By Matthew Baker of FreshBooks
A UK court recently ruled that Uber drivers are company employees not self-employed contractors. This entitles 40,000 drivers in the UK to minimum wage, sick pay, and holiday pay. It also means Uber drivers aren’t their own bosses anymore. Meanwhile, the debate continues in the US.
I believe self-employment is a mindset that drives our economy. Consider this: 72% of Millenials want to be their own boss.
Forcing Uber to transition 160,000 drivers worldwide to “employee” status would set a far-ranging precedent for a world in which software is enabling more kinds of work. Instead of employee or contractor, perhaps Uber drivers should be franchisees.
What Is A Franchisee?
The concept of franchising is essentially a distribution strategy through licensing a brand and a business model. The franchisor is the owner of the brand and the replicable business model (sometimes called “a business in a box”). Instead of scaling employees, the franchisor offers a specific license to third parties.
The franchisee is the person that is granted a license to do business under the franchisor’s brand. The franchisee typically pays for the license as well as ongoing royalties. The franchisor dictates which products and services can be offered by the franchisee. In many cases, the franchisor provides an entire system for operating the business (e.g., software, operating manuals) and ongoing support (e.g., training, quality control).
To a certain extent, consumers don’t care who owns an individual business so long as their brand expectations are met. Next time you’re in a McDonalds, Hilton Hotel, Ace Hardware, or Dairy Queen, ask yourself whether you hold the franchisor or franchisee accountable for meeting your expectations? Chances are you link your experience more with the brand than the small business owner running the franchise.
Yet, franchisees are viewed as small business owners and independent entrepreneurs responsible for earning their own income. Come tax season, franchisees are taxed on profits just like other small business owners.
Two Franchise Examples: Anytime Fitness And Fit4MOM
Minnesota-based Anytime Fitness, created by Chuck Runyon and Dave Mortensen in 2002 and ranked first on Entrepreneur Magazine’s global franchise list in 2015, has over 3,000 locations and 2 million members. Despite its many locations, Anytime Fitness has 150 employees.
Anytime Fitness franchisees receive a 6-year license for a protected territory based on the location and size of the gym. For a $25,000 initial franchise fee and $500 per month, franchisees are allowed to sell memberships and select ancillary services (certified personal training, tanning and vending). Franchisees are allowed to set their own prices but must use Anytime Fitness proprietary technology for member check-in, security and payroll. Franchisees have access to online operating manuals, onsite support visits and email/phone assistance.
FIT4MOM, created by Lisa Druxman in 2005, offers a home-based franchise model. FIT4MOM has grown to over 1,500 locations targeting all stages of motherhood through fitness classes, nutritional coaching, and meditation. Franchisees receive a 3-year license in exchange for a $2,000-$3,000 initial franchise fee and $200-$400 per month. Franchisees have access to in-person and online training opportunities and shared marketing systems.
The Case For An Uber Franchise
Uber is aggressively courting new drivers to fulfill consumer demand. The primary selling point for new drivers is the freedom to work when they want. It’s independence with guidance.
Uber’s technology makes it easy to get started – the app matches you with a customer, gives you real-time maps and driving directions, and manages customer payment seamlessly. From the outset, the driver is responsible for the cost of insurance, fuel and regular vehicle maintenance.
Because there is no real estate involved, the upfront cost and commitment is negligible to both Uber and the driver. By forgoing an initial franchise fee, Uber can charge a higher royalty. Effectively, Uber grants an indefinite license to anyone who meets the driver and vehicle requirements (e.g., valid driver’s license, background check, vehicle registration and insurance, etc.). Uber even offers rentals and leases to support the vehicle requirements.
The most glaring exception to the franchise model is that Uber drivers don’t have price control; however, that’s largely a technicality. Just ask McDonald’s 14,000 franchisees about corporate and regional promotions affecting their profitability. Even with price control, many franchise owners say the market dictates price more than the individual franchisee when it comes to commoditized products and services.
Even so, Uber could enable drivers to set prices that create additional tiers for customers, similar to the way you can pick Uber Pool, Uber X, or Uber Black. The drivers will naturally gravitate toward a market price over time based on open market principles. The exceptions will be similar to the surge pricing that exists today.
Like traditional franchise models, it’s up to the franchisee to select the right partner and know what they are getting into. Treating Uber drivers as franchisees not employees recognizes the entrepreneurial risk many drivers are taking. As the self-employed economy continues to gain converts, we are going to need to broaden our definitions of worker classification – or risk stunting its growth.
Matthew Baker is the VP Strategic Planning at FreshBooks. He has strong experience in SaaS businesses, management consulting, financial analysis, executive operations, digital marketing, strategic planning, market and competitor research, public relations.
The views, opinions and positions expressed within this guest post are those of the authors alone and do not represent those of CBS Small Business Pulse or the CBS Corporation. The accuracy, completeness and validity of any statements made within this article are verified solely by the authors.