a steady supply of drivers to meet their demand. Yet prohibiting Uber from advertising earnings that drivers can realistically expect to achieve—simply because those earnings exceed the earnings of drivers whose choices cause them to earn less—handicaps Uber in maintaining that supply."
Learn More: Uber Driver’s Income
Smith and Graubert went on to add that:
"It would make no sense to give additional compensation to those drivers who earned less, as there are myriad reasons all within the control of the driver why that may be the case. Many drivers intentionally limit their hours and acceptance of trips for personal reasons, and a further payment would be entirely a windfall."
What Uber is stating is that their driver's autonomous control over their income, and when reading online accounts, you find drivers do reach high incomes when working over 40 hours a week.
Our take: Uber would have won, but the fallout from bad publicity was considered a higher risk. It was easier to pay the FTC to shut up then to win the hearing and lose face. The fallout from winning would alienate Uber's drivers, and when put into context, we have to remember that at the time of the hearing Uber was facing anti-Uber attacks, it's leadership was headed by the controversial founder Travis Kalanick and Uber was intent on continuous global domination to "waste" time dealing with the FTC.
The second issue that was being dealt with was the leasing fallacy that Uber was plying to its drivers. Stating that Uber claimed it had the "the best financing options available," which the FTC contested. The FTC stated that the financing option Uber claimed to be the best was, in fact, one of the worst, where Uber did not control rates that were mostly subprime and that the rates were worse than the average for the leasing industry. To top all of this off, any driver breaking the lease would be left with a serious financial hole in their pocket.
Learn More: Uber’s upfront pricing a scam?
Uber's counsel, Smith, and Graubert stated to the commission that when discarding the PR puffery of the word "best" and concentrating on the deal itself, Uber was correct. The deal was the "best" for anyone with a low credit rating that could never get a lease unless Uber provided such an umbrella. They went on to claim that most drivers, when faced with an opportunity to lease a car, chose an expensive one that would normally be out of their financial range, and without considering consequences, delved into a lease debt that they could not cover. Uber is not a parent; it is a client that provide independent contractors with a financial incentive to improve their income through careful car selection. The fact that some drivers abused this selection process forego was not under Uber's control.
Ubers colorful CEO and Founder at the time of the commission were Travis Kalanick, and he stated that "Some people don't like to take responsibility for their own shit. They blame everything in their life on somebody else. Good luck!" This is a typical Kalanick response.
Our take, Kalanick, and Uber might be right on both accounts, but they were wrong when factoring into the equation human psychology and corporate culture. The average person that will supplement income by driving passengers is low-income households. They are either an employee needing a second or even third income, or they are unemployed, and this is their main source of income. The average driver might not have the necessary financial tools to budget their income and expenditure properly. In some cases, the chance to lease an expensive car will overcome sound commercial judgment that considers risk factors that can stop income through illness, accident, and other reasons. In regard to the income generated by driving part time, what Uber advertised were gross incomes for optimum performances, where there is an optimized waiting time between rides as well as a set number of miles per ride. In reality, the hours of work to affect income, but what really effects income more than the hours is the locations and saturation of drivers. It also does not factor in competition from Lyft and Taxis.
However, even with all these factors in favor of Uber, at the end of the day, the drivers are Uber, without the drivers there would be no Uber. Lyft has fewer problems with their corporate culture as different. The insensitivity of Kalanick and the Uber executive up until the changes in July 2107, were working against Uber. In fact, all of today's issues are the direct fallout of Uber and Kalanick's actions.
At the end of the day, in a "he said she said" situation, Uber said a lot, but the drivers and regulators now have the final word. This is bolstered by the recent ruling the Europen high court (EJC) that decided that Uber is a regulated transport industry, which means it's a taxi service. 2018 will open up with some interesting surprises facing the gig economy in Europe as well as the rest of the world.