From Contractor to Employee: California Ruling Poised to 'Decimate' Uber, Lyft

An April ruling from the California Supreme Court determined that most contract workers, including those partnered with ride-hailing companies like Uber and Lyft, could actually qualify as employees under the state’s wage laws.

While that’s great in an era when wages can’t seem to match the constantly ascending cost of living and companies are cutting corners to maximize profits, it’s not so great for outfits that depend on contract workers to exist — like the aforementioned ride-hailing firms.

Uber and Lyft managed to balloon their revenues far beyond the billion-dollar mark, but neither company is currently profitable. Despite taking a cut of every single fare, expenses still result in a net loss for the companies during most rides. Assuming California forces them to tack on employee benefits and all the associated trimmings, both businesses could be in for a world of hurt.

Obviously, neither outfit is particularly thrilled with the idea, so they’re lobbying California Democrats to upend the court ruling. According to Bloomberg, nine businesses dependent upon the “gig economy” drafted a joint letter on July 23rd to attempt to sway California Governor Jerry Brown’s cabinet, presumed successor Gavin Newsom, and members of the state legislature.

“The magnitude of this issue requires urgent leadership,” reads the letter, suggesting the move risks “stifling innovation and threatening the livelihoods of millions of working Californians.” Co-signed by Uber Technologies, Lyft, Instacart, DoorDash, Postmates, TaskRabbit, Square, Total System Services, and Handy Technologies, the note warns that, without political intervention, the court decision will ultimately “decimate businesses.”

“If you have a business model that doesn’t lend itself to the strict structure that an employer-employee relationship dictates,” said California Chamber of Commerce president and CEO Allan Zaremberg, “[The ruling] puts you in a situation that it’s almost impossible to continue your business model … People depend very much now on an on-demand economy. In the worst-case scenario, it isn’t a viable business model anymore.”

How dire of a situation it would be for these businesses depends on on their individual business model. Still, some will have it worse than others. Uber and Lyft could simply elevate pricing to cope with new expenses. However, higher fares could result in customers leaving the platform or using it less frequently. While we don’t know the complete financial burden associated with the employment status change, California state laws entitle employees to a guaranteed minimum wage, overtime pay, protection from sexual harassment, payroll tax contributions from employers, and the chance to win collective bargaining. It sounds expensive. Considering the lobbying effort being made, it likely is.

However, labor advocates are fine with the court’s decision, claiming it as a victory for workers’ rights.

“These companies continue to have choices about their business model,” union leaders from California’s building trades, Teamsters union affiliates, and AFL-CIO chapter told Governor Brown and legislative leaders in their own letter. “They can convert workers to employees and retain control over their work rules and their rates. Or they can contract with true independent contractors. The only thing they can’t do after [the April ruling] is have their cake and eat it too.”

[Image: Jason Tester Guerrilla Futures/ Flickr ( CC BY-ND 2.0)]