A Shaky Future for Ride Sharing

By Jessica "Lulu" Lipman
Jessica "Lulu" Lipman is a sophomore in the College of Arts and Sciences at the University of Pennsylvania studying English.

The ride-sharing apps Uber and Lyft have made waves in the transportation industry by allowing riders to connect to drivers nearby and catch rides for a reasonable price. These apps are part of the broader “gig economy” in the United States, which includes freelance workers and independent contractors, such as delivery people at DoorDash. More than one-third of the Americans in the workforce are part of the gig economy. [1]

Everyday 14 million riders hail a ride through the Uber app every day. [2] The business model for these apps depends on their millions of drivers being considered independent contractors, rather than employees of Uber or Lyft. With this classification, drivers are in charge of having and maintaining their own cars, deciding what hours they would like to work, and choosing whether or not they would like to work on certain days without the fear of termination. [3] Although drivers are awarded many freedoms as independent contractors, they are not eligible for minimum wage, worker’s compensation, overtime or healthcare, as employees are. This, however, is advantageous to Uber and Lyft because it saves them a considerable amount of money that would have had to be spent on providing such things to their drivers if they were employees. [4]

This classification is about to change as a result of a new law. On September 18th, California governor Gavin Newsom signed Assembly Bill 5 (AB 5), which will go into effect on January 1st, 2020. The law affirms that all people who are employed by a company are considered employees, not independent contractors, unless said people fulfill comprehensive criteria that would exempt them. Governor Newsom hopes that AB 5 will provide those who used to be grouped as independent contractors with employee perks such as paid sick leave, health insurance, and the ability to join unions. Additionally, the Governor hopes to rectify the misclassification of millions of employees as independent contractors and provide these people with the rights that they deserve, that they were not previously afforded. [5] Since California has such a massive economy, this law will most likely have a domino effect in other economies throughout the nation.

Uber hopes to sidestep this new law with one important distinction; they are a technology company not a transportation company. The company argues that since they just connect drivers and riders, they are not involved in transportation, and therefore drivers are not employees. For Uber to bypass AB 5 and continue to catalog drivers as independent contractors, the company has the burden of proof of demonstrating that their drivers comply with strict specifications. The most difficult part to prove will be that drivers conduct business “outside the usual course of business”. [6] The main part of business for Uber is driving passengers, and anything independent to that could be considered outside the usual course. Since Uber drivers do not seem to carry out any tasks besides driving, it will be difficult to prove they have the specifications to be independent contractors. However, if the company is able to validate their claim, drivers will be exempt from Governor Newsom’s new law. 

As expected, Uber and Lyft are opposed to the law, as they believe their business model will be disrupted by AB 5. Analysts assert that under the law Uber and Lyft will have to enact schedules for shifts and drivers will only be able to drive for one ridesharing app. Moreover, because of the added benefits that Uber and Lyft will owe to their employees, prices are expected to rise by about 30%. A more expensive ride would deter riders, and could be detrimental to Uber and Lyft’s business. [7]

Although this law was passed to be beneficial to drivers, not all drivers are pleased to be stripped of their independent contractor classification. Drivers have expressed concerns about losing the flexibility of their job, especially those who have jobs outside of working for Uber or Lyft and drive just in their free time. Many drivers fall under this category, with 45% of people driving less than ten hours a week. Other drivers, however, are appreciative of the AB 5 and the guarantee of minimum wage and health care benefits. [8]

Assembly Bill 5 will have an enormous impact on the whole gig economy. So far, Uber and Lyft have been the most vocal about their opposition to the law, as they are aware of the detrimental effects the new law could have on their business. Along with DoorDash, Uber and Lyft have collectively pledged $90 million to put a referendum in the next election, if an agreement is not reached. [9] Because drivers are split on their thoughts about AB 5 and the probable increase of prices for Lyft and Uber, the future of these apps is up in the air. Will Uber and Lyft be able to successfully adjust to the changes that will occur as a result of AB 5? Only time will tell.
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​The opinions and views expressed in this publication are the opinions of the designated authors and do not reflect the opinions or views of the Penn Undergraduate Law Journal, our staff, or our clients.

References
[1] McCue, TJ. (2018, August 31) 57 Million U.S. Workers Are Part Of The Gig Economy. Retrieved from: https://www.forbes.com/sites/tjmccue/2018/08/31/57-million-u-s-workers-are-part-of-the-gig-economy/#402c0dc07118
[2] Iqbal, Mansoor (2019, May 10). Uber Revenue and Usage Statistics. Retrieved from https://www.businessofapps.com/data/uber-statistics/
[3] Feig, Ellen Rosner (2009, October) Employee vs. Independent Contractor: Differences You Need to Know. Retreived from https://www.legalzoom.com/articles/employee-vs-independent-contractor-differences-you-need-to-know
[4] Cerullo, Megan (2019, May 14). Uber drivers are Independent Contractors, Not Employees, Says National Labor Relations Board. Retrieved from https://www.cbsnews.com/news/uber-drivers-are-independent-contractors-not-employees-says-national-labor-relations-board/
[5] Myers, John et al. (2019, September 18) Newsom Signs Bill Rewriting California employment law, Limiting the Use of Independent Contractors. Retrieved from: https://www.latimes.com/california/story/2019-09-18/gavin-newsom-signs-ab5-employees0independent-contractors-california
[6] Marshall, Aarin. (2019, September 12). Why Uber Thinks It Can Still Call Its Drivers Contractors. Retreived from https://www.wired.com/story/why-uber-still-call-drivers-contractors/
[7] Lazo, Alejandro. (2019, September 18). California Enacts Law to Classify Some Gig Workers as Employees. Retreived from https://www.wsj.com/articles/california-enacts-law-to-classify-some-gig-workers-as-employees-11568831719?mod=article_inline
[8] Herrara, Sebastian. (2019, September 21) Uber, Lyft Drivers Torn as California Law Could Reclassify Them. Retreived from https://www.wsj.com/articles/uber-lyft-drivers-torn-as-california-law-could-reclassify-them-11569063601
[9] Eidelson, Josh. (2019, September 18) California Governor Signs Labor Law, Setting Up Bitter Gig Economy Fight. Retrieved from https://www.bloomberg.com/news/articles/2019-09-18/california-governor-signs-labor-law-setting-up-bitter-gig-economy-fight