Uber’s CEO is a political refugee. Dara Khosrowshahi, 51, immigrated to the U.S. as a boy after the Iranian revolution in 1979 when the family’s pharmaceutical and consumer-products conglomerate was nationalized by the new regime.
Four decades later, Mr. Khosrowshahi (pronounced cause-row-SHAH-hee) finds himself leading another successful enterprise that has become a target of government. Last year California’s Legislature passed a law known as AB5, which aims to make “gig companies” like Uber reclassify workers who are now independent contractors as employees.
While he demurs from discussing politics in an interview over Zoom, he explained in a podcast in August that “I do think we have the system that’s optimized. . . . It’s called capitalism. It’s not called laborism. It’s not called socialism. It’s capitalism, and it’s a system that’s built to maximize shareholder value and capital.”
“Laborism” is an apt description of California Democrats’ ideology. AB5 was driven through by unions, which want to organize hundreds of thousands of gig workers and other freelancers. The National Labor Relations Act and antitrust laws don’t allow independent contractors to unionize. So lawmakers passed AB5, which aims to force companies to reclassify them as employees. It presents an existential threat to the business models of Uber, DoorDash, Instacart and
Lyft
—app-based platforms that connect customers with workers in return for a cut of the payments. They allow drivers and food couriers to work whenever and wherever they want, even for multiple platforms.
“We’ve always been an engine for people to find a bridge, essentially to earn, or to get an education, take care of a loved one, etc.,” Mr. Khosrowshahi says. “Over 90% of our drivers actually work less than full-time. . . . And the amazing thing about Uber is, everyone has a different story. I was talking with a driver partner who loved being her own CEO and was writing a script part time. Another started driving because she was taking care of her sick mom.”
Classifying drivers as employees would require Uber to provide workers fixed schedules, including meal breaks, and state-mandated benefits regardless of how many hours they work. Uber has resisted doing so, but was ordered to by a state judge in August. An appellate court is set to hear arguments in the case on Oct. 13.
Mr. Khosrowshahi contends that changes to Uber’s platform in California giving drivers more control make it compliant with AB5: “Riders now pay drivers directly; we take a commission. Drivers now can set their own price. They can decide to decrease price if they want more business; they can choose to increase their price if they value their time more. They have full information as to whether or not they accept a ride.”
“If you’re of the opinion that Uber is an employee with this new model, then you’d be of the opinion that Airbnb is employing their hosts as well and
eBay
is employing their sellers. We really are in this new model a technology platform that’s allowing riders and drivers to essentially transact together. And we think that very much does comply with AB5.”
Nonetheless, Uber and other app-based gig companies are leading the campaign for an initiative on the Nov. 3 ballot to exempt them from AB5. Proposition 22 would guarantee gig workers 120% of the local minimum wage for time they spend ferrying around customers or food. Those who work at least 15 hours in a week would also be eligible for a subsidy to buy health insurance on the Affordable Care Act exchange.
The companies have pumped more than $180 million into the campaign, among the most expensive in California history. Labor unions have spent only $6.6 million in opposition, but they got help from Attorney General Xavier Becerra, who gave the initiative a somewhat tendentious ballot title: “Exempts App-Based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers.”
A poll last week by the Institute of Governmental Studies at the University of California, Berkeley, showed 39% of likely voters supporting Proposition 22, with 36% opposed and 25% undecided. Opposition ironically was strongest among younger people—the demographic that made up the platforms’ earliest customers.
Launched in San Francisco in 2009, Uber quickly expanded to other big cities, prompting a furious backlash from taxi companies and regulators. Its brash founder, Travis Kalanick, was accused of promoting a “bro culture” and ignoring reports of sexual harassment, which prompted private investors on its board to push him out in 2017.
Mr. Khosrowshahi, who had served as CEO of Expedia for 12 years, was tapped to clean up the company’s image before taking it public in 2019. He’s more conventional than his predecessor and fluent in Wall Street lingo.
The Covid-19 pandemic, he says, is “turning out to be a huge tailwind for our delivery business. That business has accelerated very significantly, growing revenue over 150% in the last quarter that we announced. And it’s also a pretty important economic engine for restaurants and other small businesses.”
Uber acquired the food-delivery platform Postmates this summer and now controls 37% of that market, second to DoorDash (45%). “I do think that this new change in behavior is going to be sticky, and sticky for some period of time,” Mr. Khosrowshahi says. But he expects customers will eventually start dining out again: “I think there’s a theater to eating, which frankly I very much enjoy personally.”
One headwind is getting drivers to return to the road. “In the U.S., drivers are coming back to the app a bit slower than what we see in other countries. In other countries we see plenty of drivers, and there’s a robust supply, and demand, as things bounce back,” he says. “In the U.S., drivers have been a little more reticent to come back and drive. And we think that may have something to do with the unemployment benefits.”
As part of the Cares Act, Congress in March made independent contractors for the first time eligible for unemployment compensation. In addition, benefits were “enhanced” by $600 a week. That boost expired in August, but President Trump extended it through executive order at $300 a week.
If gig workers can collect unemployment, is there a case for mandating companies provide them other benefits, as AB5 requires? “I think that to provide a rigid benefits package, whether it’s health care or time off, I think that would not be meeting the drivers on their terms,” Mr. Khosrowshahi says. “The vast majority of drivers, on a 4-to-1 basis, don’t want to be employees. They value flexibility.”
Even if voters approve Proposition 22, Democrats in other states like New York and Illinois have proposed similar legislation. So have Democrats in Congress. That has led to speculation about the replacement of drivers with machines. Mr. Khosrowshahi says Uber intends self-driving cars to expand its business but doesn’t expect computers to replace human drivers. “The way that I think about self-driving in our network is just like in factories,” he says. “Robots take the most rote, predictable work. I think the same thing will happen in self-driving. As we introduce robot cars, they will do the simplest routes. And they will allow us actually to reduce the price of Uber, which will then bring more demand into the network, which will allow us actually to hire more drivers.
“So while 100% of our routes are being driven by drivers now, that may go down to 50% over a period of years, but it will be 50% of a market that is 10 times bigger, and ultimately, it will result in us needing more drivers on our platform.”
Automated cars could take kids to sports practice, freeing parents up, or suburban commuters to city offices. If more people move to the suburbs as a result of the pandemic, “that would help us and not hurt us,” he says. “Some of these areas don’t have transit as an alternative, so it’s either car ownership or it’s Uber.”
A cultural change is under way as well. “If you look at our society, driving a car is going to become less and less a part of people’s identity—whether you live in a city or you live in a suburb. My son now—I’m trying to convince him to learn how to drive, and for him it’s just not a necessary stepping stone. The day that I could get my license, I went out there, I practiced, I couldn’t wait,” he laughs. “But I think for younger generations, and even older generations now, the value of getting your time back, of being able to work in the car or talk in the car. Of being able to go out to dinner and have a few drinks, and not worry about how you’re going to get home. I think that value is universal, whether you live in a big city, or a small city, or a suburb.”
Or in the Middle East. Uber’s Dubai-based subsidiary, Careem, provides employment to thousands of female drivers in countries including Egypt, Pakistan and even Saudi Arabia. But then as Mr. Khosrowshahi’s own family history shows, regimes often seek to kill their golden geese.
Ms. Finley is a member of the Journal’s editorial board.
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8