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The Gig Economy: California vs. Uber and Lyft

(Photo by: Drew Angerer/Getty Images)

Written by: Barbara Abreu
Thursday, September 3, 2020, at 11:29 PM Washington D.C.

What is the topic?

To build off the Uber topic from Tuesday’s discussion my News Talk this Friday will cover California’s reaction to the gig economy.

(Photo by: Justin Sullivan/Getty Images)

Why is it important?

It is important because it sets a precedent for the rest of the states to follow. Legislators push Lyft and Uber to acknowledge their drivers as employees. The outcome of California’s November elections on the new gig economy labor laws is important to politicians, riders, drivers, taxpayers, and investors.

If Proposition 22 is not passed Uber and Lyft will be forced to either comply with the California state law, spend millions of dollars fighting it, or stop service in the state. The following is an excerpt from Lyft’s website, which underscores the consequences disrupting its California services may have on the community.

  • Passengers would experience reduced service, especially in suburban and rural areas (Lyft Inc., 2020).
  • 80% of drivers would lose work and the rest would have scheduled shifts, and capped hourly earnings (Lyft Inc., 2020).
  • Lower-income riders trying to make it to essential jobs and medical appointments would be faced with unaffordable prices (38% of Lyft rides in California begin or end in low-income areas that have few transit options already) (Lyft Inc., 2020).

What’s going on?

According to CNBC, California threatens to ban rideshare services in the state if the companies fail to comply with the legislation. However, Uber and Lyft did not comply with the new legislation, claiming they cannot change their business model within the allowed 10 day window as passed in AB 5 (August 10, 2020). According to the Washington Post Uber and Lyft continue services in California (Siddiqui, 2020).

Driver sanitizing vehicle
Image source (Yahoo!, 2020)
  • The Covid-19 pandemic has pushed many away from traditional public forms of transportation. More people rely on services such as Uber and Lyft for their daily commute to work and other essential travel now than during pre-Covid-19 times.
  • If the California goes through with a ban on these gig economy services it would hurt people at a time they are least prepared financially to handle it.

The Gig Ecconomy

  • According to CNBC, 45% of American workers have a “side hustle” (CNBC, 2019).
  • Many of these “side hustlers” work to make ends meet (CNBC, 2019).
  • The average monthly income of these workers is $1122 (CNBC, 2019).
  • According to the Forbes article cited above, a Rideshare Guy poll of 1000 drivers shows 71% of drivers prefer to remain independent contractors, while 17% agree with the protestors in the image below and demand to be classified as employees (Goldstien, 2020).
(Photo by: Johannes Eisele/ Getty Images)

What is AB 5?

California passed a bill on August 10th, 2020, which makes it more difficult than before for Uber and Lyft to classify their employees as independent contractors. For the past year Uber and Lyft investors have been following the legislative action from California as it could have impacts on the companies performance on a national scale. New York is another state filing similar legislation.

  • Requires some contract workers to be classified as employees (CNBC, 2020).
  • Some occupations exempt (CNBC, 2020).
  • Not exempt: truckers, journalists, rideshare and delivery drivers (CNBC, 2020).

What is Proposition 22?

Proposition 22 is on California’s November ballot. Proposition 22 is essentially the middle ground for California and Uber and Lyft. It will protect the right of drivers to remain independent contractors. Proposition 22 will offer increased safety benefits, such as no tolerance DUI restrictions, portable benefits, and other driver oriented changes.

  • Will allow Uber and Lyft to continue services in California
  • Allows drivers to remain independent contractors while enhancing benefits

Lyft Posted the Following on Proposition 22

  • Proposition 22 would protect the ability of app-based rideshare and delivery drivers to work as independent contractors (Lyft Inc., 2020).
  • Proposition 22 establishes new customer safety provisions including:
    • Requiring all rideshare and delivery drivers take a new safety course and provide for ongoing background checks (Lyft Inc., 2020).
    • Creating a new crime for impersonating an app-based driver (Lyft Inc., 2020).
    • Suspending drivers charged with a zero-tolerance offense like DUI (Lyft Inc., 2020).
  • Proposition 22 preserves the current on-demand system that rapidly matches independent contractor drivers with customer demands and preserves the availability and affordability of app-based food and grocery delivery and rideshare services (Lyft Inc., 2020).
  • Proposition 22 provides drivers historic new benefits and protections (Lyft Inc., 2020).

What is my opinion?

There was a problem with the lack of benefits gig economy workers received due to the relaxed independent contractor regulations in some states, such as California and New York for example. However, the solution is not to force Uber and Lyft to classify their drivers as employees. According to the Washington Post most drivers (71%) don’t want to be limited by being classified as a full time employee (Siddiqui, 2020). The solution is to make sure there is regulation specific to these new gig economy workers which grant them the fair benefits they deserve.

The idea is for these companies to offer benefits to their independent contractors on their own terms. This is a much better plan than ignoring the problem by forcing the workers to fit an outdated mold. Lyft has posted the following on the new benefits it will be offering drivers:

  • See trip details before accepting a ride — on every ride (Lyft Inc., 2020).
  • Extra daily uses of Destination Mode, which can help [drivers] earn on [their] own schedule (Lyft Inc., 2020).
  • Free or discounted 24/7 Allstate roadside assistance (Lyft. Inc., 2020).
  • Discounts on auto maintenance and repairs with Openbay (Lyft, 2020).
  • Free or discounted tax services with TurboTax Self-Employed (Lyft Inc., 2020).

It is great that there has been awareness on the topic of paying drivers a fair wage. Solutions offered by Uber and Lyft include the concept of portable benefits, which allows drivers who drive for different platforms to pool driving hours to qualify for certain benefits (CNBC, 2020). Recent developments suggest that Uber and Lyft will be offering licensing deals to small ride-service businesses (Conger, 2020).

The solution Uber and Lyft propose with their franchising idea offers investors insight to what the future could look like for the sharing economy. I predict it is one with more small businesses than we currently have.

What are some Original Sources?

NEW YORK, NY – DECEMBER 04: Uber CEO Dara Khosrowshahi speaks at a meeting of the Economic Club of New York in Manhattan on December 4, 2019 in New York City. The ride hailing company is facing a crisis as legislators in both the United States and United Kingdom criticize its treatment of drivers. The caption above was excerpted from Forbes article, Will Lyft And Uber Leave California Over State’s Anti-Independent Contractor Law AB5? by Michael Goldstein (2020). (Photo by Scott Heins/Getty Images).

The following clips by CNBC and Yahoo! respectively, help sum up the key points of the issue. 

Clip 1: CNBC Uber Lyft have the upper and in gig workers dispute.

Clip 2: NYU Professor not all Uber drivers will welcome CA legislation

Clip 3: Yahoo! Uber and Lyft stay in California for now

What’s the connection to Global Corporate Citizenship?

According to the Syllabus, MGMT-201-002 teaches us that the “management of the complex business environment requires an understanding of the integration of corporate citizenship issues (ethical, social, and political) into business strategies” (Fall 2020 Syllabus).

The following current news event is an example of global companies facing labor regulatory pressure from current political forces in the United Kingdom and the United States. 

Also, this topic relates to the case our class read on Uber from 2013. Issues such as these that involve labor regulations can have a significant impact on a company’s profitability.

What are the facts and data?

  • Drivers value the flexibility to work whenever they want
  • California Bill pushes for harder restrictions on gig economy businesses
  • November 2020 California votes on Proposition 22, which allows Uber and Lyft to continue business in California
  • It makes it harder for Uber and Lyft to allow part-time workers
  • Not bad news for the Uber and Lyft stock prices
  • Some workers want full-time employment status
  • While a majority of workers enjoy the flexibility of logging on and off work at their leisure
  • Also, according to the same Rideshare Guy poll 50% of Uber and Lyft think there may be a temporary disruption of service in California (Goldstien, 2020).

Uber and Lyft Comparison

Uber is not as impacted as Lyft, which has a larger percentage of its market share located in California in comparison to that of Uber’s market share.

Estimates published by CNBC show that Uber’s profits could fall by 6% from $180M to $465M (CNBC 2019).

Currently, these ride share companies are not focused on generating profits. Instead they are reinvesting in the companies to better serve a greater portion of the market than they are currently serving.

What’s next?

  • A franchising model may be the move for Uber and Lyft in California
  • California will set the stage for other states, such as New York, to follow.
  • California’s AB 5 bill passed August 10th, 2020 creates uncertainty for Uber and Lyft.

Conclusion

Thank you for reading. Tomorrow, I will present the pros and cons of the new legislation on the drivers. I will conclude my presentation an overview of the impact on the riders and the two companies at large. 

Works Cited

Conger, Kate. “Uber and Lyft Consider Franchise-Like Model in California.” The New York Times, The New York Times, 18 Aug. 2020, www.nytimes.com/2020/08/18/technology/uber-lyft-franchise-california.html.

Goldstein, Michael. “Will Lyft And Uber Leave California Over State’s Anti-Independent Contractor Law AB5?” Forbes, Forbes Magazine, 19 Aug. 2020, www.forbes.com/sites/michaelgoldstein/2020/08/19/will-lyft-and-uber-bolt-california-over-states-anti-independent-contractor-law/.

Yahoo! “Uber, Lyft Win Delay from Court, Will Stay in CA for Now.” Yahoo!, Yahoo!, 2020, money.yahoo.com/video/uber-lyft-stay-california-now-201707918.html.

Lyft, Inc. “Rideshare Operations Are Being Suspended in California.” Lyft, 20 Aug. 2020, www.lyft.com/blog/posts/ca-operations-update.

Lyft, Inc. “Lyft Expands Lyft Rewards to More Drivers.” Lyft, 2020, www.lyft.com/blog/posts/lyft-rewards.

Siddiqui, Faiz. “Uber’s Secret Project to Bolster Its Case against AB5, California’s Gig-Worker Law.” The Washington Post, WP Company, 8 Jan. 2020, www.washingtonpost.com/technology/2020/01/06/ubers-secret-project-bolster-its-case-against-ab-californias-gig-worker-law/.

“NYU Professor on Gig Economy: Not All Uber, Lyft Drivers Will Welcome CA Legislation.” CNBC, CNBC, 10 Sept. 2019, www.cnbc.com/video/2019/09/10/nyu-professory-not-all-uber-lyft-drivers-will-welcome-ca-legislation.html.

“Uber, Lyft Have the Upper Hand in Gig Worker Dispute: Investor.” CNBC, CNBC, 21 Aug. 2020, www.cnbc.com/video/2020/08/21/uber-lyft-have-the-upper-hand-in-gig-worker-dispute-investor.html.

“Uber, Lyft Win Delay from Court, Will Stay in CA for Now.” Yahoo!, Yahoo!, money.yahoo.com/video/uber-lyft-stay-california-now-201707918.html.

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