Ridesharing giants Uber and Lyft are threatening to shut down operations in California this week until November in response to the state’s sweeping labor bill that would turn drivers into employees and crush both companies under the weight of payroll taxes.
The bill, AB 5, which was passed last September, makes it harder for gig economy companies to continue treating their workers as contractors instead of employees. As employees, drivers would be eligible for basic labor rights such as a minimum wage and benefits, including paid time off.
Last week, a California judge granted the state a preliminary injunction to prohibit the companies from continuing to classify their drivers as independent contractors.
The companies, which already fail to turn a profit, have a week to appeal and if they don't succeed, their drivers will have to be recategorized as employees.
Following the ruling, Uber warned that it may need to hike prices by as much as 111% to cover the increased costs of providing benefits to drivers.
In a statement, Uber wrote that higher prices would of course reduce demand for trips, thereby shrinking the amount of available work for drivers. "We estimate reduced demand leading to 23–59% trip loss across our California markets, with the greatest impacts in sparse areas."
Lyft said California represented 16% of its total revenue.
The last resort for the companies, if they lose in court, would be a vote on their Proposition 22 set for early November, during which time they are hoping that California’s voters will help them fight the bill.
The Prop22 defines app-based transportation and delivery drivers as independent contractors, essentially overriding the AB5 bill. It would also enact labor and wage policies, including an earnings floor equal to 120% of the minimum wage.
Uber and Lyft claim that most drivers prefer their business model because of the flexibility and ability to set their own hours. On the other side of this divide, the authorities and labor unions claim that it deprives drivers of benefits such as health insurance and workers’ compensation.
And the two ride-sharing companies aren’t the only ones impacted by the law. Other gig economy companies, including food delivery platforms such as DoorDash, Instacart and Uber-owned Postmate, will also be hit.
According to Ballotpedia, the proposition is supported by DoorDash, Lyft, and Uber with $30 million each, while Instacart and Postmates chipped in with $10 million each.
Nearly 17% of the American workforce is of the gig variety, according to data from the U.S. Bureau of Labor Statistics. But Gallup.org estimates it at a much higher 36% of the US population engaged in “non-traditional work”. That’s about 56 million people forming the gig economy—almost 30 of whom do this as a full-time job.
The implications are vast. The California case could have far-reaching effects on gig economy legislation elsewhere and the bills like AB5 could spill over into the other states.
Last week, Seattle authorities announced that as of next January, rideshare drivers operating in the city would be paid $16.39 per hour with the addition of compensation gas, car insurance and upkeep.
In July, Massachusetts attorney general sued the ridesharing companies over worker misclassification. According to the lawsuit, Uber and Lyft have been improperly misclassifying their drivers as contractors rather than employees to save millions of dollars in compensation.
Last November, the New Jersey Labor Commissioner fined Uber $649 million in unpaid unemployment insurance contributions as a result of driver misclassification.
By Tom Kool for Safehaven.com
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