Uber and Lyft Down as AB5 Becomes Law in California

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Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) are trading down today as California passes AB5 which is considered a direct assault on the 2 ride-hailing companies. You can read some of our previous coverage here. In response to this legislation, Uber has fabricated the bold movement to state that it does not consider the passage of this bill as textile to its business because they are primarily a "digital market place" and that drivers are non a regular part of its business concern. The two companies are likely on a similar folio here as Uber is contending that information technology is not technically a ride-hailing company only rather, information technology is providing a connection service to drivers and passengers that is assuasive them to connect together using the services that the companies are providing. Drivers and passengers are free to decline rides if they want and both can accept rides they concord to. In this way, the drivers are as well customers of the matchmaking service every bit well.

The Current Arguments

On the other hand, opponents merits the argument being put along is preposterous. "Uber and other gig economic system companies are thumbing their nose at the law and refusing to do information technology," Shannon Liss-Riordan, a prominent gig workers' rights lawyer, said. "So nosotros are asking the court to immediately require these companies to reclassify their drivers." She already is at the head of a class-action lawsuit claiming that that the company had failed to pay its California drivers minimum wage. She has also stated that the idea Uber wasn't in the driving business "strains credulity."

According to Rebecca Givan, a Rutgers Academy labor relations professor, the ii firms are making, "…the claim – which is preposterous – that they're more than like Craigslist…" However, she goes on to contend, "…they fix the prices, what car you can use, all kinds of things. They're non more like Craigslist; they're an employer."

The State of California has besides estimated that information technology is losing as much as $vii billion dollars in revenue to gig employees and other contract workers each year. The State of California released the following, "The misclassification of workers as contained contractors creates an unfair playing field for responsible employers who honor their lawful obligations to their employees. The misclassification of workers results in a loss of payroll tax revenue to the State, estimated at $seven billion per year, and increased reliance on the public rubber internet by workers who are denied access to work-based protections."

Uber released the following statement in response, "What AB5 does exercise is adequately straightforward: it inserts into the California labor code a new legal test that must exist used when determining whether a worker is classified as an independent contractor or an employee. And that legal examination is already the law of the state since the California Supreme Court handed down its conclusion in Dynamex over a year ago. That legal test, chosen the "ABC test," certainly sets a higher bar for companies to demonstrate that independent workers are indeed independent. Nether that three-part exam, arguably the highest bar is that a visitor must evidence that contractors are doing work "exterior the usual course" of its business.

But simply because the exam is difficult does non mean we volition not be able to pass it. In fact, several previous rulings accept institute that drivers' piece of work is outside the usual course of Uber'due south concern, which is serving as a technology platform for several different types of digital marketplaces. Notably, AB5 actually limits the Supreme Courtroom ruling in Dynamex because, due to eleventh-hour amendments to the bill, many industries are now exempt from the new ABC test that AB5 will formulate into state law."

What Should These Companies Exercise?

Now, I am neither a professor, nor a lawyer, but I don't think just declaring that someone is an employee makes it so. However, Rebecca makes an important betoken that at that place are a variety of rules that the ii companies have put in place to ensure that there is a minimum standard of quality on the part of the drivers using its service as part of its terms and conditions. But does having certain terms and atmospheric condition such as requiring a certain age of vehicle and accepting a particular rate brand the drivers employees?

Based on the arguments from labor relations leaders and the lawyers bringing forth the lawsuits I would speculate that Uber and Lyft could brand some changes that would limit the impact of the law by granting additional autonomy to the drivers signing upward for the service. Ane change might be simply a matter of granting drivers the ability to set their own rates while Uber and Lyft accept a flat fee or a percentage of the rate equally compensation for match-making. It could go further and allow passengers the ability to offer a charge per unit to receive service and generate the ability of both parties to provide offers and counteroffers. That could theoretically solve i of the issues every bit detailed past parties declaring the drivers are employees. The companies could also begin to take a more hands-off approach and instead develop boosted rating tools to ensure customer and driver satisfaction.

In the meantime, while the argument from Uber may not end up winning in court over the long run the wheels of justice tend to plow very slowly which will likely requite both of these companies an extended period of time to react and search for creative solutions around the enactment of this law and to also motility in the direction of profits, since currently both companies are operating at a loss already.