The first major regulatory assault on rideshare is about to crash headlong into Lyft and Uber, courtesy of California bill AB5.
California Bill AB5 Could Kill Rideshare
The California legislature appears certain to pass AB5, which would effectively force Lyft and Uber to reclassify drivers from independent contractors to employees. Governor Gavin Newsom has publicly proclaimed his support for the bill, virtually ensuring its passage. One cannot underestate how bad this is for Lyft and Uber, for their shareholders, and possibly for consumers. If rideshare drivers are reclassified, it creates a nightmare of regulatory burden for Lyft an Uber.Rideshare Will See Gigantic Cost Increases
To begin with, each company will be forced to contribute 7.65% of worker pay to Social Security and Medicare. Lyft and Uber will also be required to pay another 1% in various state payroll taxes, and $56 per employee to the federal government for unemployment insurance. The companies will also have to spend enormous amounts of capital to set up new payroll systems and payroll withholding logistics to meet these regulatory requirements. Don’t forget about workers compensation insurance, which is incredibly expensive in California. There is also the specter of Obamacare, whose requirements may force Lyft and Uber to provide health insurance for all of their California employees. Ed Butowsky, Managing Partner of Chapwood Capital Investment Management in Dallas, tells CCN:“As it is, Lyft and Uber are losing billions of dollars, and are effectively subsidizing every ride because of their ongoing price war. If government starts piling on costs, it will choke off this incredible free-market innovation, and will harm both consumers and the drivers.”