AB5 threatens the existence of gig companies like Uber & Lyft

Yesterday, Gizmodo reported that AB5, a bill that is aimed to force gig companies to treat their workers as employees instead of independent contractors as they are now, passed California’s Senate Appropriations Committee and will go to a full vote in the Senate next month. If passed, it is expected to be signed into law by the Governor.

AB5 stems from a decision by a California Supreme Court decision in 2018, which essentially decrees that “Workers must be treated as employees, not independent contractors, if their jobs are central to a company’s core business or if the bosses direct the way the work is done.”, according to LA Times. According to the ruling, ride-hailing businesses cannot exist without drivers and drivers have to follow certain standards to be able to operate on their platforms. Hence, they should be treated as employees.

Ride-sharing companies exist as middlemen between riders and drivers, managing the supply of drivers and demand for rides. Drivers no longer have to drive around to pick up riders. Surge pricing gives drivers incentives to go out at unpopular hours like early in the morning. The argument that these companies make against AB5 is that drivers have flexibility to choose when and where to work, and as a result, shouldn’t be classified as employees. Well, even as employees, drivers can surely negotiate with Uber or Lyft that right. One of my colleagues moved from Omaha to Austin to work remotely so that she can be with her husband. What is at stake here is the bottom lines.

Gig companies like Uber or Lyft haven’t made any money despite treating their workers as independent contractors. If the proposal is signed into law, it will mean higher operational costs as these companies will need to pay minimum wages and be responsible for other benefits to their employees. Any chance of profitability will become even slimmer.

To be fair to Uber and Lyft, what they have done so far is perfectly legal as up to now there is no law that regulates the industry. They just take advantage of the situation and the bargaining power that they have over drivers. On the driver side, each cannot fight with these companies. They need lawmakers.

Regarding lawmakers, they have reasons to help both drivers and ride-sharing companies, especially in the US. Regulators that are more concerned about the well-being of drivers, their constituents as well, will support proposals such as AB5. Those who are more concerned about the power of lobbyists and about staying in power will fight against AB5. Since California is a progressive state, there seems to be more proponents than opponents of AB5. I am not sure the same can be said in other less progressive states or the federal administration.

Neither am I sure that collectively laws such as AB5 will benefit our society, but personally I am for it. Drivers should be protected against the abuse of these gig companies. Eventually, it has been proven that there is demand for services such as Uber or Lyft. I am confident there will be startups wanting to tap into the demand. As for Uber or Lyft, they will either adapt and innovate to survive and thrive or fall into the category of “thanks for being the trailblazers, but perhaps your time is up” companies.

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