Uber and Lyft are pulling out all the stops against a bill in California that could turn drivers from independent contractors into employees overnight. AB5, as its known, passed the state Assembly a few weeks ago and is now headed for a hearing at its first policy committee in the state Senate. It aims to codify a California Supreme Court decision (known as the Dynamex Case) from 2018 that would instruct businesses to use an ‘ABC test’ to determine whether workers are independent contractors or employees. And as you’ll see below, Uber and Lyft FAIL this test with flying colors.
This bill is no joke since it could set precedent in other states and if drivers were to become employees, it would cost the companies a ton of money. We don’t know exactly what life would look like for rideshare drivers if we were to become employees, but it’s clear that Uber and Lyft see this as an existential threat to their business.
Last week, Uber’s CEO Dara Khosrowshahi teamed up with Lyft co-founders John Zimmer and Logan Green to pen an op-ed in the San Francisco Chronicle urging for a compromise that would allow drivers to remain independent contractors – I can only imagine how many revisions went back and forth between their respective handlers.
The Potential Impact of AB5
If you haven’t read the text of the bill yet, I suggest you go take a look at it on the site of the California Legislature. I like to think that my audience is pretty thorough, so if you really do care about this issue, go read it – it will take less than 5 minutes. There’s a bit of legalese, but I also found the latest Bill Analysis (5-24-19) to be helpful.
Basically, the bill is trying to codify a California Supreme Court decision from 2018 called The Dynamex Case. From The Verge,
The California Supreme Court ruled on Monday in favor of workers for a document delivery company called Dynamex Operations West that were seeking employment status. The drivers for the delivery service first brought their case over a decade ago, arguing that they were required to wear the company’s uniform and display its logo, while providing their own vehicles and shouldering all the costs associated with the deliveries.
As part of this decision, the CA Supreme Court also laid out an ‘ABC Test’ to help businesses determine whether workers are employees or independent contractors.
The ABC Test
To hire an independent contractor, businesses must prove the following (my take is below in italics):
- (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact.
- Uber and Lyft set the rates, deactivate you if you fall below a 4.6 star rating and have lowered rates over the past 5 years and replaced them with Quest bonuses that tell you when and where you have to drive. I would say they fail this one.
- (B) that the worker performs work that is outside the usual course of the hiring entity’s business
- Uber and Lyft’s business is to get passengers from Point A to Point B like a taxi and drivers are the ones who get riders from Point A to Point B, so I would say they also fail this one.
- (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
- Around 22% of drivers work more than 40 hours a week for Uber and Lyft so this might be one that they’re sort of ok on.
In order to hire an independent contractor, you must meet all of the requirements in the ABC test, so you can see that Uber and Lyft would fail this test pretty easily. So if AB5 passes in its current form, it’s a good bet that Uber and Lyft would have to designate all of their drivers in California as employees instead of independent contractors.
That would mean they would have to abide by minimum wage laws, pay into unemployment, provide benefits and more.
What Uber and Lyft Are Doing to Stop AB5
Last week, Uber and Lyft sent out e-mails and in app notifications to drivers in California asking for their support. Yes, just a couple months after cutting driver rates in LA, a move that spurred nationwide protests, Uber is now asking drivers for their help. The irony is astonishing. From Uber:
Recent changes to California law could threaten your access to flexible work with Uber. Unless lawmakers take action now to modernize the law, you could lose your ability to work with multiple apps and control when and where you drive.
After years of Uber double speak, it’s important to take anything the company says at this point, with a
grain tablespoon of salt. This is the same company that once told drivers your earnings will go up after a rate cut before their own study later disproved it. And while the wording sounds ominous for drivers, it’s not really what AB5 is saying – remember, you read it. If AB5 is passed, the law would require drivers to be treated as employees, but it would be up to Uber to decide whether you can work with other apps and deal with the scheduling issues.
Would Employee Drivers Lose Their Flexibility?
One of the key arguments that Uber and Lyft are making against the switch to employees is that drivers would lose their flexibility, but as many labor experts have pointed out, there’s nothing in the law that says employees can’t have a flexible schedule. But we also live in reality where I can’t think of a single job that comes anywhere close to the flexibility of driving for Uber and Lyft.
I think it would be more fair to say that the business model could drastically shift but even then, we don’t know what it would be like if drivers were to become employees. There are a lot of unknowns. Would we lose some flexibility? Probably. It doesn’t take a rocket scientist to realize that if drivers were guaranteed a minimum wage, you wouldn’t be able to just flip the app on anytime from 10 am-3 pm because there would be way too many drivers and not enough rides. Here are just a few of the unintended consequences that could happen if drivers became employees:
- Drivers would get minimum wage + 57 cents per mile reimbursement (good)
- Uber and Lyft could limit drivers to no more than 40 hours per week to avoid paying time and a half for overtime (bad)
- Uber and Lyft could limit drivers to under 30 hours per week to avoid having to pay healthcare costs (bad)
- Drivers could be prevented from working for multiple apps (bad)
Should Drivers Sign This Petition?
Ultimately, I think Uber and Lyft will probably get a lot of drivers to support their side of the issue because most drivers interact only with Uber and Lyft and don’t read blogs like this one, or stay up to date on the latest rideshare industry news or even talk to other drivers. Additionally, there are a large number of immigrant and ESL drivers that may have a harder time grasping these complex issues.
Imagine you’re a driver and you open up your Lyft driver app to read:
Legislators are considering changes that could cause Lyft to limit your hours and flexibility, resulting in scheduled shifts. We’re advocating to protect your flexibility with Lyft, in addition to establishing an earnings minimum, offering protections and benefits, and giving drivers representation so you have a voice in the company.
Yikes, that sounds bad! But as mentioned above, it’s not what AB5 is saying. Personally, I won’t be supporting either of these petitions because I think Uber and Lyft are not offering drivers enough. They are clearly scared of AB5 so let’s take a look at what they’ve offered so far.
Uber and Lyft are Agreeing to Two Major Concessions
In their joint op-ed, Uber and Lyft made it clear that they do not want to see drivers become employees so instead, they’re willing to give drivers a minimum wage and form an organization that would advocate on driver’s behalves IF legislators allow drivers to remain independent contractors.
I like both of these concessions and I think a minimum pay requirement based on utilization (like what we saw in NYC) would be a good thing for drivers since it would ensure a pay floor for drivers and that Uber/Lyft wouldn’t be able to flood the streets with drivers. The initial results of the NYC rules look promising too, with many drivers reporting to me that they are earning more, especially with their Ibotta promo code. And a recent Buzzfeed analysis of TLC data indicated that drivers are now earning $16.33 per trip vs $14.22 before the minimum pay requirement was instituted.
And again similar to NYC’s Independent Drivers Guild, I think an organization that is independent from Uber and Lyft and represented drivers would be a good thing. The IDG in New York has advocated on behalf of drivers for all the issues they care about: higher pay, lower commissions, benefits, etc (I’m on their e-mail list) and they are getting things done in NYC.
Do Drivers Want to Be Employees or ICs?
I think it’s pretty clear that most drivers want to be independent contractors since a majority of us are driving 10-20 hours a week or less. We’ve also polled drivers directly about their preference and found an overwhelming number of drivers want to remain an IC. Here’s a chart from our most recent survey of over 1,100 drivers in 2018:
Where it gets tricky though is that many of these same drivers who want to be ICs don’t feel that they’re actually independent. Uber and Lyft control nearly every aspect of the job and when you look at pay, the one thing drivers care most about, the companies have lowered rates consistently over the past five years and take up to a 60-70% commission on certain rides.
And if you’re a full-time driver, putting in 30-40 hours a week or more, it’s even worse. You’re already working like an employee but without any of the benefits or worker protections. These are the types of drivers I met at the recent LA protest and the ones typically in favor of becoming employees. And I totally get their frustrations – even though they only make up 10-20% of the total number of drivers, they actually provide close to 50% of the total rides on the platform.
So ultimately, if the choice is between IC or employee, you’re going to piss off one group or the other. I’m not sure there’s any way to get around that unless there was some sort of compromise – and that’s one thing I haven’t seen Uber/Lyft or legislators/labor leaders talk about.
Uber and Lyft love to talk about how drivers would lose their flexibility if AB5 was passed, but what about the full-time drivers who don’t have any flexibility right now and are doing half the trips on the platform? And for labor leaders/legislators, why do they refuse to acknowledge that more worker protections for full-time drivers will come at a cost for all the part-time drivers out there? You know – the ones who make up an overwhelming majority of the total workforce.
Here’s What Should Happen
I don’t think there’s any way Uber and Lyft will allow AB5 to pass in its current form since we’ve already seen them take extraordinary measures in the form of a triple op-ed, galvanizing support from drivers and a whole lot of lobbying behind the scenes. So far, they’ve agreed to offer drivers in California a minimum wage and form a driver organization, but that’s not going to be enough. Uber and Lyft have been screwing over drivers for too long and now is the perfect time to get what we want.
Unlike Uber and Lyft, I don’t think drivers becoming employees would ruin rideshare, but I do believe it would do more harm than good. Ultimately, you’re never going to get all drivers to agree on the employee vs IC issue but I do think there are some things we all care about. Minimum wage and a driver organization are a great first step, but here’s what else ‘labor’ should be asking Uber and Lyft for:
- Higher Pay: All of the top issues drivers complain to me about revolve around pay so let’s find a way to increase the pay.
- Option 1: Pay drivers 70% of taxi rates. Here in LA, taxi drivers get a $2.85 base fare + $2.70 per mile and 49 cents per minute. By comparison, Uber pays a measly 60 cents per mile and 21 cents per minute! At 70% of taxi rates, Uber would still be much cheaper than taxis yet it would pay drivers more and establish a framework that other cities/states could follow.
- Option 2: Give drivers the right to set their own pay. Uber and Lyft should be free to set suggested rates but if drivers want to work for more or less than that amount, they should be able to do that. That seems like a true independent contractor to me and it’s not hard to do either – Sidecar, the company that invented rideshare had this feature from day one and it was popular with drivers.
- Limit Uber and Lyft’s commission to 25%: Uber and Lyft deserve to make money off every ride, but I’m tired of all the upfront pricing BS and I know drivers are too. Uber and Lyft should never be allowed to take more than 25% of a fare when drivers are the ones doing all the work.
- See where riders are going: As a true independent contractor, you should know where the rider is going before you accept a job. If that means that no one picks up riders who are going a short distance, Uber and Lyft need to raise the prices of those rides – it’s simple supply and demand. Or send the rider on a scooter.
AB5 is far from becoming a law but it’s clear that there are a lot of people vying for self-preservation and my worry is that the opinion of a majority of drivers is going to be left out. So share what you think below in the comments and if you’re in California, don’t hesitate to reach out directly to Assemblywoman Gonzalez’s office (her office tells me that they are reading your e-mails) or on Twitter . Uber and Lyft have made their first offer and now it’s time for drivers to counter.
Frequently Asked Questions About AB5
How Will AB5 Affect Other States?
So while we know that the passing of this bill will directly affect Californians, this doesn’t mean that drivers in other states won’t be affected in the future as well.
Today, the passing of AB5 doesn’t mean a whole lot for drivers. They’re still going to be able to go out and drive day to day, but there will be tradeoffs. To be honest, we’re not 100% sure what that will look like but it’s safe to say you won’t lose all your flexibility like Uber and Lyft are claiming.
This bill is important for drivers everywhere to pay attention to because other states are looking into similar legislation (which could be even scarier for Uber and Lyft). If this passes in California (likely) others states will likely pick it up as well.
Would Drivers Rather Be Employees or Independent Contractors?
Harry asked two really important questions to drivers as part of the RSG annual survey to see if they’d prefer to be classified as employees or independent contractors.
- 15.8% of drivers want to be employees
- 65.7% want to be independent contractors
- 18.5% aren’t sure
This makes sense since most driver like not having a boss and being able to drive when it’s convenient for them. The big caveat is that in reality, driving for Uber and Lyft is a lot less independent than it used to be.
Does the Bill Give California Cities the Ability to Sue These Companies?
This was one of the later amendments that was added into the bill. It basically gives cities a little more power to sue Uber and Lyft if they’re not complying but it’s clear how stubborn Uber and Lyft are and how bad they don’t want this to pass. It can also be a hassle trying to regulate all of this.
Drivers Can Use All the Tools of the App to Maximize My Earnings?
If you’re part of the Rideshare Guy community, you should be using the strategies we share to out-earn the average driver, like surge-only driving.
It pays to be in the know and take advantage of these tips and tools we talk about to help you earn more money. There is some variability allowing you to make more with rideshare driving. If drivers became employees, it may be a lot tougher for those high-earning drivers.
Can Driver’s Offset Rate Changes and the Effects of AB5 With Other Rideshare Services?
We’ve covered other services and programs that help rideshare drivers make more money like Cargo and Firefly.
Since Lyft recently cut rates in a lot of cities, drivers should definitely consider adding other services like these to help make up the difference. You can possibly make 5% – 10% more which is not a ton but it can help offset some of the rates.
If Uber Offered Drivers $30 per Hour to Cover Expenses Would That Motivate Drivers to Oppose AB5?
Uber knows what drivers care about but have failed to deliver in many ways. One of the biggest issues is that they didn’t set the platform up to enable drivers to become a true independent contractor.
If Uber and Lyft paid higher rates, would you then be against AB5? The answer for most people is probably yes. No one was complaining about being an employee when they made more money.
A lot of AB5 supporters are preaching that ‘everything is going to be great’ – drivers can make more money and be treated as employees. This is a pretty ambitious statement as you probably won’t see huge changes overnight.
What’s Going to Happen When it Comes to Your Taxes?
AB5 is going to hurt the savviest rideshare driver. Harry has talked about how much you can deduct as an Uber or Lyft driver. You can pay a little close to $0 or a small percentage if you optimize deductions properly.
As an employee, you wouldn’t be able to make those deductions. You may get a reimbursement on mileage as an employee on tops of your minimum pay and we’ve seen this with platforms like Eaze.
There’s a lot of complexity so you can’t decide whether this is going to be 100% better or worse just yet.
Like with anything in life, there’s going to be tradeoffs and people are not talking about who stands to gain the most from becoming an employee along with who stands to gain the least. Full-time drivers have it hard because they aren’t getting PTO vacations, disability, etc. yet they’re often driving 40-60 hours per week.
Some of the part-time drivers spending 5-10 hours per week may find it better to maintain an independent contractor status.
Will AB5 Make Drivers Accept More Trips and Not Cancel?
Yes, but Lyft is already doing this in a way. Lyft’s new pay structure means drivers can start getting paid from the time they accept a trip, but the overall rate has been lowered. This encourages drivers to accept more trips although Lyft has already been shifting slightly toward an employee model but don’t want to pay the drivers more.
So as Employees, Would We Lose the $0.58 per mile Deduction?
Yes, but in California, you would get reimbursed $0.58 per mile.
A RSG contributor drove for Eaze and they already use employees as their drivers and Harry plans to start sharing more of this content in the coming weeks to preview what life would look like for drivers who are treated like employees.
Drivers, what do you think about AB5 and what do you think of the three demands I’ve laid out? Drivers setting their own rates, limiting Uber and Lyft’s commission and seeing where riders are going. Is that enough to keep you happy or would you rather become employees?
Josh Eidelson’s Twitter thread on what’s at stake
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-Harry @ RSG
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