Uber and Lyft are discussing licensing their brands to operators of taxi fleets in California as both ride-hailing companies face pressure to reclassify their drivers in the state as full-time employees, as required by A.B. 5, a new California law that intends to ensure employee benefits for gig workers, the New York Times reported, citing sources.

KEY FACTS

According to the report, the companies believe that such a franchise-like model would allow them to keep an arms-length association with drivers in the state, circumventing the requirement to employ them directly or pay for their benefits.

  • Lyft has reportedly already presented the plan to its board of directors, while Uber already operates under a similar model in Germany and Spain.
  • The ride-hailing companies are yet to commit to such a plan as they wait to see how California’s legal situation around drivers plays out first, the report added.
  • A.B. 5—designed to reclassify gig workers as employees with minimum wage protections and employment benefits—went into effect in January, but Uber and Lyft have refused to comply with it arguing that they are simply providing a tech platform and are not a transportation business themselves.
  • In May, the state had sued both companies to enforce the law, and this month a San Francisco Superior Court judge ordered the companies to employ their drivers by Thursday.
  • Both companies have appealed the decision and warned that they may have to shut down operations in the state if the order was not reversed.

BIG NUMBER

16%. That’s the total share of Lyft’s rides that California accounts for, the company disclosed in its Q2 2020 earnings call with investors earlier this month. A shutdown in California could severely affect Lyft which reported a loss of $437 million for the quarter ending on June 31.

KEY BACKGROUND

Uber and Lyft have raised strong objections to A.B. 5 and have pushed to limit its ambit. Both companies along with food delivery company DoorDash have pledged $90 million to push, Proposition 22, a ballot measure for the November elections, which will ask voters to permanently classify ride-hailing drivers as independent contractors. Lyft has emailed its customers and added messages supporting Prop 22 on its app. Uber’s app changes have been more focussed on reinforcing its independent contractor credentials by showing fares to drivers upfront and allowing them to decline rides without facing penalties. Uber has in the past used its app to leverage customer support, as it did in 2015, by adding a popup window on the app appealing to users in New York to email DeBlasio to back off on proposed legislation that would cap the number of Uber vehicles in the city.

TANGENT

In an op-ed published in the New York Times last week, Uber CEO Dara Khosrowshahi pushed for a “third way” to classify gig workers. Khosrowshahi wrote that the classification of workers as either contractors or employees was a “false choice,” adding that companies take on “more uncertainty and risk” when they have to provide more benefits to independent workers. He suggested that gig-work driven companies should instead be required to create benefits funds that can be used by workers for everything including health insurance and paid time off. The amount of money each gig-worker would have access to would be based on the number of hours they put in. He claimed that if such a law existed in all 50 states, Uber would have contributed $655 million to benefits funds last year, without offering specifics.

*by Siladitya Ray via Forbes*