Sack Of 3000 Employees, Office Shutdown To Cost Uber $225 million

Ride-hailing firm, Uber, has announced plans to sack 3,000 employees and shutdown some of its offices as the tech company moves to become dependent. The downsizing is expected to cost Uber $145 million and another $80 million. The current retrenchment plan comes weeks after Uber laid off 3,700 employees in order to save about $1 billion in costs.

According to Uber Chief Executive Officer, Dara Khosrowshahi, the decision to cut its workforce by 3000 was due to the company's plan to self-sustain without having to seek new capital or depend on investors. He explained that the decision wasn't made to please Uber's board or investors.

“I knew that I had to make a hard decision, not because we are a public company, or to protect or stock price, or to please our Board or investors. I had to make this decision because our very future as an essential service for the cities of the world — our being there for millions of people and businesses who rely on us — demands it. We must establish ourselves as a self-sustaining enterprise that no longer relies on new capital or investors to keep growing, expanding, and innovating.” Khosrowshahi wrote to employees in a memo, according to TechCrunch.

Those not affected by layoff

Uber drivers were not laid off as the drivers are not considered or viewed as employees by Uber. The drivers are still classified as independent contractors, so the axe focused on other direct staff of the ride-hailing firm, employees who are deep in the operations of Uber. This new downsizing will take the tally of employees sacked by Uber within the coronavirus period to over 6700 staff.

Although, the drivers have been complaining of their classification, demanding that Uber recognise drivers as company employees and not independent contractors. This is so they could be entitled to employee benefits which they currently don't have access to.

How the lay off will cost Uber

While the company stated that the downsizing will enable Uber become self-sustaining, for the short-term, it will cost Uber millions of dollars as the company will have to pay the sacked employees $145 million for severance and other benefits. Also, to shut down 45 of their offices, uber will have to cough up about $80 million.

Part of the offices being closed by Uber includes its Incubator which was launched about a year ago, and Uber's AI Labs.

Uber Eat succeeding where Uber Drive failed

Uber's ride-hailing service has been recording a decline in demand for rides. According to the company, rides have dropped to about 80% amidst the coronavirus outbreak. AllNews had reported demand for Uber is crumbling in Nigeria, with drivers telling AllNews that they now record about two demands compared to the 15 to 20 demands they were recording pre-coronavirus outbreak.

But while Uber's ride-hailing service is being pummeled by coronavirus, Uber Eat has been impressive, with the Q1 2020 result disclosing that gross bookings for the food delivery climbed to $4.68 billion, representing 52% growth when compared to the Q1 of 2019. Uber is also looking to acquire GrubHub - an American online and mobile prepared food ordering and delivery marketplace - to merge with Uber Eat; the deal has not been concluded yet.

However, despite the growth of Uber Eat, Khosrowshahi said it's not enough to cover their expenses, "I will caution that while Eats growth is accelerating, the business today doesn’t come close to covering our expenses,” Khosrowshahi wrote in the memo today. “I have every belief that the moves we are making will get Eats to profitability, just as we did with Rides, but it’s not going to happen overnight."