Both Uber and Lyft are threatening to leave California as a result of the latest developments in the fight over the employment status of rideshare drivers.
This is important for rideshare drivers everywhere, not just in California.
That’s because California is often a test bed for policy on the state level, and many other states are in the process of examining the relationship between rideshare and delivery companies and their drivers. What happens in California now will tell us a lot about the future of rideshare and delivery companies and how they classify drivers all across the country, and the globe.
In a previous post, we outlined the main differences between being an independent contractor and being an employee.
In this blog post, we’ll give you an update of what’s happening in California, and discuss whether Uber and Lyft could really leave California
Here’s what we’ll cover:
- What exactly AB5 is
- What Uber and Lyft have done to fight back against AB5
- What the companies might do if they lose the fight over driver employment status
- What’s best for drivers?
- How drivers can best protect themselves
Oh, and you can also check out our YouTube video on the AB5 situation in California below.
Now let’s dig in!
What exactly is AB5
AB5 went into effect in January 2020. It decreed that Uber and Lyft, as well as all companies that hire drivers and other gig workers (independent contractors), must now treat these workers as employees. This happened, de facto, because under the terms of the legislation a worker is an employee of a company unless:
- The worker is free to perform services without the control or direction of the company;
- The worker is performing work tasks that are outside the usual course of the company’s business activities;
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Let’s look at how these three conditions of AB5 compare with the relationship of a driver to a company.
As a driver, are you free to perform services without the control or direction of the company? What would you say to this? On the one hand, you do have control over the hours you work. But on the other… there are many terms you must abide by if you want to maintain your status as a driver in good standing. What happens when you are rude to a customer, refuse a ride, or otherwise operate outside of the company’s rules and standards? Most of us would say we aren’t completely “free,” given the nature of the job.
Is your driving outside the usual course of the company’s business activities? That depends on how you look at it. Uber and Lyft are rideshare companies—right? And Postmates, DoorDash, and Grubhub are delivery services? So would you be driving for any of these companies if you didn’t help them accomplish their business? So as a driver, it’s hard to see how rideshare or delivery work is outside the usual course of business.
Uber and Lyft, however, don’t see things that way. They claim to be platforms, or entities that merely connect drivers with riders, and deliveries with customers and their favorite eateries.
This is the biggest point of contention between the rideshare and delivery companies and state lawmakers.
Are drivers “customarily” engaged in an independently established trade, occupation or business of the same nature? Uber, Lyft, and others have a good argument here as many drivers drive for multiple platforms. Some even drive taxis, limousines, or buses along with being rideshare and delivery drivers.
What Uber and Lyft have done to fight back
While they technically are competitors, Uber and Lyft didn’t hesitate to join forces in fighting back against AB5.
At first, they did very little. They simply continued to operate as they always did, treating drivers as independent contractors. Then, they got their legal teams together to get proposed legislation on the ballot for November 3, 2020. Known as Proposition 22, this measure would reverse the provisions of AB5, allowing companies such as Uber, Lyft, DoorDash, Postmates, and the rest to continue to classify their drivers as independent contractors.
The companies have poured a lot of money into a campaign to persuade voters to vote “yes” on Proposition 22.
So far, according to this August 11 Slate article, the campaign known as Yes on 22 has about $110 million in funding, with $90 million coming from Uber, Lyft, and DoorDash, and $20 million from Postmates and Instacart. That’s definitely a substantial chunk of change—but it’s not nearly as much as the companies stand to lose if the measure doesn’t pass and they have to comply with AB5.
Proposition 22 would create a new definition called “app-based drivers.” Under that definition, drivers would be categorized as workers who provide on-demand services for delivery or transportation companies through an online-based app or platform. This would enable the companies to continue to classify their drivers as independent contractors.
Rather than waiting to see how Proposition 22 fared on the November 2020 ballot, the State of California sued Uber and Lyft in early 2020—and recently won.
The injunction in their favor found the companies to be in violation of the law, and forced them to comply with it. Uber and Lyft appealed the ruling, and just a few days ago, on August 13, were struck down again. Now they must comply with AB5 by August 20.
It would be fair to say the companies should have obeyed the law from the beginning. Yet the reality is, in order to make drivers employees, there would have to be a lot of scrambling to radically change their modes of operation. The fleet of drivers would have many adjustments to make, too. Since the companies are forced into a corner now, no one should be too surprised that they’re playing hardball.
And maybe the companies (and drivers) should have been prepared for the possibility of losing the lawsuit that was filed, and in the meantime, put together a system for making drivers employees.
They didn’t, though.
From their standpoint, if they had made these provisions, it would have been easier for them to give up… and in the process, set a precedent that could literally destroy the rideshare and delivery business’s potential to make a profit.
What the companies might do if they lose it all
In this game of chicken between the State of California and the TNCs, the next step for the companies looks pretty drastic. Uber and Lyft have stated they will be forced into suspending operations in California if they have to comply by August 20.
Gulp. That’s a big step—one that could be devastating to drivers. It also won’t be convenient for riders, or for transportation and delivery systems throughout California in general. People have come to depend on these services, more than ever in this tumultuous year. What will happen if these companies simply pull out of California?
Although that seems like an unlikely outcome, it isn’t impossible. Uber and Lyft claim that, while California represents a large amount of their business, it doesn’t return much of a profit. So if the companies DO leave, it might hurt California a lot more than it would hurt Uber, Lyft, and the other companies.
Moreover, this isn’t the first time Uber and Lyft have threatened to stop operating in a state or city—and when they tried it in the past, it worked.
Uber fought against Chicago, Houston, Austin, and San Antonio over stricter background checks. Uber and Lyft both left Austin on a temporary basis, and Uber left San Antonio. The government jurisdictions revised their regulations or overturned them through legislation, which like Proposition 22, was supported by the companies.
What’s best for drivers?
At Gridwise, our chief concern is that drivers are treated fairly, and have opportunities to make as much money as possible. Because of that, we’re very concerned about what really is best for drivers, not only in the case of California, but everywhere drivers work to get people and things they need to all the right places.
We have found that while many drivers would like to be employees of the rideshare and delivery companies, many others would not. As employees, drivers would receive benefits and stability, but they’d lose the freedom and flexibility of being independent contractors.
California’s approach, making drivers employees rather than independent contractors, is one way of giving drivers a more stable work situation. In Seattle, as this Gridwise article explains, city officials intend to establish a minimum hourly wage for drivers, and make the companies pay that to them.
Earlier this week, Uber CEO Dara Khosrowshahi suggested another possibility for classifying drivers. He opined that companies who use gig workers should be required by law to create benefits funds to cover the things they want and need. This might include anything from health benefits to paid time off.
The difficulty of getting benefits and other employee entitlements is real—but so is the possibility of bankrupting the companies in the process.
What do you think is the best way to get benefits for drivers, while keeping the companies in business? Do you want to be an employee, or a contractor? Would it be enough if companies established benefits funds, like Uber’s CEO suggested?
Leave us your comments below. We want to know what you think.
And… what can you do if they do stop operating in California, or in your state?
How drivers can best protect themselves
If you’re driving for just one platform right now, you could be making a big mistake.
It would be wise to sign up with at least two different companies, and probably more. Why? Because even if you don’t drive for them all on a regular basis, you’ll be covered in case you need to shift over in a pinch.
Companies can go out of business, or like Uber and Lyft in the case of California, they could stop doing business altogether.
You’ve probably seen the “Sign up with all the apps” driver mantra on your favorite Reddit thread or Facebook group, and we’re repeating it here. Different companies will have different reactions to situations like the one in California, or wherever you are.
In the event you can no longer drive for your regular company, have a backup plan in place. Don’t let changes in the political landscape disrupt your driving, and earning, rhythm. It can take a week or more to get a background check, and in many cases the companies will wait-list you before it’s even possible to apply.
How do you track your earnings on all those different apps? Download Gridwise, if you haven’t already. On top of being able to see your stats and record your important tax deductions, you’ll get easy access to our blog and the Gridwise YouTube channel. Plus, there are driver discounts and offers, all on the Perks tab.
Don’t forget, also, to sign up for our gas card giveaways, through the app and on our Facebook page. We like you, so we’re hoping you’ll head over there and like us too. If you do … there could be real gas card-type gold in your future.