Uber V. California

Are folks who drive for Uber “employees” or “contractors”? The debate surrounding the question has heated up in the past few months, with bills being pushed forward in California and New York advocating for the rights of “gig-economy” workers.

The debate is particularly hot in California, where Assembly Bill 5 (AB 5) was passed and kicks in this Wednesday. The bill will protect contractors and will grant them status as employees, making them eligible for better pay, sick leave, vacations, and other benefits.

But, corporations have decided to fight back. Uber and Postmates have sued the state of California alleging that the law is “unconstitutional”. The argument is that the bill is unfairly targeted towards gig-economy companies while benefiting other industries. Moreover, there is also the argument that the bill will threaten workers’ flexibility.

Tech companies like Uber aren’t the only ones that engage in doing business with contractors. They’re simply the ones that have more contractors than other businesses. Take for instance media, or the trucking industry - both heavily rely on contractors to sustain their business.

For instance, this is peak California progressivism. A) Vox cheers the passing of the bill, for it will protect workers’ rights. B) Vox lays off freelance contractors because it can’t afford to pay them.

However, the threat is existential for tech firms like Uber. While Vox and other business can still survive without freelancers, Uber, Postmates, Lyft etc are already loss-making and will be unable to turn a profit if they have to pay benefits.

Ride-hailing giants like Uber and Lyft have already promised investors that they will reach profitability by 2021, and failure to win this lawsuit will only delay that process. Meanwhile, the stock will take a dive, creating a vicious cycle of panic selling that will make it harder for firms to recover.

The (Not-So) Great Escape

This is not legal advice, but if you’ve been accused of fraud while you were CEO of a company, and then the unanimously ousted by the board, and then sued, one of the ways of escape trial would be to move to a country with no extradition treaty in the country where you were sued.

This is what’s happened to Carlos Ghosn of Nissan. Former CEO and Chairman of Nissan motors is currently facing trial in Japan but has fled the country for Lebanon.

Ghosn has citizenship in Lebanon and is thus protected by the fact that there is no extradition treaty. The context: Japan’s criminal courts have an almost 100% conviction rate, and Ghosn believes that his ousting is the result of an elite boardroom conspiracy, and he is thus unlikely to get a fair trial in Japan.

Presently, Ghosn has been accused of fraudulently reporting his own earnings and misusing company assets for personal benefits. More specifically, he is accused of failing to report over $80 million in future income and using $14.7 million of Nissan funds to help his friends.

He was arrested in Tokyo last year and was released under strict terms where he was not allowed to leave his house for more than one night anywhere. Oh well.

Ghosn earned the title of “Mr Fix It” about twenty years ago when he saved Renault from bankruptcy by employing drastic cost-cutting measures. Today, he’s a fugitive. As investors often say - past performance does not guarantee future results.