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Is Uber destroying the bike messenger? Daniel Flanzig quoted in Crain's New York on the changes Uber is bringing to bike messenger's in NYC

Uber is destroying the bike messenger

The app company's new bicycle-messenger business undercuts the competition. But is it legal?

Photo: Buck Ennis
Samurai competes on service, not price. Unlike Uber, the worker-owned operation cannot cut its prices below cost.

David Santos had never worked as a bike messenger before he signed up in September with UberEats, the lunchtime meal-delivery service Uber launched in Manhattan last spring. Santos, 36, started out making deliveries on his days off, but when he lost his job as a porter at a homeless shelter in Brooklyn in October, he began riding full time for Uber and has worked almost every day since.

On a recent freezing morning, Santos and about 15 other bike couriers waited outside a van in the West 40s for the lunches they would deliver across midtown over the next four hours. They would be paid $15 an hour plus $1 per delivery, and would be done by 2 p.m. Santos would then switch to UberRush, a courier-service app for businesses and consumers, and continue making deliveries until 8 p.m., earning an 80% commission on each one.

He pulls in around $600 a week, more than he made at the shelter. He also loves being on his single-speed LaFleur bike, and thinks nothing of riding the 15 miles to Manhattan from his home in Yonkers to make deliveries on weekends.

But Santos is risking everything he has with each ride. Uber bike couriers do not receive safety training. Few of them on that cold morning were wearing helmets. And most important, Uber bikers are pretty much on their own if they go flying over their handlebars or get hit by a bus. The company does not provide workers' compensation for a job that is considered among the most dangerous in New York.

"I try not to think about that," Santos said.

Like most of the dozen other Uber couriers interviewed for this story—not counting those still on their parents' health plans—Santos also had no health insurance. (None of those interviewed had private disability or accident insurance, either.) "I ride safe," he said. "I take care of myself."

The work that bike messengers do is so dangerous that most traditional courier companies in New York can no longer afford to hire them. Workers' compensation premiums for bikers have quadrupled since 2008, to between $30 and $40 for every $100 in payroll. A foot messenger, by comparison, costs a company about 50 cents per $100.

That is one reason seasoned bike messengers—those famed and feared Olympians of the streets, celebrated in movies like Quicksilver and Premium Rush and the Travel Channel reality seriesTriple Rush—have largely faded from the scene, replaced on company payrolls by messengers who walk their wares to customers.

Uber and other app-based delivery services, like Postmates, Zipments, DoorDash and Caviar, have in some ways spurred a revival in the bike-messenger trade. Uber, which began rolling out UberRush in 2014, now has 600 bike couriers in New York. But those operations are flourishing, traditional couriers say, by flouting the law.

Uber does not pay workers' compensation insurance because it classifies its couriers as independent contractors, who are considered to be in business for themselves and are not covered by state and federal labor laws. (For basically all of its New York drivers, Uber pays workers' comp through the Black Car Fund, which was established years ago for the hired-car industry.) Traditional courier companies, by contrast, are required to hire messengers as employees and to pay workers' comp, unemployment insurance and other fees.

Furthermore, by classifying their couriers as contractors, neither Uber nor other on-demand companies have to pay minimum wage—a potential issue for foot messengers, who don't necessarily make enough deliveries in an hour to earn $9 in commissions.

The independent-contractor model for drivers has come under attack, most notably in a massive class-action suit against Uber that will go to trial in California in June. In the meantime, traditional couriers have been seething as state agencies turn a deaf ear to their objections and these new ventures gain market share, sometimes at the older companies' expense. Their complaint—voiced all the time by owners in the highly regulated yellow-taxi business—is that Uber and the others have been allowed to play by different rules.

"They are hiring foot and bike messengers as independent contractors, not employees, and the New York State Department of Labor has forbidden this practice for years," said Robert Kotch, owner of Breakaway Courier Systems, a 28-year-old company with 300 employees.

Kotch was making his case against his app-based competitors in an unlikely setting: while riding his 30-year-old Italian racing bike through midtown traffic to pick up a lunch order for UberRush. (A Crain's reporter on a Citi Bike struggled to keep up.) The 58-year-old former messenger, who has a degree in economics from Oberlin, likes getting back on the street, but he wasn't making deliveries for fun or profit.

A year ago, Kotch wrote to the Labor Department that the "use of independent contractors as foot and bicycle couriers" had been banned in New York since the 1980s. He added that Breakaway was "losing customers and employees" to "disruptors" like Uber because they could charge lower rates and pay higher wages by avoiding "all mandatory employer-related costs."

Had the state reversed its policy, he asked, and could his company adopt this practice, too?

Kotch never heard back. So he wrote to Attorney General Eric Schneiderman—and was told there was no interest in pursuing the matter because nobody had filed a complaint. Deciding he would do the complaining, Kotch signed up with Uber. He would document the ways the company treated him as an employee and get government to act.

"I want to hold Uber to account," he said, "even if nobody else will."

Photo: Buck Ennis
Robert Kotch of Breakaway Courier signed up with Uber to try to prove they were breaking the law.

KOTCH'S NEW CAREER began in September with an orientation session at an old warehouse building on the far West Side, where some 60 attendees were told how to work Uber's courier apps and warned not to solicit tips from customers. There was no safety instruction, nor any suggestion to wear a helmet, he said.

"Can you imagine sending 60 people out on the street like that?" Kotch asked, moments after dodging a black limo that had swung across lanes to make a U-turn.

In 1994, Kotch created a safety course for bikers that began, "You are accepting a job in which you could be dead by this afternoon." Crash rates, he said, went "way down." Breakaway has not employed bike messengers since 2013, when the company converted about 100 of them to walkers.

Courier companies have good reason to be safety-conscious: The fewer accidents they have, the better deal they can get on their workers' compensation policies. Uber, by contrast, may have an incentive not to give safety instruction: Providing training could be seen by regulators as one indication that the workers are employees, not independent contractors.

Experts say that skipping training as a strategy for preserving independent-¬contractor status would not be unique to Uber. But the company's critics call it ill advised and dangerous.

"Its disregard for the safety of its workers is especially problematic in high-risk sectors like transportation," said Sarah Leberstein, senior staff attorney with the National

Employment Law Project, a labor-rights advocacy group.

Sharing-economy experts, however, say that Uber is part of larger changes taking place in the way people work and that new models need to be found to protect workers.

"We have to look at the objective of different labor protections, then look at the solution, and think about whether the solution fits this new world of cloud-based capitalism where you're not necessarily working full-time," said Arun Sundararajan, a professor at NYU's Stern School of Business.

Uber did not respond to questions about safety training. The company maintains that it is not a transportation employer but a technology company that provides logistical solutions, giving people the freedom to work whenever they want.

When asked about the lack of workers' compensation coverage for its couriers, the company pointed to a recent $130,000 donation it had made to the nonprofit Bicycle Messenger Emergency Fund, which sends $500 to any messenger in the first week of a job-related injury. And as it does for its drivers, Uber carries $1 million in liability insurance on all bikers, which would cover a collision with a pedestrian.

The state also provides protections. A biker injured in a crash involving a vehicle would be covered for up to $50,000 in medical expenses and lost wages under New York's no-fault insurance law. His luck could run out, however, in the event of a catastrophic accident.

"You're going to exceed $50,000 in medical bills," said Daniel Flanzig, a partner at Flanzig & Flanzig, a law firm that focuses on bike crashes in the New York area. "Workers' compensation could last years, if not a lifetime of benefits."

Experts say it's not surprising that Kotch was never able to interest government agencies in going after Uber.

"It's a big issue to tackle," said Shannon Liss-Riordan, a Boston lawyer who is leading the class-action suit against Uber in California that will soon go to trial. "Different state governments are looking at it and deciding whether they might do something."

Even so, app-based courier companies are in her sights. Liss-Riordan has a national class-action suit against Postmates pending in federal court in California charging the delivery company with misclassifying workers and violating labor laws. The plaintiffs include two foot couriers who worked in New York. And she has spoken to Uber couriers who say there are times they make below minimum wage.

"We've started to hear from UberRush couriers in New York," she said. "We are looking into whether they have claims we can bring."

Buck EnnisKevin "Squid" Bolger is a longtime courier who now works for himself under the LLC Cyclehawk.

THERE WAS A TIME when government agencies did crack down on companies that called their bike and foot messengers independent contractors rather than employees.

It was in the late 1980s, and courier companies were the target.

Back then, the industry was enjoying a boom that at one point filled the Yellow Pages with 60 pages of courier ads. Bike messengers, who emerged as a force with the 1980 transit strike, had become ubiquitous with the spread of beepers. Dispatchers could signal them to call in for another pickup, which made bikers easily twice as productive as walkers (if they didn't get stuck waiting for a pay phone).

But messengers filing claims for unemployment insurance caught the attention of the state Department of Labor and the IRS, which began conducting audits.

"It was an all-out blitz," recalled Paul Gapp, managing partner at Consultech, which represents transportation companies when they run into trouble over their use of independent contractors. At the time, he was consulting for several courier companies, and they quickly came to terms with the government. "It was a stretch to say a bike messenger is in his own business," he said.

More and more companies began making that concession. "They got scared," recalled
Bobby Stern, a dispatcher at Quik-Trak Messenger Service who has been working in the industry since 1979 (and can be seen routing couriers in Triple Rush). A towering 64-year-old who carries a metal plate in his head from the night an angry bike messenger clobbered him with a chain, Stern was a partner at Right Way Messengers in the late 1980s, and he urged the other partners to resist. "They could have won," he said.

But there were owners who saw advantages in having their messengers be employees—just as some app-based delivery services, like Shyp and Munchery, do now. "We wanted to create an environment in which the couriers saw themselves less as renegades and more like FedEx drivers," said Mike Fiorito, who was chief executive of Earlybird Courier, one of the larger services.

Starting in 1988, Gapp and the Department of Labor set to work on guidelines, and by 1990 the two sides had reached a verbal agreement. The courier companies would accept that messengers were employees; the Department of Labor would allow vehicle drivers to continue as independent contractors. The most recent version of the department's "Guidelines for Determining Worker Status," issued in 2014, states that "it is standard practice that bike and foot messengers are considered to be employees."
Gapp comes down on Uber's side in its classifications. But he also sees "factors that conflict" with the independent contractor designation, like the way Uber monitors its workers' performance, sets payment terms and can terminate its contract with them.
"There are going to be big settlements," Gapp predicted of the current lawsuits against Uber and other on-demand transportation companies. "Then they're going to tweak their model to reinforce the independent-contractor [status]."

Kotch was not the only one who found it hard to get a response from government. Asked whether Uber was disobeying the rules, the state attorney general's office declined to comment. The Labor Department referred questions to the Workers' Compensation Board, which is charged with promoting compliance with the law.

A board spokesman responded that someone with a work-related injury would have to file a claim. If the employer challenged that claim, the board would decide, on "a case-by-case basis, whether there is an employer-employee relationship."

Courier company executives say it will never get to that. For venture-capital-backed app-based startups, it would make more sense to settle any claims privately and avoid a legal battle that would threaten their business model.

That model includes cutting prices to spark demand and grab market share. (The same practice has infuriated Uber drivers and similarly alienates couriers. Though their 80% commission is about double a traditional messenger's, they have to work more to keep up.) Uber, of course, can afford to be aggressive: The San Francisco-based company has $8.6 billion in venture capital and private-equity backing and a $62.5 billion valuation.

An UberRush delivery for small businesses starts at $5, or roughly half what a traditional courier might charge.

Buck EnnisJosh Weitzner co-founded Samurai Messenger Service in 2008. Since then it has grown to $1 million in revenue and about 20 employees.

"This has always been a competitive industry," said Joshua Weitzner, 37, co-founder of Samurai Messenger Service, a worker-owned and -operated company with about 20 employees, including a dozen bike messengers. "But it's different having competitors that expect to lose money."

Traditional couriers cannot cut their prices, noted Joe Halada, senior vice president at Quik-Trak. Foot messengers, he pointed out, do about half as many deliveries as bikers, or about 10 to 15 a day. That might not be enough to earn $9 an hour in commissions, so Quik-Trak, which employs about 50 walkers, will subsidize their pay, something Uber or Postmates doesn't have to do.

"Minimum wage puts a floor under traditional messenger-service prices," Halada said. "Some of these new companies are able to price their service below this floor by not paying minimum wage." (One of the last traditional courier companies to employ bike messengers, Quik-Trak has 10 left from a peak of 60, and is considering converting them to walkers.)

Postmates did not respond to requests for comment. Asked if it was possible that some of its couriers make less than minimum wage, Uber did not answer yes or no.

"We hear every day from Uber partners: Flexibility and the chance to be their own boss is a key reason they use Uber," a spokeswoman said. "And most of our partners work with Uber to make money on the side, using Uber on their own time and to fulfill their own unique goals."

There are weaknesses in Uber's plan. Many of its couriers are inexperienced, and operating through an app rather than dispatchers, the company can fall short on customer service, according to veteran messengers who have moonlighted for the company.

And though the traditional companies report losing customers to the new players, the damage has been limited. Samurai, founded in 2008, has grown to $1 million in revenue on the strength of superior service from bikers who also happen to have a perfect safety record (and relatively low workers' comp rates), according to Weitzner.

Breakaway, with about $8 million in revenue, has gotten into trucking--moving goods that can't be digitized, such as doors, construction equipment and garments.

Some companies break the law to get by. It's well known that there are walkers on payrolls who are in fact bike messengers. That has the problematic effect of increasing workers' comp premiums over the long run because claims are paid out of a pool that's smaller than it should be, and rates are then adjusted upward to match.

"They give you the opportunity to 'walk,' " said Big Al, a longtime bike messenger who now works on his own. He made quote marks with his hands, which bear the command "LIVE FAST" tattooed on his fingers. "If they don't know that you're on your bike, then that's on you."

Big Al, 33, has his own company, Cannonball Couriers, his own clients in fashion and interior design, a loose network of fellow independents and no employees. "Our clients like the image—the young, bearded, tattooed person, passionate about cycling and about the job," he said. "If people just want to cut nickels into pennies and find the cheaper deal, they're going to get the service that goes along with that."

His colleague Kevin "Squid" Bolger also serves his own clients, under the LLC Cyclehawk. Bolger, 44, who played himself in Premium Rush, and who sometimes trades jobs with Big Al, uses UberRush to catch work on weekends and make extra cash. "For me it's perfect," he said. "I'm never going to depend on it to pay my bills."

Neither Big Al nor Bolger have workers’ comp insurance, but both support families on their earnings and qualify for Medicaid.

Kotch still hopes to file a complaint that shows Uber is breaking the law. He cited the two-hour orientation he attended as "massive wage theft"—attendees weren't paid for their time—and an example of how the company treats its workers as employees by training them. During his first day on UberRush, he spent an hour "engaged to wait" for an assignment—another indicator of employee status. If one of his own workers had waited an hour, he said, he would have been owed minimum wage.

Kotch also hopes Uber doesn't shut down his account once this story appears.

"They may want to prove their point and allow me to continue to work when I want and insist they are only an exchange," he said. On the other hand, "if they go large on retaliation, it will make for a nice follow-up."

A version of this article appears in the February 8, 2016, print issue of Crain's New York Business as "Uber rushes in".

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