Note from the Gridwise team: Gridwise is unapologetically pro-driver, however we recognize that while many drivers want to be classified as employees, many drivers do not. This post is only intended to give drivers unbiased FACTS and spark a conversation amongst drivers.
Unless you’ve been living off-planet, you’re aware of the controversy over whether you, as a rideshare or delivery driver, should be classified as an independent contractor or an employee. Let’s just say there’s been a lively discussion going on around this issue—for years.
However, on June 10th, the discussion got even more animated. The California Public Utilities Commission (PUC) officially ruled that rideshare drivers should be classified as employees.
This marks a significant development in the ongoing battle over how drivers are classified, and it leads us to ask: what exactly does employee status mean for drivers?
In this blog post, we’re going to take a good, hard look at the issues surrounding the relationship between gig economy companies and their employees, in California and everywhere else.
It’s known as “worker classification,” and there’s a crushing number of facts and opinions related to it. As a worker, you can be classified as an independent contractor, or an employee, either part- or full-time.
What’s good about being an employee? What do employees get that contractors don’t? How might that change the way you engage in driving? What are some of the benefits of not being a company employee? To find the answers, we’ll look at:
- What does the PUC ruling in California mean?
- Why should drivers outside of California care about this ruling?
- What does it mean to be an independent contractor vs being an employee?
- Why do companies prefer drivers to be independent contractors?
- Is being an employee all it’s cracked up to be?
- How may becoming an employee might impact your income?
- How can more drivers get involved?
What does the PUC ruling in California mean?
This regulatory agency, which oversees ride-hailing companies, declared its decision in an order published on Tuesday.
It said “a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor” under AB5, the state’s new law covering gig work, which became effective on January 1st, 2020.
THE CPUC has ordered companies to begin paying drivers Workers’ Compensation by July 1st. They said the authority for this order comes from AB-5, California’s new gig-work law. Their decision came as a part of an 18-page document laying out the rules for companies under AB-5, and they said this is the way the PUC would regulate the companies “for now.”
There are still some questions about the final decisions involving AB-5 and the status of gig workers, through. There’s a big lawsuit by the State of California pending against Uber and Lyft. Read more about it in this Gridwise blog post. On top of that, a proposition sponsored by the companies has been placed on the ballot for November 2020, So, as you can see, this battle isn’t over, and opposition from the companies keeps on coming!
How does this – and being an independent contractor – affect drivers everywhere?
What’s happening in California will create waves that could shake up the environment for drivers everywhere. Cities, states, and all the regulatory agencies around the world that deal with the gig economy will be watching California’s ongoing battle, and will look to it as a test bed – and maybe as a precedent for taking actions in your town.
What’s all the fuss about? It all has to do with being treated as an independent contractor or an employee by your rideshare and/or delivery company.
In most cases, when you sign up to drive and/or deliver for the companies you work with, you’re asked to read and agree to terms and conditions. Many of us just checked the box and clicked to the next screen, right?
Well, you may want to go back and read that agreement. The company states that by agreeing to it, you understand you are an independent contractor, meaning:
- You are not entitled to a minimum wage
- You are not entitled to overtime
- Your company does not have to pay for your health insurance
- Your company does not have to give you scheduled breaks
- You must pay your own taxes; your company will not withhold them for you
- Under most circumstances, you are not entitled to sick pay, vacation pay, unemployment compensation, or workers’ compensation. (The COVID-19 situation was a special case.)
- You’re not protected by federal anti-discrimination laws
- You can be deactivated at the company’s discretion
That list of privileges you give up by agreeing to be an independent contractor is pretty hefty.
All of this has a significant impact on your relationship with your company—and your ability to make a living. Some of the items, such as paying your own taxes, aren’t such a big deal. But not having access to unemployment and workers’ comp could possibly pull the rug out from under you, and destroy your ability to survive at some of the most inconvenient times you can imagine.
Now let’s look at the other side of the issue and consider the advantages you have that are unique to being an independent contractor.
- You can set your own times to work
- You’re not limited to a set number of hours
- Your vehicle doesn’t have to conform to higher and/or uniform company standards
- You’re not required to take certain days off
- You’re free to work with any app-based platform you wish, including your main company’s competition
- You can accept (or decline) rides based on your own discernment about safety and time
Even though you have a lot of freedom as a gig worker, it’s pretty clear that employees have far more benefits.
Still, having the ability to choose to work as much and exactly when you want might be really important to you. Whether it matters enough to give up other types of benefits is something only you can decide for yourself.
For many full-time rideshare and delivery drivers, being an employee sounds attractive. They don’t have other sources of income, so getting benefits like unemployment and disability insurance would be a real plus.
Those who do rideshare as a sideline to another job or business, or have family responsibilities, see things differently. They might want to steer clear of company constraints so they can work around the rest of their schedule and continue to work two, three, or more gigs.
So that’s what the drivers think… what about the companies?
Why do companies prefer drivers to be independent contractors?
By using independent contractors, companies don’t have to lay out money for insurance and benefits—which is obviously advantageous for them.
In the case of the rideshare and delivery industry, where companies are working with small profit margins and customer demand that fluctuates with seasonal and societal trends, using independent contractors makes it far easier to (eventually) turn a profit.
When companies issue initial public offerings, as Uber and Lyft did in 2019, overhead becomes a crucial factor.
If these companies are burdened with paying minimum wages, administering employee services, providing insurance, and dealing with other expenses that come with having a hired workforce, their books would look far less appealing to investors.
Other aspects of using independent contractors that are attractive to companies include:
- The ability to deactivate workers (rather than laying them off or firing them) avoids personnel and financial hassles
- No requirement to provide workers with legal protection
- Ability to pay as much or as little as they wish, whenever it suits them
- No obligation to enter into official arbitration agreements
- The ability to keep consumer prices for their services down
Sounds pretty good from where companies sit, doesn’t it? It’s fairly obvious that the rideshare and delivery companies built their business models on the concept of using independent contractors for drivers, rather than hiring them as employees.
You might consider what they’re doing to be unfair and/or underhanded, but they did one good thing: They created the gig economy.
People who require the flexibility and freedom they can only get by being an independent contractor can earn money when they want, and at their own pace.
What might happen to all drivers, and their ability to work the gig economy, if companies were forced to make them employees?
Is being an employee all it’s cracked up to be?
Like so many employment-related questions, the answer to this one is, “It depends.” There are some negative points about being an employee. In fact, our survey shows most drivers would prefer to remain independent contractors.
As you can see, 45.1% of those surveyed said they want to be employees, while 54.8% indicated they’d rather remain independent contractors. How can this be?
Well, here are some not-so-great things that can happen if drivers are made employees.
If you’ve ever worked retail or in the service industry, you’re probably very familiar with the concept of being a full-time (30+ hours per week) or part-time (fewer than 30 hours per week) “team member.”
Full time employees get all the usual benefits, such as health insurance, vacation time, unemployment compensation, contributions to a retirement plan, etc.
Part-time employees don’t get as many benefits, if any.
When you work less than 30 hours per week, the company does not have to pay for your health insurance, and unemployment insurance isn’t a sure thing either. You may get workers’ comp, but who wants to need that? In general, you won’t be treated much better than an independent contractor.
Why does this matter? Because if you’re assuming that you’ll automatically be invited to be a full-time employee of any of the driving or delivery companies, that might be one of those “pies-in-the-sky” that result from over-zealous expectations.
Even if you want to work more than 30 hours per week, you may not have that option. It will be the company’s decision, and it will be based on what you’re going to cost them.
The limitation of hours could be offset by a minimum wage requirement being slapped on the companies—and we’d all better hope it’s more than the current one, which is a paltry $7.25 per hour.
There aren’t too many drivers around who would be willing to take a pay cut like that one. If a wage is set, it will probably be higher than the federal minimum, but remember: there are no guarantees, at least not at this point in history.
Looking at the issue this way, the companies might not be the only ones to feel pain if driver classification as “employee” becomes an across-the-board regulation.
Will the pain inflicted on companies trickle down to drivers?
Companies claim that laws and resulting regulations limiting their ability to use independent contractors make it impossible to operate. We don’t know exactly what will happen, but it’s worth noting that Uber released a study that says the prices of their rides would increase substantially in California if drivers did become employees.
Those are pretty steep price hikes that would likely cut into their profit margins, and severely reduce the number of people willing to pay for rideshare services. It’s easy to see how the companies will be hurt, and drivers will also feel the pain. Yet, drivers deserve protection, too. How can this situation change so it’s better for everyone?
The ruling in California is a striking example of the battles that have been fought between drivers and behemoth rideshare companies. This time, it appears the “little guys” – the drivers – have struck a big blow, at least in some respects.
Sometimes it isn’t all that cut and dry. Let’s look at another case, a blast from the recent past that impacted driving in New York City.
A minimum wage for Uber and Lyft drivers was imposed by the Taxi and Limousine Commission (TLC). Under the new policy, which took effect in January 2019, NYC drivers earn a minimum gross pay of $27.86 per hour, or $17.22 per hour take-home pay. According to a study commissioned by the TLC, before the minimum wage rule took effect, most drivers earned about $11.90 an hour.
Sounds pretty sweet … or at least it did, until you remember that a few months earlier, the TLC also put a limit on the number of drivers Uber and Lyft could put on city streets. Why would they do that, you might wonder?
That’s a whole other argument, and it involves what “TLC” stands for. The Taxi and Limousine Commission took these steps not necessarily to benefit Uber and Lyft drivers, but to make it more difficult for the rideshare giants to charge less than yellow cabs and black car services.
A bureaucratic monster like the TLC is not such a big fan of competition, and there are entities just like it all over the world. Uber lost its license to operate in London some time back, in fact.
New regulations can help drivers, but there’s no guarantee that all of them will work in their favor. As we see in the example of New York, some drawbacks to the ruling hurt a lot of drivers, especially those who were hoping to be activated just as the ruling came down.
New rulings may keep coming down, but the companies will continue to complain and do everything they can to quash new regulations.
If pushed to make drivers employees in California, Uber says it would have to raise prices, and put “around 158,000” drivers out of work. That amounts to 76% of the drivers now on the platform in California.
They claim it will affect rural areas the most, because they won’t be able to sustain a large enough group of employee drivers to service more remote locations. Of course they’re going to say this, because it scares people, and helps the companies to plead their case. Yet, even if those numbers represent a gross exaggeration, it gives drivers something to think about.
Drivers need the companies in order to get work. And in truth, over-regulation poses a few serious threats to the viability of the rideshare business. Drivers must be careful that the demands they place on companies don’t result in unintended consequences, some of which could wind up killing the “cash cow.”
Now, before you get the wrong idea, let’s be clear—we are not arguing in favor of the companies. But we do recognize that going too far with pushing for additional driver benefits could have consequences we wouldn’t want, such as:
- Being forced to work fewer than 30 hours per week (STILL with no benefits)
- Having to pay union dues (if drivers were to unionize)
- Having limits placed on how many drivers can be onboarded in a given market
- Fewer (or no) surges
- No more “quests” or bonuses from the companies
- Fewer customers and less business
How can you help the cause?
There have been demonstrations, virtual rallies, lawsuits, and legislation addressing the issue. Maybe you’ve even thought about the issue from time to time. Just remember, even though you might be an independent contractor, you’re certainly not alone!
There are groups in almost every city, advocating for drivers as individuals and as a group. Some are independent, while others are affiliated with unions that have been representing workers for over a century.
This Gridwise blog post will tell you more about the gig worker advocates that are emerging in the US and abroad. All of them have things to say that will represent your interests, and help to shape your future as a driver.
So … if you’re wondering what you can do about making sure your views are truly reflected in any kind of change or policy that comes at us down the line?
GET INVOLVED.
Meanwhile – do what you can to shield yourself from trouble in the meantime. All rideshare and delivery drivers need to look out for themselves and protect their own earnings.
The best way to do that is to use multiple services, and track your earnings to ensure that you’re only working for the apps that are making you the most money.
Drivers can use Gridwise to track their mileage, and earnings, for free, so you can understand what apps are making you the most money.
So if you don’t already have Gridwise app, download it now for free!
So what are you waiting for? Download Gridwise and start tracking your earnings now!!!!
