newsdog Facebook

California just passed a bill turning 'gig economy' workers into employees. Here's what Uber and Lyft have said.

Business Insider 2019-09-11 15:40:00


  • California lawmakers have passed a bill requiring Uber, Lyft, DoorDash, and other "gig economy" businesses to treat workers as employees instead of contractors.
  • Uber and Lyft say the decision simply qualifies existing law, hurts workers by removing flexibility, and will result in customers paying more.
  • Watch Uber and Lyft trade live.

California lawmakers have passed a bill requiring Uber, Lyft, DoorDash, and other "gig economy" businesses to treat workers as employees instead of contractors. Uber and Lyft have previously downplayed the decision as a qualification of existing law, and argued it hurts workers by reducing flexibility and will lead to customers paying more.

State senators passed Assembly Bill 5 in a 29 to 11 vote on Tuesday. The proposed law is expected to pass the State Assembly, receive the green light from governor Gavin Newsom, and take effect on January 1. It would alter the rights of at least 1 million workers including hundreds of thousands of Uber and Lyft drivers in California, according to the New York Times.

The law could set a precedent for other states: Labor groups in New York are pushing for similar protections after securing a minimum wage for ride-hailing drivers last year, and failed bills in Washington State and Oregon could gain a new lease on life, the New York Times said.


The blow to Uber and Lyft's business models follows disappointing public debuts for both companies this year. Uber's stock has slumped by about a quarter from its IPO price, while Lyft shares have dropped 37%.

Here's what Uber and Lyft have said about the bill recently:

1. It's a clarification of state law.

"If AB5 passes, it'll simply be a qualification of existing law," Uber CEO Dara Khosrowshahi said on the company's second-quarter earnings call in August. "It doesn't immediately transform drivers into employees. It just changes kind of the legal test in the court."

"AB5 is the result of the California Supreme Court ruling called Dynamex," Lyft's finance boss Brian Roberts said at a Citi conference last week. "It basically codifies parts of that ruling. There's no magical change."

2. It hurts their drivers by reducing flexibility.

Turning all drivers into employees "isn't the best thing for society because if you flip all the way to employees, you only get a certain type of worker, and in our case, 91% of our drivers drive less than 20 hours, 76% of our drivers drive less than 10 hours," Lyft cofounder and president John Zimmer said at the conference.

"You would hurt the majority of the drivers that are doing this on a more supplemental income basis and don't want to work shifts," Zimmer added."You have the rigidity of an employment model where it's helpful for a marketplace to have more flexibility on the hours people drive and the time of day and the size of the workforce given how fast we're growing."

Uber expressed similar sentiments.

"We think that there's a better way forward," Khosrowshahi said on the group's latest earnings call. "The fact is that our drivers consistently tell us that the reason why they value Uber is they value their freedom. They're their own boss. They run their own business. They can drive for us or not drive for us whenever they want, however they want."

"We do think that there's a better path forward that would allow drivers to keep their independent status but add the counter protections that, frankly, we think are good protections," he added. "We think there's a win-win there."

3. Their customers will stomach the higher costs.

Turning contractors into employees could raise the costs of gig economy companies by 20% to 30%, the New York Times said, citing industry officials.

Uber and Lyft have warned they will be forced to schedule drivers in advance, the newspaper said, likely to avoid paying drivers during slow periods or in quieter markets. The upshot could be fewer jobs for ride-hailing workers.

Consumers could end up paying too.

"Whatever the increase in terms of operating cost," California consumers and voters will bear it, Roberts said. "Ultimately, it's a pass-through, and I think investors need to understand that."