Uber and Lyft are joining forces to fight legislation that would turn their California drivers and other gig workers into employees.
The rivals are poised to campaign for an alternative to AB5, which passed the Assembly 51-11 last month and soon will go to the Senate. AB5 codifies and clarifies a California Supreme Court decision called Dynamex that toughens standards for companies to claim workers are not employees.
The companies say they’re willing to make significant changes for their tens of thousands of California drivers — including a guaranteed base wage, flexible benefits and a new drivers’ association — in exchange for legislation that keeps those drivers as independent contractors.
“Today, in California, we have an opportunity to work closely with legislators and labor groups to find a different solution that preserves drivers’ ability to work independently if they choose to do so, while improving the quality and security of this type of work,” wrote Uber CEO Dara Khosrowshahi, Lyft CEO Logan Green and Lyft President John Zimmer in an opinion piece published on The Chronicle’s website Wednesday.
But some lawmakers and labor leaders say any plans that don’t turn drivers into employees fall woefully short.
“Without employee status, (ride-hailing) drivers lack even the most basic protections that all workers deserve like workers’ compensation and unemployment insurance,” said Steve Smith, a spokesman for the California Labor Federation.
Uber and Lyft plan to marshal their drivers for protests and testimony in Sacramento, as well as petitions and letters to lawmakers. The companies similarly organized hundreds of drivers to rally at the state Capitol in 2014 and 2015 to successfully fight bills mandating fingerprinting for drivers and stricter insurance requirements.
The unions will mount a similar counterattack, assembling workers from industries reliant on independent contractors such as ride-hailing, truck driving, construction and health care to attend Sacramento hearings next month “so legislators can hear real stories from real people about the impact of misclassification,” Smith said.
An exemption from the Dynamex ruling would provide stability for Uber and Lyft and let them duck many costs of making drivers employees. While figures vary, by many estimates, converting contractors to employees would add 30% to companies’ labor expense. It’s unclear how much their proposed alternative would cost. Both companies are newly public and getting hammered by Wall Street over their steep losses.
“It’s no secret that a change to the employment classification of (ride-hail) drivers would also pose a risk to our businesses,” the executives wrote in their joint essay.
The Barclays investment bank this week said making California ride-hailing drivers employees could increase Uber’s operating losses by $500 million a year and Lyft’s by $290 million a year, but suggested the companies might raise prices to pass along some of those costs to customers.
Besides the financial hit, Uber and Lyft — and many drivers — say employment status would eliminate the flexible scheduling that’s core to their business model and to drivers’ lives, although some AB5 proponents say that’s not so.
“Uber and Lyft know that they’re in a lot of trouble without an exemption” from Dynamex, particularly in light of a recent appeals court decision that said Dynamex can apply retroactively, said AB5 sponsor Assemblywoman Lorena Gonzalez, D-San Diego.
Uber in May disclosed in public filings that it had settled a “large majority” of about 60,000 driver arbitration claims over employment status for $146 million to $170 million, while in March it agreed to pay $20 million to 13,600 California and Massachusetts drivers in a class-action case over their status.
Uber and Lyft’s proposal, which is still evolving, includes offering benefits such as paid time off, retirement planning and education reimbursement. Drivers could choose which perks they prefer; coverage might be prorated based on how often drivers work.
Gonzalez said the companies had previously proposed contributing an amount equal to 2.5% of drivers’ earnings into benefit accounts. She called that inadequate, noting that corporate Social Security contributions alone are 6.2% of salaries.
“It wouldn’t cover retirement, health care, workers’ comp,” she said. “It would have to be substantially higher than that to protect workers and the state.”
Under the companies’ proposal, a new drivers’ organization would speak for them as well as administer benefits. Uber and Lyft said that group also could provide an appeals process for deactivations — the companies’ term for firings, an issue of huge concern for drivers. The organization might also help with driver training. The companies said labor would play a role in that group, but it would not engage in collective bargaining.
“There is no actual voice given to workers without the right to collectively bargain,” said Gonzalez, who previously sponsored an unsuccessful bill that would have allowed gig workers to bargain collectively. Federal laws about wage fixing make it problematic for independent businesses to join forces to bargain over pay, she said.
“Every single worker in California deserves the right to organize,” said Doug Bloch, political director of Teamsters Joint Council 7, who’s been meeting with Uber and Lyft about driver status.
The plan’s third component would be a wage guarantee to make earnings more stable and transparent. The companies would guarantee an unspecified base wage, after expenses, from the time a driver accepts a ride request until the passenger is dropped off. The time that drivers spend waiting for passengers would be excluded. The companies acknowledge that earnings can fluctuate and not all drivers make minimum wage.
Gonzalez’s legislation exempts a lengthy list of professions such as doctors, dentists, lawyers, architects, accountants, real estate agents and hairstylists. The unifying theme, she said, is that they are people who set their own rates and directly arrange their work with clients, rather than going through a marketplace.
Arun Sundararajan, a New York University business professor who studies gig workers, said he likes the idea of a compromise.
“It would clearly be a win for the drivers and the platforms if they had more predictable income, more easily accessible benefits and other forms of stability, while keeping the basic structure in place,” he said.
But Gonzalez and labor leaders noted that Dynamex is already the law of California, even though widespread reclassification has not happened — yet.
“Uber and Lyft haven’t presented a reason why they can’t treat workers like employees,” she said. “A flexible work schedule is not new — we have musicians, construction workers, stagehands, longshoremen up and down the state who work when they want to, and are employees with well above minimum wage and benefits.”