Uber, Lyft Spending Big to Fight Californian Gig Economy Laws

Matt Posky
by Matt Posky
California’s Proposition 22 is a torpedo launched by the SS Gig Economy and will undoubtedly sink Assembly Bill 5 (AB5) if the measure passes this November. The proposal seeks to flip new laws (instituted in January) that prohibit companies from erroneously categorizing employees as independent contractors, forcing them to adhere to minimum wage laws — while likewise offering paid overtime, unemployment insurance, worker’s comp, and other obligatory benefits under the state’s regulatory guidelines. Critics have faulted numerous employers (sometimes whole industries) for abusing staff by falsely labeling them as contractors in a bid to save money. Ride-hailing platforms, like Lyft and Uber, are said to be among the worst offenders and have certainly offered the greatest push back against AB5.Proponents of Prop 22 frequently cite the enhanced freedom that comes with the gig lifestyle. Contractors are not forced to work more hours than they want to and are likewise not beholden to their employers (or vice versa). While everyone from publishers to delivery agencies are eager to push that narrative as a positive, nobody is spending as much as Uber and Lyft to undermine the public’s opinion of the proposal. Combined, they’re dropping over $100 million to see that Prop 22 passes. Because the alternative will be far more costly for the on-demand ride-sharing businesses.Unlike most articles on the subject, we’re not here to take a side. Assembly Bill 5 closed tons of loopholes allowing companies to act in a predatory manner in regard to how they treated staffers that really should have been deemed full-time employees. But it also nukes burgeoning industries that seem entirely dependent upon operating in this way. At a minimum, independent contractors are supposed to be able to negotiate their own rates and have direct access to customers under AB5. But neither Lyft or Uber can stomach these regulations, and have not been adhering to them.They might not even be able to survive them from a financial perspective — leading to them rallying with like-minded businesses to advance Proposition 22. If it passes, then rideshare and delivery drivers will be eligible for classification as independent contractors. While this offers a higher level of freedom for both “employee” and employer, it’s likely to deny those working 40-plus hours a week payment and benefits they would have otherwise been eligible for. Assuming the companies survive, that is.According to Reuters, Uber and Lyft would be subjected to at least $392 million in annual payroll taxes and workers’ compensation costs if they adhered to AB5 and “drastically” reduced their existing staff. With the above fee in mind, it’s no wonder Mercury News reported the duo are spending an estimated $181 million to run ads praising Prop 22 and advance studies alleging “80 percent of drivers work only a few hours a week” and overwhelmingly support maintaining their contractor status.By contrast, UC Santa Cruz and UCLA surveyed drivers only to learn that the majority work over 35 hours a week. A little over half also said they’d prefer to be paid hourly with the associated benefits of a full-time employee. This tracks fairly close with our own, less scientific, study of just asking every driver we’ve ever gotten into a car with. There’s no real consensus among Uber/Lyft drivers, with most working pretty close to full time.Unfortunately, their desire to receive fairer treatment doesn’t mesh with the bottom line of either corporation. Let’s not forget that, despite their multi-billion-dollar stock valuations, neither Lyft nor Uber are profitable companies.From Reuters:Using a recently published Cornell University driver pay study in Seattle as a basis, Reuters calculated that each full-time driver would cost the company, on average, an additional $7,700. That includes roughly $4,560 in annual employer-based California and federal payroll taxes and some $3,140 in annual workers’ compensation insurance, which is mandated in California.The companies say they would need to significantly hike prices to offset at least some of those additional costs, which in turn would likely cause a decrease in consumer demand, but cushion the blow of the added costs to the bottom line.Uber and Lyft have also said they could abandon the California market — an economy that would rank fifth in the world if the state were a sovereign nation. Other U.S. states have said they plan to follow California’s lead and pass similar laws.Looking at things from a national level, the Trump administration has said very little about how to handle the gig economy. Companies relying on it have undoubtedly helped encourage the U.S. impressively low unemployment rates ahead of the pandemic but the quality of those jobs is sometimes questioned. Conservatives also seem broadly (though hardly universally) concerned that aggressive regulations regarding contractors may hurt states by frightening away employers and create massive holes in the job market. Meanwhile, U.S. Democratic presidential candidate Joe Biden and his running mate, Senator Kamala Harris, have been quite supportive of Assembly Bill 5 while directly opposing Prop 22.[Image: Jonathan Weiss/Shutterstock]
Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Jkross22 Jkross22 on Oct 06, 2020

    This issue is a good representation on how our tax laws are garbage. Our bought government reps create legislation that helps their benefactors (public employee unions in this case) and hurts everyone else outside of that group. The reason there's a prop 22 is because of AB5 picking winners and losers in how the Republic of California identifies who's a 'gig worker' and who's not. Prop 22 is a deep pockets interest to get 'golden child' exemptions from AB5 like how the entertainment industry got them. Any guesses on how the entertainment industry got the exemptions? As usual, the debate on the core issue is being avoided. AB5 created the mess we're now debating, but rather than throw out the morons that voted for it, we're debating who should not be hurt by it. BTW, look who wrote AB5 - it's the same person who attacked school choice in CA because her benefactors - the school teacher public employee union - didn't want parents to pick schools out of their districts because it would hurt the rep of the teacher's union by highlighting failing schools. See a pattern?

  • Funky D Funky D on Oct 06, 2020

    This article: "Unlike most articles on the subject, we’re not here to take a side." Also this article: "... prohibit companies from erroneously categorizing employees as independent contractors ..." "... Ride-hailing platforms, like Lyft and Uber, are said to be among the worst offenders ... " "... allowing companies to act in a predatory manner in regard to how they treated staffers that really should have been deemed full-time employees." This is Jim Acosta/CNN level of "journalism". You took a side, just admit it. (I'm not necessarily disagreeing with the side he's taken, but he needs to be honest about his opinion.)

  • Wjtinfwb Funny. When EV's were bursting onto the scene; Tesla's, Volt's, Leaf's pure EV was all the rage and Hybrids were derided because they still used a gas engine to make them, ahem; usable. Even Volt's were later derided when it was revealed that the Volt's gas engine was actually connected to the wheels, not just a generator. Now, Hybrids are warmly welcomed into the Electric fraternity by virtue of being "electrified". If a change in definition is what it takes, I'm all for it. Hybrid's make so much sense in most American's usage patterns and if needed you can drive one cross-country essentially non-stop. Glad to see Hybrid's getting the love.
  • 3-On-The-Tree We also had a 1973 IH Scout that we rebuilt the engine in and it had dual glass packs, real loud. I miss those days.
  • 3-On-The-Tree Jeff thanks. Back in 1990 we had a 1964 Dodge D100 with a slant six with a 3 on the tree. I taught myself how to drive a standard in that truck. It was my one of many journeys into Mopar land. Had a 1973 Plymouth duster with a slant six and a 1974 Dodge Dart Custom with 318 V8. Great cars and easy to work on.
  • Akear What is GM good at?You led Mary............................................What a disgrace!
  • Randy in rocklin I have a 87 bot new with 200k miles and 3 head gasket jobs and bot another 87 turbo 5 speed with 70k miles and new head gaskets. They cost around 4k to do these days.
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