California, the state in the bottom left corner of America, home to Britney Spears and the West Coast Avengers, approved Proposition 22 earlier this month. The ballot measure, sponsored by Uber, Instacart, DoorDash, and others — at a cost of more than $200 million — allows an exemption to new legislation that would have made their workers, classified as independent contractors, into employees. That means that California passed a law in early 2020, AB5, that granted rights to gig workers, and these companies bought their own law that now allows them to ignore it.
This has been widely praised as a win by the anti-regulation crowd and taken as a loss by labour activists: both camps rightly perceive Prop 22, the most expensive ballot campaign in state history, as just the first battle of an industry-defining conflict. Uber’s CEO, emboldened by victory in California, promises to pursue similar legislation elsewhere.
In late 2019, Ontario Foodora couriers organized in an effort to change their independent-contractor classification and the exploitation that came with it. Early in 2020, the couriers won their court case, paving the way for the roughly 900 workers to unionize. Two months later, Foodora ceased operations in Canada; companies had threatened to do the same thing in California if they’d lost. So we know they’d rather quit than pay workers a fare wage. The automation needed to eliminate workers — drones, driverless cars — isn’t ready yet. That means they need another path to profitability.
Are you appreciating this article?
Donate today to support TVO's quality journalism. As a registered charity, TVO depends on people like you to support original, in-depth reporting that matters.
These companies needn’t worry about the battleground of Ontario or of its capital city, where leadership show no signs of mounting an opposition.
Though lately I’ve heard Toronto mayor John Tory and Premier Doug Ford talk tough about the negative impact of these companies and the need to rein them in, they’ve never actually done anything.
If only the mayor or the premier had some government connections. People high up with the power to propose or pass laws. Then they wouldn’t need to publicly plead with such third-party delivery (3PD) companies as Uber Eats and DoorDash to reduce their ruinous 30 per cent commissions. These rates are higher than the average restaurant profit margin. For businesses desperately trying to survive during the pandemic era on takeout and delivery, at a fraction of their previous revenue, this is a death sentence.
And, yet, despite being in charge of Canada’s most populous city and province, these two leaders have abdicated their responsibility to their constituents and consistently engaged in a pantomime of advocacy for the small businesses being destroyed.
“I have a message for the big third-party food-delivery services like Uber Eats,” Ford said on October 13. “It’s time for you to do your part.”
Wow. That sounds like something from a Wild West sheriff who is about to add “or else.”
“Please,” Ford continued, “consider reducing the commission rates you charge the restaurants impacted by these new health measures.”
No rational being believes that there is a board of directors willing to give up the core of its business model because a politician said please. But Ford was only following in the footsteps of Tory, who has been beating the “please” drum since the summer. While city councils in Denver, Los Angeles, New York, San Francisco, and Seattle passed temporary legislation forcing 3PD companies to cap commissions around 15 per cent, Toronto’s mayor has been politely asking these companies to do so voluntarily.
By the fall, even Tory had run out of patience. So, finally, on October 26, he bit the bullet and did the unthinkable. He asked the province to do something about it.
“You’ve got to hope that corporations have the good sense to do something on their own without being forced to do it,” said Tory, espousing the reasonable economic philosophy that it’s in the best interest of 3PD companies to lower commissions because, if restaurants go out of business, delivery services can’t make money. “But then you realize sometimes they’re just not really listening, and so you have to do it for them.”
After six months of hoping they’d do it on their own, Tory is now supporting a motion requesting that the province limit commissions by 3PD companies.
“I phoned all the CEOs when this came up in April,” Tory told CP24. “And they all told me they’re still losing money.”
That part is true.
Most of these companies, even with sales in the billions, are still unprofitable.
In 2018, Uber lost $1.8 billion. DoorDash grossed nearly a billion dollars in 2019 and still posted losses of $450 million. Despite that, it pulled in another $400 million from investors.
Technologists will dismiss criticisms of profitability by citing the belief that a business can lose money for years until, through consolidation, a steady supply of low-interest investment cash, and predatory pricing (a common strategy in which companies eat the loss on a sale by subsidizing the cost of the product, hoping their war chest can help them eliminate the competition while operating at a loss), it becomes the last player standing, with control of the market. That’s the Amazon story.
That’s why Tory’s assessment doesn’t matter to them. They don’t care whether restaurants live or die. They just need constant growth to justify more investment.
Such major restaurant brands as McDonald’s are able to make money from 3PD because the demand for their product enables them to negotiate better rates. Grubhub’s first-quarter 2020 results show that the average profit from orders through independent restaurants is $4, but through “a partnered national enterprise brand,” it’s $0. The apps need big chains for clout but don’t make any money from them. So it’s the independents that pay the cost.
The good news is that, over the last six months, the public seems to have become increasingly aware of the parasitic nature of 3PD — enough so that politicians feel compelled to say something about it, though not enough for them to do anything about it.
It’s no secret that I’m not a fan of these companies. But it’s also no secret that they have friends in Ford and Tory. In 2015, when Uber was fighting legislation to wrestle control of Toronto’s taxi industry, the company hired two members of Tory’s election-campaign team. Upon becoming premier, Ford passed Bill 47, the Making Ontario Open for Business Act, cancelling a scheduled increase in the minimum wage, equal pay for part-time workers, and a host of other workers’ rights.
According to Uber, this fight is coming everywhere.
“Going forward, you’ll see us more loudly advocate for new laws like Prop 22,” Uber CEO Dara Khosrowshahi declared after the victory in California. “It’s a priority for us to work with governments across the U.S. and the world to make this a reality.”
When more fronts in the battle for the rights of precarious gig workers open up in Ontario, we’ll see whether our elected officials do more than just turn to the industry giants and say “pretty please.”