Uber is experimenting with letting California drivers set their own rates, starting with pilot programs at airports in Santa Barbara, Sacramento and Palm Springs. It’s part of the ride-hailing company’s attempts to ward off AB5, the state’s new gig-work law that could turn drivers into employees, a change Uber fiercely rejects.
Starting Tuesday morning, drivers at the three test airports can either accept Uber’s original price for outgoing rides, or ask for up to five times more, in increments of 10%. After next week they will have the option to ask for less than Uber’s original price.
Essentially those drivers now are bidding against one another for riders. Uber passengers will see only the lowest proposed fare range. If that driver rejects their ride request, they could see a new, higher fare range, as Uber would then show the request to the next-cheapest driver.
AB5 sets strict criteria for when workers can be classified as independent contractors, which is the current status for Uber drivers. Changing them into employees entitled to minimum wage, overtime and benefits could add $500 million a year to Uber’s labor expenses, according to a Barclays estimate. Uber also says it would destroy the flexibility its business model relies on and its drivers prefer.
Under AB5 and the 2018 California Supreme Court case called Dynamex that it codifies, workers are employees unless they (A) work free of a company’s control, (B) do work outside the company’s core business, and (C) have independent businesses doing that type of work.Uber made some major changes this month related to the first prong, giving drivers more control over which rides they accept, for instance, by showing them destinations in advance and removing any penalties for rejecting rides — both factors that drivers long had sought. Uber has long maintained that it is a technology company rather than a transportation provider, which is how it addresses the second prong. Rival Lyft has not announced any changes to its pricing or ride structure. Now Uber is testing ways that drivers could decide how much each ride would cost, which also speaks to the control issue. The pilot was first reported by the Wall Street Journal. “Relinquishing control over pricing and allowing drivers to name their own prices is another way that Uber can show compliance” with the first requirement, said Tiffanny Brosnan, an attorney who represents management in labor cases. “It also helps satisfy one of the elements that federal agencies such as the IRS and Department of Labor consider — the ability to control profit and loss specifically. Historically that is something that has also been considered by the California Labor Commissioner.” Uber drivers at the three test airports can set a “fare multiple” of up to 5.0 times Uber’s base, time and distance rates. For instance, if a ride ordinarily would cost $10, a driver could set a 2.0 fare multiple to charge $20 instead. Uber’s commission, which is 25% of the ride price, would also go up with higher rates. (In addition to the time and distance rates, passengers pay a “marketplace fee” to Uber for connecting them to the rides. That fee does not change and would be on top of the $10 or $20 fare in the examples.) “Since AB5 has gone into effect, we’ve made a number of product changes to preserve flexible work for tens of thousands of California drivers,” Uber said in a statement. “We’re now doing an initial test of additional changes which would give drivers more control over the rates they charge riders.” Uber is battling hard to prevent its drivers from being reclassified as employes. It’s joined forces with Lyft as well as delivery companies DoorDash, Postmates and Instacart on a $110 million initiative campaign, asking voters to keep their drivers and couriers as independent contractors entitled to some benefits and wage guarantees. Along with Postmates, it sued California last month, claiming that AB5 is “irrational and unconstitutional.” In a week, Uber will further refine the pilot pricing program. For now, drivers at the airports will still automatically be part of Uber’s surge program — its own multiplier of fares, which is based on high demand. For instance, a driver who set a multiplier of 1.5 when the surge price multiplier was 2.0 would get the higher surge rate. Starting next week, drivers can opt out of surge, as well as being able to set their multiplier below 1.0. Drivers who set prices lower than Uber’s surge would get rides more quickly. Uber will show drivers how long it will take for them to get dispatched at their chosen multiplier, and they can change it on the fly as they wait for fares. Uber said it started with a small-scale pilot because there are so many factors at work and it will continue to refine the program. It can’t say if it definitely will roll it out to all California drivers.