By Ashley Zavala
The Sharing Economy: The Future of Business?
With the integration of social media use in today’s society and the proliferation of millennial culture, millennials have embraced and created a new economic sector known as the “sharing economy.” The sharing economy is an economic sector birthed by millennial culture and is known primarily as an economic marketplace created by individuals providing and seeking specific services.[1] The foundation of the sharing economy comes from the growth of Internet use and apps readily available on smartphones. Then, the same data gathered from Internet use is used as the foundation to cater to specific markets. The availability of technology coupled with changes in individual attitudes in sharing services with strangers provided for unprecedented growth and now is pervasive in our daily lives. For example, “ridesharing, apartment/home lending, peer-to-peer lending, reselling, coworking, talent-sharing” are all niches under the general umbrella of the “collaboration economy.”[2]
Companies such as Airbnb and Uber have come to exemplify how the sharing economy works. While many companies offer different services and are organized under many different business models,[3] the core of the sharing economy is to provide individual resources to a private market and capitalizing through common usage. Whether it be allowing individuals to work as drivers in their own cars or offering their homes or office spaces for other individuals to occupy for a specified time, individuals are its core. This article will examine the business model that Uber has adopted and how, although advantageous in theory, a classic sharing economy business model can create challenges for both the company and individual within it.
Uber’s Business Model: The Business, the Individual, and the Problems
Uber operates by retaining drivers to provide car sharing services through independent contractors, or what the company calls, “driver-partners.”[4] Uber touts the driver-partner experience as one that is self-tailoring, advertising itself as a customizable employment opportunity in which drivers set their own hours as opposed to working for other companies that have “strict schedules.”[5]
The various business models participating in the sharing economy not only benefit the individual to customize their income stream but can benefit the company as well. For instance, with its drivers classified as independent contractors, Uber can free itself of vicarious liability that would be imputed if its drivers were employees.[6] Furthermore, the company can avoid providing certain employee benefits, such as overtime pay or an employee healthcare plan.[7]
The allure of customization and the success of companies from capitalizing on these business models may make the sharing economy appear to be a promising future for many businesses as individuals flock to work for the business. However, the businesses that have adopted the sharing economy are not without its problems.
Litigation Against the Company
Airbnb and Uber face constant litigation and animosity from cities looking to curb the presence of both companies. For example, the City of Santa Monica prevailed against Airbnb in the city’s enforcement of a local ordinance hindering housing units being advertised on Airbnb’s site.[8] In addition, Uber has constantly been embroiled in litigation by its drivers and mounting pressures from the cities it operates due to its independent contractor classification system. Uber has experienced legal victories and losses, but the ultimate question of whether Uber drivers are entitled to the employee classification is still yet to be answered.[9] Reportedly, in 2017 alone, Uber has been sued 433 times.[10] Cities and labor advocates continue to fight the Uber business model to ensure that drivers are not being misclassified and taken advantage of.[11] While companies like Uber prematurely showcase benefits of the sharing economy, its entanglement in litigation shows it’s not that simple.
Expenses and Tax Considerations for the Independent Contractor
Despite the attractive notions of self-tailoring employment opportunities within the sharing economy by engaging in car-sharing as an Uber driver, individuals who are hired as independent contractors are unaware of the personal expenses that accompany working for Uber. For example, an independent contractor is liable for damages incurred on the job, with no company behind to help mitigate the situation.
Despite the attractive notions of self-tailoring employment opportunities within the sharing economy by engaging in car-sharing as an Uber driver, individuals who are hired as independent contractors are unaware of the personal expenses that accompany working for Uber.
Furthermore, the same individuals that comprise and fuel the sharing economy can lose themselves in the complicated tax requirements that come with working as an independent contractor. Unlike the simple W2 form given to employees, independent contractors have to file a much more complicated form 1099 in their personal income tax return and pay a higher tax.[12] In addition, cities such as Los Angeles require independent contractors to also obtain a business license and pay annual business taxes.[13]
Conclusion
With its novel takes on business and widespread use, companies in the sharing economy have seen unprecedented growth. However, with mounting litigation and backlash from participants and major cities, companies such as Uber and Airbnb showcase that the “ease” of the sharing economy is in fact, not that easy. Although still widely popular, the individuals that comprise the sharing economy are beginning to feel its imperfections. With constant litigation against the businesses and individuals facing mounting costs, the popularity of the sharing economy can falter.
[1] Marr, Bernard, “The Sharing Economy – What It Is, Examples, And How Big Data, Platforms And Algorithms Fuel It“, Oct. 21, 2016, FORBES, https://www.forbes.com/sites/bernardmarr/2016/10/21/the-sharing-economy-what-it-is-examples-and-how-big-data-platforms-and-algorithms-fuel/#2f385a4c7c5a
[2] Id.
[3] Id.
[4] Omri Ben-Shahar, “Are Uber Drivers Employees? The Answer Will Shape The Sharing Economy,” FORBES, (Nov. 15, 2017), https://www.forbes.com/sites/omribenshahar/2017/11/15/are-uber-drivers-employees-the-answer-will-shape-the-sharing-economy/#23381bba5e55
[5] UBER, http://www.uber.com/driver-jobs/ (last visited Oct. 28, 2018).
[6] Alan O. Sykes, The Boundaries of Vicarious Liability: An Economic Analysis of the Scope of Employment Rule and Related Legal Doctrines, 101 Harv. L. Rev. 563 (1988).
[7] Steve Parrish, “Should I Be an Employee or An Independent Contractor?” FORBES, (Dec. 16, 2013), https://www.forbes.com/sites/steveparrish/2013/12/16/should-i-be-an-employee-or-an-independent-contractor/#6455f180138c
[8] City of Santa Monica Press, Court denies companies’ motion to enjoin the City’s Home-Sharing Ordinance, (Mar 12, 2018), https://www.santamonica.gov/press/2018/03/13/city-of-santa-monica-prevails-against-airbnb-and-homeaway
[9] Lydia DePillis, California Ruling Puts Pressure on Uber, Lyft, and other Gig Economy Employers, CNN MONEY, (May 3, 2018), https://money.cnn.com/2018/05/01/news/economy/california-gig-employer-ruling/index.html
[10] Chris O’Brien, Uber Has Reportedly Been Sued At Least 433 Times in 2017, VENTURE BEAT, Aug. 23, 2017, https://venturebeat.com/2017/08/23/uber-has-reportedly-been-sued-at-least-433-times-in-2017/
[11] Lydia DePillis, California Ruling Puts Pressure on Uber, Lyft, and other Gig Economy Employers, CNN MONEY, (May 3, 2018), https://money.cnn.com/2018/05/01/news/economy/california-gig-employer-ruling/index.html
[12] Steve Parish, Should I Be an Employee or An Independent Contractor?, FORBES (Dec 16, 2013), https://www.forbes.com/sites/steveparrish/2013/12/16/should-i-be-an-employee-or-an-independent-contractor/#e0ab638138c2
[13] UBER, California Business Licensing for Driver-Partners on the Uber app, https://www.uber.com/drive/resources/ca-business-license-regulation/ (last visited Oct. 28, 2018)
