It came right down to the wire, as Uber and Lyft threatened to suspend operations in California at midnight on August 21.
Hundreds of thousands of drivers would have been out of work. Passengers and delivery customers would’ve had to look elsewhere for a way to get around and have their goods brought to their doors. Chaos would have reined in the state.
If all this had happened, it would’ve been the result of a previous court order for the rideshare and delivery companies to reclassify their independent contractors (aka, drivers) as employees by August 20, 2020. The companies had five days to appeal that ruling, and they made it just in time. A decision in their favor, to hear the appeal on October 13, came down during the afternoon of the August 20 deadline.
Since a decision won’t be reached until at least a few weeks after the hearing, the October 13 date provides the companies with ample time to wait for the outcome of the November 3, 2020 election. That’s when Proposition 22, a ballot measure that could reverse parts of the California law known as AB5, will be up for a vote. (As you undoubtedly recall, AB5 orders companies to reclassify drivers as employees.)
While many are frustrated that the companies have not been forced to comply with California’s AB5, the companies, the remainder of the state’s drivers, and customers breathed a huge sigh of relief.
Although we realize this is a California case, the decisions that are ultimately reached could send San-Andreas-sized tremors across the country, shaking up all the companies and their gig workers in every state. That’s why, in this blog post, we’re going to cover:
- Why companies want drivers to be independent contractors, and not employees
- What AB5 mandates
- What Proposition 22 is, and how drivers might benefit from it … or not
- Other proposals companies have introduced to deal with drivers’ needs
- What could happen if Uber and Lyft are forced to comply with AB5, and what that means for drivers everywhere
- How drivers can protect themselves from losing their gigs
We also did a video discussing this topic on our YouTube channel. Check out the video below.
Why companies want drivers to be independent contractors, and not employees
We’ll start by saying that we know what many drivers want: to be employees rather than contractors. They want to get benefits and protection they would receive from being employed full time.
For the companies that offer app platforms for drivers, however, it’s a whole other angle.
Let’s face it. Uber, Lyft, and other driving gig companies exist for the purpose of making a profit. All of them have struggled to do that—even with the freedom to avoid paying the costs of benefits and taxes for drivers who work as independent contractors.
With the help of some law and economics professors, reporters for the website Splinter found that, even back in 2015, the costs of paying benefits to just one California driver earning about $50,000 per year would be extraordinary. Here’s an estimate of what the companies would have to lay out:
- Federal taxes for unemployment, disability, Social Security, and Medicare: $4,940 per year
- Retirement and health insurance plans (San Francisco Bay Area): $15,483 per year
- Total for one driver for one year: $20,423
Yipes! There’s no exact figure for the number of drivers in California, but we estimate around 260,000. Multiply that by $20,423 (the cost of covering employee expenses) and the companies could be looking at around $5.3 billion each year—in California alone.
Even if we don’t count the drivers who would work under 30 hours per week, and therefore not qualify for full benefits, the bill would still far exceed the $500 million in annual revenue Uber says it would lose if the company ceased operating in the state.
What AB5 mandates
In a previous post, we took you through the details of AB5. So here we’ll simply state that it requires companies to treat those who use their apps as employees. So, companies would have to pay that $20,423 figure per driver, per year.
AB5 went into effect on January 1, 2020, and the companies have not complied with it. They argue that they do not have a relationship with drivers like what is described in the law. After the state sued and the companies appealed, a judge denied the stay on the order and told the companies they’d have to institute an employee-based system by August 20, 2020.
The companies took their appeal to yet another court, and on August 20, a hearing was scheduled for October 13. Along with buying them time to prepare for the possibility of losing on appeal, this date also gets close enough to the November election to allow Proposition 22 to play a prominent role in the eventual outcome.
What Proposition 22 is, and how drivers might benefit from it … or not
On November 3, 2020, California voters will vote on whether they agree with the language in Proposition 22, such as:
- AB5 does not apply to app-based drivers;
- App-based drivers are to be classified as independent contractors;
- App-based drivers are workers who provide delivery services through an application, or use a personal vehicle to provide pre-arranged transportation services through an online-enabled application or platform;
- Other types of workers will still be governed by AB5.
Whether Proposition 22 is beneficial for drivers depends on how you look at it. If you want to be an employee, then this will not help you. If you wish to remain an independent contractor, then this proposition will allow you to do that. Obviously, the companies like it. They’ve put a lot of money behind it, too—about $110 million so far.
It appears that many drivers also support the proposition. According to a survey we recently conducted of more than 750 drivers, 64.8 percent would prefer to remain independent contractors, while only 23.4 percent would rather become employees.
The companies are well aware of driver preferences, and they also understand that some drivers need and want more support from them. In an effort to show their willingness to meet drivers halfway, they’ve taken steps toward making drivers feel more secure as independent contractors.
Other proposals companies have introduced to deal with drivers’ needs
The companies realize they must find ways to treat their drivers better. They have their image to consider. Also, it’s pretty hard to imagine what they’d do if frustrated drivers decided to walk away from the platforms en masse. Here are a few ideas the companies have floated so far, to escape the extreme measures of AB5 and any other legislation like it that could crop up in other states.
A franchise model. If the companies offered drivers the opportunity to operate as franchisees, then Uber, Lyft, and the rest of them would not be in direct control of their independent contractors. This would satisfy one of the main provisions of AB5, which uses evidence of company control to determine whether a worker is an employee.
Benefits Funds. On August 10, 2020, Dara Khosrowshahi wrote an op-ed for the New York Times titled, “I Am the C.E.O. of Uber. Gig Workers Deserve Better.” In the article, Khosrowshahi said he’d be willing to establish “benefits funds” that give workers cash to use “for the benefits they want, like health insurance or paid time off.”
Also in the article, Khosrowshahi expressed his belief that current employment laws are outdated. He doesn’t think workers should have to choose between full-time employment or being fully independent. Rather, he envisions a “third way for gig workers,” with his benefits funds idea one representation of what that might look like.
If Uber and Lyft are forced to comply with AB5, what would it mean for drivers everywhere?
AB5 is a big question mark right now. No one knows what’s going to happen with court decisions, nor does anyone know the fate of Proposition 22. That will be up to the courts, and ultimately California voters.
But we can speculate about what could happen if companies are ultimately forced to comply with the law. Here are a couple of possibilities:
- Drivers as employees may only be able to get benefits if they work 30 hours or more. The companies could limit work time by controlling the number of hours a driver is allowed access to the app. That could mean fewer drivers earning what they did when they could work as many hours as they wanted (within reason).
- Having to pay more than $20,000 per year for each driver-employee could motivate companies to find other ways of getting things done. How? Well, even though we haven’t expected to see an influx of autonomous vehicles anytime soon, we may feel differently if companies are forced to pay drivers far more than they do now. In other words, that robocar we’ve all been dreading might just roll out way ahead of schedule.
Once again, we want to stress that no matter how this situation turns out, it will have global repercussions. That’s why it’s so important to be aware of it, no matter where you live. In fact, it’s not out of the question that this and/or other state legislation pressuring companies to classify drivers as employees will be evaluated on the federal level. If you wonder how that might turn out, well …
Decisions issued in 2019 by the US Department of Labor reflected the view that drivers are independent contractors. The author of one opinion, National Labor Relations Board associate general counsel Jayme Sophir, states:
“Drivers have virtually complete control of their cars, work schedules, and log-in locations, together with their freedom to work for competitors of Uber, provided them with significant entrepreneurial opportunity. On any given day, at any free moment, UberX drivers could decide how best to serve their economic objectives: by fulfilling ride requests through the App, working for a competing rideshare service, or pursuing a different venture altogether.”
Knowing the federal perspective, it’s hard to see how the companies wouldn’t win if they challenge state laws on the federal level. This makes it clear that the federal government’s position aligns with the companies: that drivers are independent contractors.
The Department of Labor’s opinion was issued to help settle arbitration between Uber and about 60,000 drivers, who filed arbitration demands over their employment status. Nonetheless, it will almost certainly be cited by any attorney who takes a future case like this to the federal level.
If you’re one of the drivers who would prefer to be an employee, the battle isn’t over yet in California, and may not even come close to influencing policy in other parts of the country. We’ll keep our ear to the ground for any new rumblings from the Golden State. In the meantime, here’s what you can do.
How drivers can guard against losing their gigs
We know. It seems like we’re telling you this more and more, for a variety of reasons. Sit in a comfortable position, close your eyes, take a deep breath, and chant the driver mantra:
Work. For. Multiple. Platforms.
When you’re positioned to pivot from one company to the next, you can make sure you keep working, no matter how the legal climate might change. This is always a great idea—but when there’s a possibility that a company can bail on operating in your area, you’ll need backup.
As we saw in the case of California, Uber and Lyft threatening to leave the state caused some huge ripples in the media. It was hard to watch any business news without hearing all about it. And in California, we imagine the news reports were even more numerous.
As you know, when you work for multiple platforms, Gridwise is more essential than ever. Use our amazing new features to track your earnings on all the apps you work with, and let us track your mileage for tax deduction purposes, too.
And … you get info on events, airport traffic, and lots of perks, such as easy access to our blog and the Gridwise YouTube channel, as well as driver discounts and special offers. Why would you ever drive without the ultimate rideshare and delivery assistant? Download Gridwise now.
So, what’s your preference: employee or contractor? Make a comment below, or find us on Facebook to share your thoughts with the Gridwise community.
