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Does Uber Redefine the Firm? the Postindustrial Corporation and A Hofstra Labor & Employment Law Journal Volume 34 | Issue 1 Article 3 9-1-2016 Does Uber Redefine the irF m? The oP stindustrial Corporation and Advanced Information Technology Julia Tomassetti Follow this and additional works at: http://scholarlycommons.law.hofstra.edu/hlelj Part of the Labor and Employment Law Commons Recommended Citation Tomassetti, Julia (2016) "Does Uber Redefine the irF m? The osP tindustrial Corporation and Advanced Information Technology," Hofstra Labor & Employment Law Journal: Vol. 34 : Iss. 1 , Article 3. Available at: http://scholarlycommons.law.hofstra.edu/hlelj/vol34/iss1/3 This document is brought to you for free and open access by Scholarly Commons at Hofstra Law. It has been accepted for inclusion in Hofstra Labor & Employment Law Journal by an authorized administrator of Scholarly Commons at Hofstra Law. For more information, please contact [email protected]. Tomassetti: Does Uber Redefine the Firm? The Postindustrial Corporation and A ARTICLES DOES UBER REDEFINE THE FIRM? THE POSTINDUSTRIAL CORPORATION AND ADVANCED INFORMATION TECHNOLOGY Julia Tomassetti* The popular on-demand ride service, Uber, has become the exemplar of the platform economy and inspired a new narrative about advanced information and communication technologies, and the firm. The narrativetells us that Uberfacilitates a market between independent businesses and buyers by administeringtechnology that lowers the costs of exchange. Despite borrowing the language of Coasianfirm theory, however, the Uber narrative is largely nonsensical within it: Uber appears much more like a seller of transportationservices than a market intermediary within a Coasian analysis. By examining disputes over whether drivers for Uber and its competitor, Lyft, are employees or independent contractors, this Article shows that the Uber narrative reveals not technology's dissolution of the firm, but rather a disjuncture between the firm and its corporateform. While often belied in practice, major theories of the firm, like that developed by Ronald Coase, assumed the corporation would be a servant to productive enterprise. The emergence of the postindustrialcorporation that pursues profit by other means, including speculative activity and regulatory arbitrage, poses another challenge to this ideal. The Uber narrativeboth obscures and legitimates a weakening nexus between the firm and corporation. This Article hypothesizes several reasons for the Uber narrative's * JD, PhD. Assistant Professor of Law, City University of Hong Kong. I am indebted to David Luban for insights that were central to this Article's development. I thank Matt Bodie, Ken Dau- Schmidt, Michael Harper, and Sanjukta Paul for their helpful commentary on earlier drafts. This Article has also benefited from feedback at the Georgetown University Law Center Summer Workshop, the Tenth Annual Colloquium on Scholarship in Employment and Labor Law, the 2016 Spring Colloquium of the Law, Society, & Culture Center at the Indiana University Maurer School of Law, the 2016 Law & Society Association Annual Meeting, and the 2016 Society for the Advancement of Socio-Economics Annual Conference and Early Career Workshop. 1 Published by Scholarly Commons at Hofstra Law, 2016 1 Hofstra Labor & Employment Law Journal, Vol. 34, Iss. 1 [2016], Art. 3 2 HOFSTRA LABOR & EMPLOYMENT LAWJOURNAL [Vol. 34:1 appeal, despite its illegibility within Coasian theories of the firm, to which judges often appear committed in disputes not involving platform companies. First, the narrative has political valence-it suggests technology renders the firm obsolete, liberating individual producers. Second, the narrative conceals the incongruence between Uber's corporate identity and organization ofproductive activity by appealing to the cultural exceptionalism of information and communication technologies ("ICTs"), and discourses that associate algorithmic programming with the inscrutability of the market. Third, the narrative's appeal reflects the challenge of theorizing service work under an enduring industrial paradigm. Finally, ICTs disrupt assumptions in Coasian theory about the association offirm and market production with the legal relations of property and contract. ICTs lowered the costs of centralized coordination, orfirm production,.in part by enabling Uber to control production inputs without acquiring property rights over them. I. INTRODUCTION A new narrative about technology and the firm has become rather ubiquitous in mainstream and academic discourse about platform companies. The narrative goes something like this: Advanced ICTs lower the costs of market exchange so that buyers and sellers can realize their economic interests without integrating into a firm. Platform companies use technology to facilitate matches of supply and demand that transaction costs might otherwise impede.' As its paradigmatic example, the narrative often points to the on-demand ride service Uber. In fact, Uber has become almost a metonym for the platform economy.2 The narrative speaks in the idiom of transaction costs economics ("TCE"), an influential set of theories pioneered by the economist Ronald Coase that attempt to explain why some economic exchanges were carried out in markets and others in firms.3 His answer was that there were costs to market transactions, like searching for information and negotiating agreements, which would sometimes exceed the costs of 1. E.g., Jon Bruner, Platform Economies: A Conversation with Erik Brynjolfsson & Jon Bruner, O'RELLY MEDIA INC. (Nov. 3, 2015), https://www.oreilly.com/ideas/platform-economies. 2. See infra Part I.B. 3. See R. H. Coase, The Nature of the Firm: Origin, 4 J.L. ECON. & ORG. 3, 4-5 (1988) (theorizing that the costs of market transactions sometimes rendered resource allocation within a firm more efficient). http://scholarlycommons.law.hofstra.edu/hlelj/vol34/iss1/3 2 Tomassetti: Does Uber Redefine the Firm? The Postindustrial Corporation and A 2016]1 DOES UBER REDEFINE THE FIRM? 3 organizing economic activity within a firm.4 It then became more efficient to organize economic activity within the firm. Yet, what happens if we subject the "Uber narrative" to scrutiny under Coasian theories of the firm? By lowering transaction costs, does Uber's technology make the firm obsolete? Is it, as some have proclaimed, "nothing less than an extinction-level event for the traditional firm?" 6 Not really. From the perspective of Coasian theory, the narrative is unintelligible as a description of Uber.' If the Uber narrative does not actually apply to Uber, then how should we understand it? And what accounts for the almost taken-for- status of the narrative as a description of Uber? This Article explores these questions in the context of disputes over the legal identity of employment. In particular, this Article focuses on two high profile class actions in California over whether drivers for Uber and another on-demand ride service, Lyft, are "employees" or "independent contractors." 8 Only employees have rights under most statutes regulating work, like anti-discrimination and collective bargaining laws.9 Only employers have obligations under these laws, like paying unemployment insurance premiums and minimum wages.'o Because hiring workers as employees is usually more costly than hiring them as "independent contractors," companies often seek to arbitrate the distinction to avoid compliance costs." Uber and Lyft's classification of their drivers as 4. R. H. Coase, The Nature of the Firm, 4 ECONOMICA 386, 390-91 (1937) [hereinafter Coase, Nature]. 5. Id. at 391. 6. Esko Kilpi, The Future of Firms. Is There an App for That? MEDIUM (Feb. 16, 2015), https:/medium.com/@EskoKilpi/movement-of-thought-that-led-to-airbnb-and-uber-9d4da5e3da3a. 7. See infra Part III. 8. O'Connor v. Uber Techs., Inc., 82 F. Supp. 3d 1133, 1135 (N.D. Cal. 2015); Cotter v. Lyft, Inc., 60 F. Supp. 3d 1067, 1069 (N.D. Cal. 2015). 9. See Pamela A. Izvanariu, Matters Settled but Not Resolved: Worker Misclassification in the Rideshare Sector (UCLA Inst. for Research on Labor & Emp't, Working Paper No. 2016-20, 2 2016), http://escholarship.org/uc/item/42ql79 z. 10. Noah D. Zatz, Working Beyond the Reach or Grasp ofEmployment Law, in THE GLOVES- OFF ECONOMY: WORKPLACE STANDARDS AT THE BoTToM OF AMERICA'S LABOR MARKET 32-33 (Annette Bernhardt et al. eds., 2008). 11. See Robert Habans, Exploring the Costs of Classifying Workers as Independent Contractors: Four Illustrative Sectors 3 (UCLA Inst. For Research on Labor & Emp't, Working Paper, 2015), http://www.irle.ucla.edu/publications/documents/IndependentContractorCost_20151209.pdf; Independent Contractor MisclassificationImposes Huge Costs on Workers and Federal and State Treasuries, NAT'L EMP. L. PROJECT (July 2015), http://www.nelp.org/content/uploads/hidependent- Contractor-Costs.pdf; Izvanariu, supra note 9, at 5. Published by Scholarly Commons at Hofstra Law, 2016 3 Hofstra Labor & Employment Law Journal, Vol. 34, Iss. 1 [2016], Art. 3 4 HOFSTRA LABOR & EMPLOYMENT LA WJOURNAL [Vol. 34:1 independent contractors has generated countless legal disputes, including at least twenty-eight class actions across the country. 12 In the California class actions, the threshold question regarding the drivers' employment status turned on the rectitude of the Uber narrative: Were Uber and Lyft only "technology" companies, as they claimed, or were they in the business of producing transportation services? 3 Nearly all of the legal tests for employment status ask the alleged employer to provide
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