How much longer will Uber’s low prices last? Uber is worried, and you should be too.
The European Union’s Court of Justice this week rejected Uber’s claim that it is merely a digital service provider, connecting travelers with independent drivers. Instead, Uber is properly classified as a transport company, and must be regulated accordingly.
Referring to Uber’s ride-hailing app, the court opined as follows:
That intermediation service must thus be regarded as forming an integral part of an overall service whose main component is a transport service and, accordingly, must be classified not as ‘an information society service’ … but as ‘a service in the field of transport’ …
The ruling is a blow to Uber, and a precedent that sent shivers through the boardrooms of gig-economy companies across a range of industries. If Uber is a taxi company, then it follows that Airbnb is a hotel company, like Marriott, and Grubhub is a delivery service, like UPS.
While the court’s finding did not address the status of Uber drivers—are they independent contractors or employees, entitled to costly company benefits?–that issue is also in play, in other courts, and is likely to be decided in favor of granting drivers full employee status. That would significantly increase Uber’s operating costs.
Until now, Uber has relied on its status as a relatively unregulated ride-share app with a mostly freelance workforce to keep its costs low. Those low costs have allowed the company to keep rates substantially lower than those charged by traditional taxi companies.
If Uber were forced to operate with the added burden of the expenses associated with regulatory compliance and employee benefits, that cost advantage over yellow cabs could evaporate. Cabbies, who have seen their business diminished by Uber’s presence, would be delighted. Uber customers, not so much.
After 20 years working in the travel industry, and almost that long writing about it, Tim Winship knows a thing or two about travel. Follow him on Twitter @twinship.
This article first appeared on SmarterTravel.com, where Tim is Editor-at-Large.