Uber Technologies Inc. on Tuesday said it mistakenly underpaid New York City drivers for the past 2 1/2 years, an error that will likely cost it tens of millions of dollars. It is the second time in three months the ride-hailing company has acknowledged it deprived workers of their proper earnings.
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Under the terms of its November 2014 nationwide driver agreement, Uber was meant to take its commission, generally 25%, from U.S. drivers based on fares after any taxes and fees were deducted. Uber said that, instead, in New York City it calculated a higher cut using the full fare before accounting for sales tax and a local injury-compensation fund fee.
Uber told The Wall Street Journal it would refund the money plus interest, which comes to an average of about $900 per driver. The San Francisco company declined to say how much the blunder would cost, but it could total at least $45 million, based on an estimate of 50,000 drivers from the New York-based Independent Drivers Guild. All New York City drivers, whether still active or not, are eligible for a refund as long as they completed a trip since signing the 2014 agreement.
Uber, already reeling from a series of stumbles this year, said it discovered the error while it was creating a more-detailed receipt for its drivers.
"We made a mistake and we are committed to making it right by paying every driver every penny they are owed, plus interest, as quickly as possible," Rachel Holt, regional general manager of Uber in the U.S. and Canada, said in a statement. "We are working hard to regain driver trust, and that means being transparent, sticking to our word, and making the Uber experience better from end to end."
The accounting error -- and a similar one in Philadelphia earlier this year -- is striking for a company whose business hinges on complex mathematical formulas that match drivers with riders and that crunch fares by the millisecond based on traffic, demand and other factors.
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Technology giants like Uber employ armies of engineers and data scientists that develop sophisticated algorithms, but their world-eating ambition can sometimes cause them to gloss over basic-level concerns for their customers. Last week, Facebook Inc. acknowledged it misstated advertising impressions for the fifth time since September and would refund some marketers' money.
Uber is grappling with a number of controversies, including investigating charges of sexual harassment and sexism by a former worker, contesting a lawsuit from Google parent Alphabet Inc. alleging theft of trade secrets and facing potentially two criminal probes into its operations. The company is expected to soon release results of an internal investigation into its workplace culture and name a deputy for its pugnacious chief executive, Travis Kalanick.
The accounting error marks the latest turn in the company's contentious relationship with its 1.5 million contract drivers, many of whom have fought for greater benefits and wages, including through lawsuits and union affiliations. Uber this year vowed to focus more attention on retaining its drivers and boosting their wages through improvements to its routing software, rating systems and other changes.
But in January, Uber agreed to refund drivers a total of about $20 million to resolve Federal Trade Commission allegations that it exaggerated the amount of money the workers could earn in nearly 20 cities. Then in March, Uber admitted it erroneously collected its commission from black-car drivers in Philadelphia at a 25% rate instead of 20% since August 2015. The company refunded some $4.3 million in wages, including interest.
Together, the refunds are a fraction of the $6.5 billion in revenue Uber generated last year, but they threaten to erode the trust of drivers who are the lifeblood of the ride-hailing service.
Adding to the pay issues, Uber last year rolled out a new fare system called upfront pricing, a guaranteed price for riders based on the software's estimate of time, distance and other factors. But Uber calculates drivers' pay based on actual miles and minutes, which sometimes leads to a gap in rates that some drivers have complained leaves them shortchanged.
Facing driver pushback, Uber recently devised a new receipt that more clearly breaks out Uber's take and customers' fares. As part of that review, Uber said, it uncovered its mistake in New York City.
Uber, valued by investors at $68 billion, had an opportunity to fix the problem in New York City sooner. A lawsuit filed by the New York Taxi Workers Alliance in the Southern District of New York last June contesting the classification of drivers as contractors noted the accounting discrepancy. Two drivers won the right to some benefits typically reserved for employees of Uber as a result of the suit.
All drivers agree to terms with Uber that include a guarantee that the commission will be a percentage of the fare after fees and taxes are taken out, which in New York include sales tax and a fee that goes to a general fund for black-car drivers. Uber officials said the problem is now fixed and that it is reviewing other cities' policies.
Uber black-car driver Ali Razak, who helped lead an affiliation with a labor union, said he complained repeatedly to Uber about the incorrect commission calculation there.
"If it's just one or two drivers, they don't care," said the 31-year-old who is based in Philadelphia. "There's just a lack of communication between Uber and drivers."
Write to Greg Bensinger at email@example.com
Corrections & Amplifications
This item was corrected at 2:51 p.m. ET to show that two drivers won the right to some benefits typically reserved for employees of Uber as a result of the suit. The original incorrectly stated that the two drivers won the right to be called employees of Uber.
Two drivers won the right to some benefits typically reserved for employees of Uber as a result of the suit. "Uber Shortchanged New York City Drivers by Millions of Dollars," at 1:15 p.m. ET, incorrectly stated the nature of what the drivers won in the 14th paragraph. (May 23, 2017)
(END) Dow Jones Newswires
May 23, 2017 15:04 ET (19:04 GMT)