The End of the Status Quo is Near for Uber & Lyft


Jan 5, 2019
Austin, Texas
What City & State do you work in?
New York, NY
I hate to be the bearer of bad news, but it looks like the end could be very near for Uber and Lyft - at least in California. Or, at least the end as things as we have known them thus far.

So, California is getting very close to passing this new law, called AB5, that would require all uber and lyft drivers to be re-classified as employees. It would also apply to all gig companies like Postmates, Instacart, Grubhub, all of them.

You know Uber and Lyft are operating on the edge. They're both huge money losers and this could be just the thing that will either push them over the edge or force them into a massive overhaul and reorganization. From my point of view, as a long-time driver, I'm guessing that in the long term, it will push them over the edge into bankruptcy and oblivion. I honestly don't see how they can survive this. They can't even afford to pay drivers 50% of the fares right now. And this will force them into paying far more in wages to drivers than they've paid in the past plus it will add all kinds of additional expenses on top of the raw wages.

According to QZ, AB5 would codify the test for determining whether a worker is a contractor or an employee that was outlined by the Supreme Court of California last year in its Dynamexdecision (pdf). The court instructed hiring firms to apply a standard commonly referred to as the “ABC” test, which says a worker is “properly considered” an independent contractor to whom certain wage and hour regulations don’t apply only if:
(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business;
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
So, B is the key. Drivers perform the most essential work of these companies - all of them, including the delivery companies. Driving is the "usual course" of the business of these companies. It is the business. Without the drivers they don't have a business.

On A, strong arguments have been made that while on the surface it appears that the companies don't have control and direction over the workers, that just underneath the surface, through the apps and their algorithms they do exercise almost complete control over the workers. So on A the companies can't even make a strong case about that.

And on C, most drivers are not customarily engaged in an independently established trade or business of the same nature as the work they're performing for these companies. They're only engaged in that work with other similar companies like Uber and Lyft. But they don't have any work at all outside of the app-based companies.

So on one of the three the companies have no case, and on the other two they have a very weak case.

Now, if they are suddenly forced to make all drivers employees, several things will have to happen. First and foremost is that they'll get rid of a ton of drivers. They don't mind having way more drivers than they need now because it doesn't cost them a single extra cent to have unused drivers on the road. But you can bet, the minute they have to pay drivers a certain minimum whether they get trips or not, in other words, the minute it's coming out of their pockets even when drivers are idle, they'll do everything in their power to make sure no driver is idle - ever again! And that just burns me up. They could have limited drivers a long time ago and kept each remaining driver busy and earning a decent living. But no... it didn't cost them anything to let you sit there for 45 minutes out of an hour waiting for a $5 trip. What did they care. That was your money and your time wasted - not theirs. But the minute it becomes theirs - I would guess half of all drivers will be eliminated.

Then since they'll all be under new regulations with the same new expenses added, they'll all be forced to raise their rates to cover their new costs. And they'll raise their rates knowing their competitors are going to have to raise their rates too. This will cause fewer people to use their services, giving them reason to get rid of even more drivers.

But, they could actually become profitable in this process. They'll be smaller for sure, but it just may force them to charge enough to cover their costs plus a small profit. The thing that has confounded me all this time is how they haven't ever realized that charging less and less and squeezing drivers more and more hasn't led to profits. You'd think they'd realize if they were willing to shrink but maintain a customer base that was willing to pay a higher price for a premium service that was better than taxis, they could actually be profitable. Instead of losing billions of dollars a year they could maybe have an actual profit of a few million dollars a year!

I think they could make it if they wake up and go in that direction. But if they continue blindly on as they have in the past, and insist on keeping rates as low as they are now - they won't be able to survive. So, it'll be interesting to see if they can turn this into a real opportunity or if it's going to become the biggest disaster in all of American business history.