It's None of Our Business: The Postindustrial Corporation and the Guy with a Car As Entrepreneur
The Postindustrial Corporation and the Guy with a Car as Entrepreneur
The Article examines two issues in a new context: How does the law address the weakening relationship between the corporation and firm, or the corporation and productive enterprise? Second, how do advanced information and communication technologies (ICTs) shape our understanding of the postindustrial corporation? The new context in which the Article engages these questions is the legal identity of employment, in particular, lawsuits over whether certain workers are employees or independent contractors. The Article compares how legal actors interpret several “fissured employment” (Weil 2014) arrangements, including the relationship between the on-demand ride companies Uber and Lyft and their drivers.
There has always been a difference between how economic theory says capitalist production and circulation should work and how it does. Theory has long posited the “firm” and “corporation” as metonyms. Major economic theories, including those of Ronald Coase and Alfred Chandler, define the firm as a productive enterprise and assume that the corporation is its helpful servant. The raison d'être of the corporation is to help the firm maximize profit via the efficient production and sale of goods and services. Much evidence suggests that, in practice, corporations increasingly operate according to different principles today. The “postindustrial” corporation seeks to maximize profit, but not necessarily through productive enterprise. It often pursues profit through asset manipulation, speculative activity, and regulatory arbitrage and evasion. The usually context for exploring these questions is financialization—the increasing salience of financial markets in shaping economic activity. For instance, the weakening firm-corporation nexus is salient in debates over special purpose entities and transfer pricing.
This Article explores the issue in the context of disputes over the legal identity of work arrangements. These disputes offer a stark illustration of the tension between how companies actually operate today and the ideals set forth in major theories of firms and markets. It is also a site where the stakes of the disjuncture are high, because employment is the regulatory fulcrum of many important rights and duties. Only employees have rights under most statutes regulating work in the US, like anti-discrimination and collective bargaining law. Only employers have obligations under these laws, like paying unemployment insurance premiums and minimum wages. Because employment is usually more costly to companies than contractual relationships, they often disavow having an employment relationship with workers who make their products and services.
Most of the legal tests for employment status ask the alleged employer to provide some account of its business identity—what the company is about and how it does it. Companies that in practice operate in breach of the ideal account of the corporation devise creative narratives to depict themselves as productive enterprises but avoid the duties of an employer. The narratives vary, but all of the companies they are in a different line of business than the alleged employees. For instance, FedEx claims that only its delivery drivers are in the package delivery business. By contrast, FedEx’s business is “running a network.” Similarly, Uber claims it a “pure technology company” and not in the business of providing ride services.
Courts tend to reject the business identities companies claim when they are estranged from what the company actually produces, markets, and sells. However, most decision-makers are accepting Uber’s claim to be a “technology” company and its repudiation of the ideal firm-corporation nexus. Why?
The Article hypothesizes that Uber and Lyft use the idiom of ICTs to sublimate their rejection in practice of the ideal firm of economic theory by assuming fidelity to in appearance. The “Uber narrative” of business identity goes something like this: we are in the business of selling and servicing technology that facilitates a market. We use ICTs to lower transaction costs between independent businesses (drivers) and their potential customers (passengers).
The Article suggests three reasons why the Uber narrative is relatively legible under ideal accounts of the corporation.
(1) “Technology” concretizes the production and sale of a commodity. Under major economic theories, what distinguishes firms and markets is the extent to which resources are coordinated through a unified authority instead of decentralized competition and the price mechanism. The other alleged employers basically restate the definition of the ideal firm, because they claim that their business is abstract coordination in itself, like “logistics,” or “managing production.” What firms do under economic theory is logistics—directing resources instead of deferring to the play of competition and price. Thus, the other alleged employers’ claims to have a market relationship with their workers were unconvincing. Uber and Lyft, in contrast, claim to manage something commodity-like: technology.
(2) Uber and Lyft use ICTs to automate and depersonalize their direction of resources in the production of ride services. They appeal to ICTs to dissolve their agency and authority into an indifferent, automated algorithm.
(3) The Uber narrative has ideological appeal. It seems to resolve an old debate between socialists and free market advocates. The firm posed an embarrassment to the latter: if the market was so efficient, why was most of the economy organized through command-and-control organizations? Ronald Coase, considered the progenitor of firm theory, offered one solution: there were also costs to market transactions, which sometimes exceeded the costs of firm production. The Uber narrative goes further: ICTs make the firm obsolete. Technology transforms every individual into an independent business by lowering transaction costs in the market.
The Article concludes by examining the opinions of two judges who have so far rejected the Uber narrative. These judges refuse to legitimate a business model that depends in part on legal arbitrage—classifying drivers as independent contractors—rather than the production and sale of services to remain competitive. The judges also suggest that power in work relations can be de-personalized and automated, and that technology may amplify authority rather than dissipate it.