The State Senate of California approved a bill, known as AB5, on September 10th, marking the beginning of new tensions between Uber and its’ drivers. AB5 indicates that independent drivers should be marked as employees of the firm, giving them rights like minimum wages, paid parental leave and unemployment insurance. The new law will have a big impact on business models which are fundamentally built around independent contractors, like with Uber and Lyft.
Many drivers agree that the Uber model has led to exploitation. Drivers say that they have seen an increase in costs and long working hours, while wages did not rise over time. Assemblywoman Lorena Gonzalez, who sponsored the bill, says that firms should not be allowed to “game the system” by misclassifying workers and passing own business costs onto workers and taxpayers.
The total extra costs of the mentioned rights for employees is the main reason why Uber and Lyft tried to stop the law from passing the State Senate. In June, Uber CEO Khosrowshahi and Lyft cofounders L. Green and J. Zimmer mentioned the risk of AB5 on their businesses. Uber, Lyft and DoorDash, an on-demand delivery service, have stated to spend at least $90 million in response to the bill. The intention was to settle with an agreement before the law could even be approved, but that ship has sailed. Analysts expect an increase in fare prices for consumers after the bill has been implemented.
For both Uber and Lyft, the law comes at a bad moment. Both firms’ stocks are near an all-time low. It’s the question if California will be an isolated case, or if this bill marks the beginning of new regulations in more markets. If that would be the case, companies like Uber and Lyft need to seriously redesign their business models, because they are now mainly built around these independent contractors. The final step before approval is the signature of Governor G. Newsom, who has already indicated his intention to sign AB5. The law would take effect starting in January 2020.
Sources:
https://www.vox.com/2019/9/11/20850878/california-passes-ab5-bill-uber-lyfthttps://www.theverge.com/2019/9/11/20860578/california-ab5-bill-passage-uber-lyft-drivers-union-techlashhttps://edition.cnn.com/2019/09/11/tech/ab5-uber-lyft/index.htmlhttps://www.cnet.com/news/uber-lyft-drivers-are-one-step-closer-to-becoming-employees-in-california/https://www.cnbc.com/2019/09/11/california-passes-assembly-bill-5-for-gig-workers.html
Hey Jeffrey,
Thanks for writing this blog post, it was very interesting to read!
According to Uber’s chief legal counsel Tony West, the AB5 regulation does not automatically reclassify any drivers from independent contractors to employees. In order to determine whether a person is classified as contractor or as employee, an ABC test will be required. West defines Uber’s core business as a technology platform for several different types of digital marketplaces. Furthermore, he believes that Uber will pass this ABC test as its drivers are not found to be core to its business. If West is correct, it means that the bill will not automatically convert every Uber driver into an employee. I was curious for you opinion, do you believe that the logic of West can be applied to avoid complying to the AB5?
https://www.californiaemploymentlawreport.com/2019/03/understanding-the-abc-test-for-independent-contractors-in-california/
https://www.theverge.com/2019/9/11/20861362/uber-ab5-tony-west-drivers-core-ride-share-business-california