Photo via Uber.

Last month, Gov. Gavin Newsom signed Assembly Bill 5, a controversial bill that will require employers to classify many workers as employees rather than independent contractors.

Amendments to the bill carved out exemptions for certain industries — lawyers, doctors, insurance agents, hairstylists and others. But in spite of lobbying efforts, drivers for rideshare service provider companies Uber and Lyft are not exempt.

With the governor’s signature, gig workers will now be considered employees, entitled to labor benefits and protections including unemployment insurance, health care subsidies, paid parental leave, paid rest breaks, overtime pay and a $12 minimum hourly wage.

They will also be able to unionize.

 

Hit the road

In October 2018, the California Trucking Association (CTA) and two California independent owner-operator drivers filed a lawsuit seeking relief against the original court ruling establishing the new guidelines, but a judge dismissed the challenge this year.

“I think that the immediate impact is confusion,” said Chris Shimoda, vice president of government affairs at CTA in Sacramento. “As people figure out how they’re going to move forward, I think it’s clear that the opportunity to work as independent owner-operator truckers has definitely been limited by Assembly Bill 5.”

Trucking companies that use independent owner-operators are not clear on how the new law will affect them and bring uncertainty to customers working with carriers, Shimoda said.

Even with hourly minimum wages, paid-leave and other employee benefits, Shimoda said that most truckers would rather remain independent contractors. They typically make more money, are able to work for multiple entities and have more flexibility in their schedules and the jobs they want to take, he added.

 

Fruitless fight?

With the gig companies being the loudest voice against AB 5 — Uber, Lyft and DoorDash pledged to spend a combined $90 million to bring the issue to voters in 2020 if they didn’t get exempted — the story painted was one of Silicon Valley versus blue collar workers.

“If you look at the public narrative on AB 5, it was very much about Silicon Valley tech billionaires versus workers struggling to get by. I think what was missed, because there were so many industries that were impacted, is we’re not talking about tech billionaires. We’re talking about independent truck drivers that just want to do their thing,” Shimoda said.

 

On the books

AB 5 expands on the California Supreme Court’s ruling known as the “Dynamex Decision,” which sets forth the so-called “ABC test” to determine whether a worker is an employee or an independent contractor.

To classify a worker as an independent contractor, an employer must prove that the worker is: A) free from the company’s control, B) is doing work that isn’t central to the company’s business, and C) has an independent business in that industry.

All parts of the test must be satisfied to be considered an independent employee.

California joins Massachusetts in the guidance after a federal judge in the state ruled that 100 of Dynamex Operations East LLC drivers were able to be classified as employees.

Shannon Liss-Riordan, a lawyer in Boston, filed a complaint against Uber in September after Uber General Counsel Tony West said in a statement that that the company would not reclassify its drivers ever after AB 5 goes into effect.

“I have clients who are Uber drivers who sleep in their cars because they cannot afford housing,” Liss-Riordan said, “They don’t have health care. Uber is a multi-billion dollar company. It can afford to pay its workers properly if it wants to continue its business.”

Liss-Riordan is running for a U.S. Senate seat in Massachusetts.

 

Shift into high gear

Michael Reich, a UC Berkeley professor, is an economist with a focus on labor economics and political economy. He said Uber and Lyft aren’t likely to let go of all of their drivers even if they are considered employees, as the number of drivers is what helps them keep their market share, and that they will need to shift around to remain profitable.

Reich said that most ride-share drivers are concentrated in the central and downtown areas of cities, and that 40% of the time, they are driving around without a customer, adding to traffic congestion and pollution.

With fewer drivers in the system, they will get more rides per hour, which will boost their hourly pay while meeting service demand. Reich posits that wait times will only increase by about 10 seconds.

“It’s a very inefficient system, and if there was incentive for the companies to economize on how many drivers they had, they could really use the drivers more effectively — that’s what switching them to employee status could do,” Reich said. “If it turns out that companies will have to pay for the wait time, then you will have a more efficient system.”

There is a possibility that rates for consumers could go up as demand goes up, but that the amount would be small enough to not deter potential customers.

 

Stable economy

While Reich doesn’t see a rise in wages resulting from the new legislation, he did say that a 30% increase in labor costs would come from employee benefits, not from increases in hourly wages.

Increases in employee wages lead to consumers with more purchasing power. However, though consumption of goods is high, investment in the U.S. is low, with money going abroad or to tax shelters, Reich doesn’t predict a negative effect to the overall economy.

Many Uber and Lyft drivers have expressed how they enjoy the flexibility of being a ride-share driver to supplement other goals or interests. But Reich said people who are full time drivers do most of the rides.

“The casual ones [drivers] are only accounting for a small portion of all the work,” Reich said. “To full time drivers, the flexibility isn’t as big a deal as security, the standard of living, and so forth.”