Uber, Lyft and AB 5: A Huge Disruption Within the Gig Economy

Photo: California has sought to ensure work protections for rideshare drivers under AB 5, but the industry is responding with Proposition 22, to be voted on by California residents this November.

The majority of Uber and Lyft drivers work long shifts, as one survey concluded 72 percent of them have reported they solely rely on driving as their main source of income. Though rideshare drivers are not eligible for employee benefits, they have the freedom and autonomy to choose when to work and to decline rides. But what has been appealing about rideshare driving and other gig work in the past may not be as promising in the future.

Due to the global COVID-19 pandemic, Uber laid off 14 percent of its corporate workforce — more than 3,000 employees — and in its second quarter results, the company revealed a 75 percent decline in ridership and a 61 percent decline in revenues compared to last year. Ridership declined from 21.8 million trips last year to 8.7 million this year, according to the disclosure. 

Given more time to comply with California’s Assembly Bill 5 (AB 5), which seeks to reclassify gig workers as employees, Uber and Lyft are left in a delicate quandary. 

Both San Francisco-based companies have threatened to cease operations in California if state laws require them to classify drivers as employees as opposed to independent contractors. The companies argue that such a reclassification would mean higher expenditures and a transformation of their business models to the detriment of drivers.

In turn, drivers are split: They either prefer to work under these rideshare companies’ current arrangement with its workers, or they feel as if they are treated unfairly by the likes of Uber and Lyft.

AB 5 aims to protect gig workers

Assembly Bill 5 was signed into law in September 2019 with the goal to protect and ensure contract or gig workers by classifying them as employees. This classification, which affects many industries including meal delivery services and rideshare companies, mandates a minimum wage, benefits, scheduled breaks, paid sick and family leave, and health insurance.

AB 5 came into effect January 1, 2020 and since then, Uber and Lyft have vigorously opposed the law. Both companies argue they are technology platforms with minimum engagement between drivers and riders; their logic dictates drivers are not at the core of their businesses. Uber and Lyft classify their drivers as independent contractors who are responsible for their own vehicles and their maintenance, and therefore these workers are not entitled to benefits such as overtime pay and insurance.  

Rethinking business models for both profit and drivers

With a franchise model in place, Uber would revert to a system of fleet operations. This means franchising its technologies to smaller organizations who would hire and be responsible for drivers. Uber is already conducting such an approach with its operations in Germany and Spain.

The result would be less monitoring and regulations that would affect the relationship between drivers and rideshare companies. Of course, there would be several outcomes of this new business model, starting with increased fares and costs for consumers.

Uncertainty for drivers lies ahead

With COVID-19 restrictions slowly lifting, it’s difficult to estimate how quickly ridership will increase or whether Uber and Lyft drivers will even return. Where does this leave drivers? With their new employee status, drivers may not have the flexibility to choose when they would want to work. And with additional COVID-19 layoffs underway, more potential drivers could end up relying on gigs through working for Uber or Lyft.

Uneven periods of employment and flexibility once sufficed for drivers, but now many of them are rethinking their participation in the gig economy as it becomes less remunerative. In August, drivers’ collective groups including Gig Workers Rising, Rideshare Drivers United and We Drivers Progress organized a rally in support of gaining the employee status to which they are entitled under AB 5.

Would such a shift in the gig economy actually increase the number of Uber or Lyft drivers? Or would the outcome deter current drivers from working within the gig economy?

In the meantime, Uber, Lyft, and food delivery services such as DoorDash and Postmates have teamed up to campaign for Proposition 22, which would allow these companies to continue classifying its drivers as independent contractors. If this law passes, drivers would become employees only under three conditions: companies actually schedule drivers’ hours, they require the acceptance of specific ride and delivery requests, or a company restricts drivers from working for other organizations.

In supporting this ballot initiative, Uber and Lyft are arguing that its drivers prefer their status as independent contractors. In November, California voters will vote yes or no on Prop 22 – time will tell how drivers will respond.

Image credit: Peter Fazekas/Pexels