I’m a Californian. I’m also an occasional Lyft and Uber customer. But by next week, it is entirely possible both will be shut down throughout the state, leaving millions of trawlers without rides, and more than 100,000 drivers without work.
Uber and Lyft are playing a game of chicken with the state of California. It is a game with high stakes for riders, drivers, stockholders, taxpayers, and politicians. Both companies need this like the proverbial hole in the head, as their pandemic-pounded earnings were dismal. Uber lost $1.78 billion in the second quarter, Lyft $433.1 million.
Why the face-off? Uber and Lyft want drivers to remain as independent contractors. California, armed with a new anti-gig economy law, AB5, wants Uber and Lyft to reclassify drivers as employees. On August 10, a judge sided with the state and gave the rideshare companies until August 20 to mend their ways. Uber and Lyft threatened to depart the state, leaving drivers and customers, including essential workers, in the lurch.
The clock is ticking.
San Francisco Superior Court Judge Ethan P. Schulman found Uber and Lyft’s argument that they were merely tech companies providing an app, a “classic example of circular reasoning.” He wrote “It is high time that they face up to their responsibilities to their workers and to the public.”
He gave Uber and Lyft just ten days to turn independent drivers into employees or face big fines. In response, Uber and Lyft independently said they are contemplating “temporarily” pulling out of the lucrative California market. Most likely, “temporarily” would be until November, when Proposition 22 (the “App-Based Drivers as Contractors and Labor Policies Initiative”) funded by Uber, Lyft, DoorDash, Postmates and Instacart is on the ballot.
California Attorney General Xavier Becerra applauded the judge for recognizing the “bogus argument” advanced by Uber and Lyft. He apparently did not care if they left the state. “Any business model that relies on short-changing workers in order to make it probably shouldn’t be anywhere, whether California or otherwise.”
Uber CEO Dara Khosrowshahi said “If the court doesn’t reconsider, it’s hard to believe we’ll be able to switch our model to full-time employment quickly.” (Fast-growing Uber Eats will continue to deliver.)
A source close to Lyft noted that the company is trying to get an appellate court to extend the stay. If this fails, the company may be forced to suspend California operations; Lyft also believes it cannot just flip a switch and transition its entire business model.
“I don’t see Uber and Lyft making drivers employees in two days, so we could see a Calexit,” says Harry Campbell, The Rideshare Guy. “Uber and Lyft stand to lose a lot if they capitulate or leave the state, but so does the state of California and drivers specifically.”
“Uber and Lyft are businesses, not benevolence societies. They have to make money,” says Dr. Williamson M. Evers, Senior Fellow at the Independent Institute in Berkeley. “Do not be surprised if these platforms skedaddle out of California. If they stay under these onerous conditions, 75% of drivers will lose their jobs.”
Wall Street hasn’t given up on the once shiny rideshare unicorns. “Online retail investors will process these developments as a temporary hurdle these apps are facing, should Uber and Lyft demonstrate their willingness to work out a balanced compromise,” says Dan Raju, CEO of Tradier, a cloud-based financial services provider.
The media consistently portrays the story as a battle between ‘gig economy’ companies and exploited drivers. But a Rideshare Guy poll of 1000 drivers reveals that 71% wanted to remain independent contractors. Just 17% wanted to be employees.
According to another Rideshare Guy survey, over 50% of drivers think Uber/Lyft will leave CA temporarily. If they do, “Quite a few drivers will leave California entirely, or look for other full-time/temp work,” says Campbell. “Given the massive unemployment right now, it’s not a good look for California to throw thousands of drivers off the Uber/Lyft platform.”
The battle is over whether drivers have been “misclassified” as independent contractors when under AB5, they should be treated as employees with the right to benefits such as unemployment coverage, worker’s compensation, and the minimum wage.
A cautionary tale about California’s efforts to rein in the gig economy with AB5 is VOX publishing. It cheered AB5 in its editorial pages, then fired 200 freelancers, to be replaced by 12 full-time employees.
NPR’s Bobby Allyn found, after talking to six drivers, none wanted to change their job status. “It surprised me that every driver I talked to said the same exact thing. Independent contractor life has its perks.” Flexibility was key. Driver Oscar Amaya sad, “I prefer to stay this way because I manage my own schedule. I don’t have to report to anybody. I work anytime I want, whenever I want.”
The LA Times thundered that Lyft/Uber business model “depends on avoiding the costs of employment and sticking their drivers with such expenses as fuel, vehicle upkeep and insurance.” But to drivers who are independent contractors, those costs are legitimate business expenses and tax deductions. A Lyft driver in Sacramento told me he thought AB5 was “a plot” for California to get its taxes “up front” as payroll deductions.
Although most people think of AB5 as the “Uber and Lyft law” it has had a seismic impact on hundreds of thousands of freelancers, independent contractors and small businesspeople who have nothing to do with rideshare.
Last September, the bill’s author, Assemblywoman Lorena Gonzalez (D-80 San Diego) said on Twitter that “AB5 [will] stop the misclassification of nearly a million misclassified California workers so they are provided a minimum wage, benefits and workplace rights.”
But Karen Anderson, founder of the 18,000 member Facebook group Freelancers Against AB5, says, “The purpose of AB5 is to eliminate the independent contracting, self-employment models across more than 400 industries.” She adds that Gonzalez, a former labor organizer, told those who lost income from AB5 that these “are not real jobs.” Often described as “feisty,” Gonzalez garnered national attention in May when she tweeted ‘F—k Elon Musk’ after the Tesla CEO threatened to move the company over a COVID-19 shutdown.
To Anderson, “They are not just going after Uber and Lyft, they are going after sole proprietor, small and medium-sized businesses, from translators to golf caddies to professional Santas.”
Under AB5, companies must take the three-pronged “ABC test,” to prove workers are independent contractors, not employees. (Spoiler alert: few pass.) Businesses, whether small or Uber-sized, can be sued for misclassification violations. Fines range from $5,000 to $25,000 per violation.
The LA Times attacks Uber and Lyft as “desperate to overturn AB 5 or otherwise to win exemption from the law.” Yet the writer acknowledges the Times and the California News Publishers Assn. have been seeking exemptions from AB 5 covering newspaper carriers and contributions by freelance writers, editors, and photographers.
It’s hard to see giant corporations like Uber and Lyft as the victims, as they themselves have “disrupted” industries like taxis, rental cars and airport parking. And while the companies say they provide essential transportation services, they have been money losers for stockholders.
Nonetheless, says Anderson, “Even if you have a bone to pick with Uber’s business model, AB5 is not the answer; there are already laws on the books for misclassification.”
Whatever happens August 20, ending the gig economy may prove like attempting to repeal gravity.