Is Uber’s business model in jeopardy in Brazil?

December 22, 2016

Nine drivers have sued the company demanding to be considered as formal employees. If they win, what will become of Uber in Brazil?

By plus55 on Sep 09, 2016
Uber’s Business Model Jeopardy Brazil ?

A country with 204 million people, Brazil is one of the most strategic markets for Uber. One of the company’s managers in the country went as far as to state that Brazil would become Uber’s leading market by the end of this year. And yet, the transportation giant’s business model might be jeopardized in our country, after nine drivers have sued the company asking to be considered as formal employees – with all the rights and benefits that come with that. In the case of a loss, the app’s services would become much more expensive.

If the drivers’ case is accepted by the Brazilian Justice system, it would create a precedent allowing more than 10,000 other drivers to seek the same rights: 13 salaries per year, paid vacations, and pension benefits. Today, they are considered to be autonomous drivers who use Uber as a platform to connect with passengers. They pay the company a fee per ride, which can amount to 25 percent.

The company’s relationships with its Brazilian drivers have been rocky at times. In April, drivers protested against the company after it imposed a 15 percent reduction in fares – which considerably reduced their gains and hurt their ability to make a living out of the app.

Experts are divided on the issue. Maurício Nanartonis, who represents the disgruntled drivers, has declared that the “Brazilian law doesn’t allow companies to end contracts the way that Uber does: with no notice nor compensation.” For Nelson Mannrich, a law professor at the University of São Paulo, told the website Jota that this argument makes no sense. “We have a new reality today, and we can’t apply labor laws from 1943 to this business model. The drivers choose their own hours and have other jobs in many cases,” he comments.

For Rodrigo Carelli, a prosecutor working for Labor Courts, there are grounds to consider the drivers linked to Uber. The fact that the workers can’t choose their prices, which is instead imposed by the company, shows that they are not “on their own.” The Brazilian jurisprudence does not help clarify which way this case might go. Cases involving companies like Avon have gone in both directions.

In the United States, a class action opened by 385,000 California and Massachusetts drivers asked for $850 million in compensations from Uber to cover gas and maintenance expenses. A new hearing is scheduled to September 15.

In August, Uber lost the world’s biggest market, China, after selling its operations to the Asian giant Didi Chuxing, a local competitor that held 80 percent of the market. Does this mean Uber might leave yet another big country?