Is it sustainable to classify ride-hailing drivers as employees?

23 Sep 2020

An Alto employee cleaning a car. Image: Alto

Ride-hailing start-up Alto uses a fleet of fully-employed drivers for its business. Could it be possible for Uber and Lyft to adopt a similar model?

Will Coleman is the CEO of ride-hailing business Alto. Unlike some of the more prominent players in the ride-hailing sector, Alto uses a dedicated fleet of drivers who are classified as employees by the company rather than gig workers.

Coleman, who co-founded the start-up in 2018 with Patrice Crisinel and Boris Blanche, believes that this differentiates his Texas-based company from competitors such as Uber and Lyft.

“Alto means ‘elevated’,” he said. “We are aiming to elevate the passenger and driver experience in riding-hailing by focusing on doing three things really well – providing a safe, consistent and high-quality experience for both parties.”

While there are big-name competitors already established in this space, he added that his business aims to be “the Starbucks of ride-hailing”.

“People choose to go to Starbucks because of its consistency and quality. Every single Starbucks you go to, whether that’s in Ireland or the US, it looks the same, smells the same and the coffee tastes the same. We believe that creating that kind of consistency is what will make consumers and drivers choose us over alternatives in the marketplace.”

A man with brown hair wearing a white t-shirt in front of a white background.

Will Coleman, CEO of Alto. Image: Alto

Coleman believes that competitors in the ride-hailing industry have been unable to create that sense of consistency for passengers or drivers.

“With the big platforms, because anybody can sign up and lots of people do, they’re only as good as their worst experience,” Coleman said. “For a consumer, you could have lots of great experiences but if there’s a bad experience every once in a while, it can really sour your opinion of a brand.”

To try and overcome this, Alto has its own fleet of cars that drivers use, which are managed by the company and monitored by real-time video. Customers are encouraged to sign up for membership, which costs $12.95 per month, although non-members can also book rides as a guest through the company’s app.

Is it scalable?

It has been suggested that companies in the ride-hailing sector have used gig worker models because it’s the most scalable way to do business. But Coleman thinks there are other approaches.

“There’s lots of really big companies that have scaled massively using employees rather than contractors. They’re able to scale their operations and cover entire countries or the entire world. We want to do the exact same thing. It takes investment. It’s not cheap, but it’s definitely possible to scale this model market by market.”

A woman wearing a mask exits an Alto car.

Image: Alto

Coleman explained that as employees, all of Alto’s drivers earn the same benefits as any other staff member at the company, including healthcare, worker’s compensation, social security and guaranteed working hours.

Last year, Uber claimed that its drivers should be classified as contractors because they aren’t a core part of its business. At Alto, Coleman said that drivers are “critical” to the company’s operations.

“They’re some of the most valuable members of our team because each of our drivers are the ones that interact directly with our customers on a daily basis,” he added.

But investment in drivers and cars also comes at a price for consumers. Alto rides are more expensive than those from Uber and Lyft, drivers can take longer to arrive for pick-up (between 10 and 15 minutes) because there are less Alto cars on the road, and the service is currently only available in parts of Dallas and Houston.

To support its expansion, Alto has raised $20.5m in funding.

Legal disputes

However, Alto currently has its eyes on expansion into Los Angeles, where the future of Uber and Lyft is uncertain. In California, a new labour law entitled AB-5 requires Uber and Lyft to reclassify their drivers as employees, but both companies threatened shutdowns in the state in response.

Uber CEO Dara Khosrowshahi claimed that making such a change to its model could result in a several-month shutdown for the company. But Coleman said that both companies have had “much longer than overnight” to adapt to these regulations.

“Frankly, they’ve had a very long time to understand this and see it coming. The law was passed in California in 2019 and it didn’t take effect until six months after, in January 2020,” he said.

‘I think we’ve found that using the gig economy as a way of entirely replacing the traditional structures of employment … hasn’t worked’

These businesses, along with other gig companies, are now backing a measure on the November election ballot in California that would exempt their workers from AB-5. By threatening to pull out of California, Coleman said that Uber and Lyft may believe they will get the backing of consumers who need these services to commute or get around.

“I think that’s part of the game that’s being played here,” he said. “This is a political back and forth between the governments and these companies on what’s possible and how to get there.”

Is an employee model feasible?

Coleman is well aware that recognising drivers as employees is the most expensive option available to ride-hailing start-ups as there are obligations employers must fulfil for employees in the US, which can add anywhere between 20pc and 30pc to payroll costs.

“At Alto, we’ve proven that while it is more expensive, it allows us to differentiate and to have more control over the passenger and driver experience,” he said.

Alto’s technology enables the company to schedule drivers into shifts where they work when they are needed, rather than whenever they feel like it. Coleman acknowledged that much of the gig economy debate from Uber and Lyft relates to flexibility, though he said that Alto tries to offer drivers as much flexibility as possible.

Overall, he believes that there is a time and a place for gig contracts, but he does not believe that it can be used as a long-term model for businesses.

“We found that the gig economy has applicability in certain use cases, to help companies scale their workforce using flexible work as a small percentage of their total, in order to meet short-term periods of high demand,” Coleman said.

“I think we’ve found that using the gig economy as a way of entirely replacing the traditional structures of employment that protect workers and provide them with the things they need to care for themselves and their families, that hasn’t worked.”

Kelly Earley was a journalist with Silicon Republic