California has just dropped a bomb on the gig economy - what's the next step?

California has just seriously injured the gig economy.


But Assembly Bill 5, the California bill that was approved by the Senate on September 10, is just the start of a long battle over the relationship between gig companies like Uber and Lyft and the drivers they employ. Although it is likely to become law – it still needs its amendments to approve the Assembly, but as soon as it reaches Governor Gavin Newsom's office, he will sign it – the real fight is next.

Uber and Lyft will try to stop the bleeding by doing what they are good at: spending obscene money. The companies say they will fund a voting initiative in 2020 to ask voters to approve the creation of a new category for row-hail riders. Enforcement of the law will create a series of obstacles for state supervisors. And drivers will still face serious obstacles before they can reach their ultimate goal: the formation of an independent trade union.

Yet it is a stunning blow for Uber and Lyft, especially in view of their previous success in manipulating states to pass laws that strengthen their ability to classify employees as contractors. In the past five years, lobbyists who have ties with Uber and other gig economy companies have convinced lawmakers in more than two dozen states to pass laws that classify drivers as contractors.

But that was when Uber and Lyft were at their peak, flushed with cash and harboring a wave of optimism about Silicon Valley's ability to change the world. Since then, the perceptions have shifted. Now Uber is known as an unethical company of technical brokers who mistreat drivers, as well as their own employees. Since Uber and Lyft entered the stock market, both Uber and Lyft have seen their stock prices fall as they struggle to convince investors that they can stop burning so much money in incentives for drivers and riders, and ultimately make a profit. The amount of money they lose may already be untenable, experts say – and that is before they get rid of extra money for employees.

AB5 anchors in California the so-called "ABC test" to determine whether someone is a contractor or employee. A form of an ABC test is already law in many states, including Massachusetts, Virginia and New Jersey. In those states, Uber and Lyft drivers should be considered employees, but the companies have virtually all private enforcement concluded through forced arbitration agreements, said Catherine Ruckelshaus, general adviser to the National Employment Law Project.

"If there is no enforcement," Ruckelshaus said, "this will not fundamentally change these business structures."


The battle for the gig work could quickly spread to other states. New York governor Andrew Cuomo recently told reporters that the California proposal has triggered his & # 39; competitive juices & # 39; and expressed interest in seeing a proposal in its own state that removes more employees from the status of independent contractor according to Crain.

He will also have help. A coalition of progressive groups and trade unions meet in the Empire State to develop a new standard for workers in the gig economy. "These workers are being exploited every day," Alison Hirsh, the political director of 32BJ, one of the coalition members, told Politics. “They are treated incredibly badly. Their income is not reliable. Their health and welfare standards are incredibly low. They are in the whim of these companies that dictate the conditions of their work. "This type of coalition was crucial for AB5 to succeed in California; a similar effort seems anything but inevitable in New York.

Photo by James Bareham / The Verge

Proponents say Uber and Lyft must fight hard if they can't find a way to set up an important opposition.

"A domino effect is not only possible, it is anything but guaranteed," said Bradley Tusk, an early Uber investor and advisor, and president of Tusk Ventures, a venture capital and political strategy firm. “And if the sharing economy companies tell the story of & # 39; malignant Silicon Valley powerhouse versus employees & # 39; cannot radically reformulate into & # 39; what this actually means for employees and consumers versus groups who want to take advantage of the changes, & # 39;

Uber and Lyft are already under great pressure in the largest market, New York City. The city has recently adopted rules setting a minimum wage for drivers, which means they also spend less time on the street looking for rates. It has also re-introduced its moratorium on new vehicle rental licenses, meaning that Uber and Lyft are limited to their existing fleet sizes. However, this is not the case for other employees in the gig economy.

After the New York City taxi and limousine commission had approved the new wage rates, ride-hail companies began to limit the times that drivers could log in and reduce premium-based reward premiums. TLC officials testified this week the vehicle ceiling and wage rules have not significantly affected the waiting times for drivers. This could give some idea of ​​how companies will adapt to new regulations in other states: fewer drivers on the road, higher rates, but more or less the same service level.

Fighting a bicoastal war can be untenable for the unprofitable ride-raising companies. Uber and Lyft have already said that they will spend together $ 60 million on the ballot in California. They see this as a necessary cost to maintain their business model and save even higher costs along the way. Experts estimate that a workforce of companies costs companies 20 to 30 percent more then a workforce of contractors – which translates into hundreds of millions of dollars per year to Uber and Lyft.


Uber is already in a cost cutting phase, a phase that could accelerate given the outcome of AB5. The company has made more than 800 employees redundant in the engineering, product and marketing departments in recent months. Rising prices can help compensate for these costs, but Uber and Lyft can make less inviting options for riders.

Drivers are still facing a difficult road. They are bound by arbitration clauses that force them to record their complaints about labor and employment behind closed doors and forbid them from taking part in class action lawsuits. Federal preference rules prevent drivers and other workers from forming a trade union in a gig economy, because they are still considered as contractors under federal law.

AB5 can be a turning point. The experience of driving for a driving hail app, or even as a customer looking for transportation, seems to change forever. The era of cheap journeys in cities, supported by huge risk capital subsidies, was perhaps too good to last.

Or maybe it was never so good to start with. Uber and Lyft have decimated the yellow taxi industry, as a result of which prices for medallions plummeted and many drivers were deeply in debt. Some drivers were so desperate that they took their own life. Meanwhile, traffic congestion in cities increased, many of them due to the popularity of ride hailing. The kickback against technology companies such as Uber and Lyft seems in line with similar calculations for Apple, Facebook, Amazon and Google.

"AB5 runs on two waves: a long-term effort to restore workplace protection for mis-classified employees, and it is on the heels of the techlash," said Alex Rosenblat, a technology ethnographer and author of Uberland: How algorithms rewrite work rules.


Rosenblat claims that although the law in California is more than just Uber and Lyft, these drivers became the face of all employees exploited by giant technology companies. "That is why AB5 is a symbolic and remarkable shift to responsibility, in work and in technology," she said.

Drivers are still faced with enormous obstacles. If they try to negotiate their wages collectively, they may walk out the door antitrust laws that prohibit price fixing between small, independent companies. "There are opportunities for California to subsequently adopt more aggressive pro-labor laws that allow workers in a gig economy to unite," said Rosenblat, "suggesting that AB5 is the first step in an ongoing struggle over the future of employees."