NEW YORK — As Uber prepares for its stock market debut Friday, its long-term success or failure will largely depend on the nearly 4 million drivers who serve as the backbone of the company’s network.
The ride-hailing company will need to convince drivers to stick with it as it grapples with complaints over wages and the way it classifies drivers as contractors instead of employees.
Lyft, which beat Uber to the public market last month, is dealing with similar issues. On Wednesday, drivers for both companies participated in strikes across the country, pledging to turn off their apps for hours to call attention to their plight, although it’s unclear how many actually took part and the impact on customers appeared minimal.
“The drivers are the one who helped Uber to be $100 billion, nobody else, and the drivers are the ones who are suffering,” said Inder Parmar, 54, an Uber driver who lives in a suburb of New York City. “Uber and Lyft, they figured out how to exploit the drivers, and that’s what they’re doing right now.”
Uber is being challenged around the globe to treat its drivers as employees instead of contractors. Fighting those battles is expensive. What’s more, losing those battles and being forced to classify drivers as employees would exacerbate its financial difficulties.
“That would be the nightmare scenario,” said Dan Ives, managing director of equity research at Wedbush Securities. “That continues to probably be the biggest threat to the business models.”
Although both Uber and Lyft have been growing at impressive rates, they have also been consistently losing money. Lyft, with its 1.1 million drivers and 18.6 million active riders in more than 300 markets in the U.S. and Canada, lost nearly $3 billion since its 2012 inception. Uber, which boasts 3.9 million drivers for its ride-hailing and food delivery services in more than 700 cities and 63 countries worldwide, lost nearly $8 billion over a decade.
By continuing to treat drivers as independent contractors, Uber and Lyft avoid paying for health insurance, overtime or benefits such as workers compensation, said Shannon Liss-Riordan, partner at Lichten & Liss-Riordan, who has represented drivers in the employment classification cases.
“This is basically a big giveaway to these massively successful companies, often off the backs of the workers who are fueling their success,” Liss-Riordan said.
Uber says it believes drivers are independent contractors because they can choose whether, when and where to provide services, are free to work for competitors and provide their own vehicles.