Compliance Lessons From Uber: Takeaways for Tech Startups

by Nilan Johnson Lewis PA

While the media has widely covered the resignation of Uber’s CEO Travis Kalanick, it has largely ignored important lessons that tech startups can draw from Uber’s experience. In fact, the series of events leading up to Kalanick’s resignation read like a laundry list of what tech startups should avoid as far as personnel management and employment compliance policies go.

Uber’s meteoric rise was fueled by an unrelenting focus on growth. Formally founded in March 2009 as UberCab, the company had already secured more than $10 million in funding and was valued at $60 million by early 2011. Just two years later, in August 2013, Uber was valued at $3.76 billion. As any tech entrepreneur knows, Uber’s aggressive growth strategy is understandable and was in some respects necessary to its survival. Tech startups face significant competitive pressures and operate in a cut-throat environment where every dollar in funding is vital.

But the company’s fixation on growth created a toxic corporate culture. For instance, the company measured employees’ performance with respect to business performance metrics almost exclusively and, thus, was willing to overlook clearly problematic behavior. As Susan Flower explained in the blog post that exposed Uber’s sex-discrimination and harassment problems, even HR refused to punish or stop blatant sexual harassment because the offending manager was a “high performer.” In other words, the division (or department) responsible for ensuring that Uber remained a harassment- and discrimination-free workplace came second to the growth mantra. It’s telling that Uber did not hire its first official head of HR until 2014, when it already had over 500 employees. Likewise, it speaks volumes that by the middle of 2016, when the company already had more than 6,000 employees, there were fewer than 10 human resources business partners in charge of training and handling issues like sexual harassment. In sum, when it came time to allocate resources for personnel management, Uber’s leadership chose to overlook compliance in favor of recruiting additional people.

The lesson here is clear: while growth should remain the primary goal, it’s also important to foster a lawful, functional workforce. Leaders of early tech startups—e.g., its founders—often ignore labor and employment compliance because they lack experience leading a large workforce and, as such, do not anticipate all the complications of doing so. They make decisions to allocate scant resources by focusing almost entirely on short-term returns on investment, all the while ignoring that it’s important to inoculate the company against significant problems that can be very costly in the mid- to long-term future. But as Uber has demonstrated time and again—whether with respect to its wage-and-hour woes or its discrimination and harassment problems—ignoring workforce problems at an early stage can have ruinous consequences on the business and the brand as a whole. Investing in compliance is actually a savvy business decision.

To avoid repeating Uber’s mistakes, tech startups should design labor and employment compliance plans. This does not mean that every tech startup needs to hire sophisticated HR professionals or develop highly sophisticated auditing procedures as soon as it hires its first employee. The compliance plan should simply identify potential pitfalls at each stage of growth and propose commensurate ways of minimizing risk. For example, tech startups whose business model relies on independent contractors—businesses that, like Uber, rely on the gig economy—should engage in a sophisticated classification analysis even at an early stage to ensure their model is viable in the long term. By contrast, tech startups whose workforce consists primarily of full-time employees can avoid that kind of analysis without greatly increasing their risk. Or, as another illustration, advanced tech startups should have sophisticated record-keeping mechanisms, while young companies will likely be able to use simple record-keeping processes without exposing themselves to much liability.

In other words, in terms of compliance plans, one size does not fit all. But without adequate planning, no business is immune from serious trouble.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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