California vs. Uber/Lyft

In other legal battles, California passed a law known as AB5, which seeks to force so-called gig-economy workers to be classified as “employees”. California then succeeded in a case, with a judge ordering Uber and Lyft to do exactly that — convert all of their drivers to employees. Uber and Lyft retaliated, vowing to shut down operations in California, rather than submit to this. That shut down was supposed to have happened last Tuesday, but the companies got a temporary injunction from another judge; hence, things are temporarily continuing as normal, but you can bet that Uber and Lyft will absolutely shut down operations if California succeeds.

My readers outside of the US may forgive themselves for not quite understanding what the big deal is. Of course, most countries have distinctions between part- and full-time workers, and between employees and “independent contractors” (the self-employed, however you chose to style that). But what one must always remember is that, in almost everything, States are similar to independent countries; and so, while there are U.S. national labor laws, the vast majority of such laws are at the state level. So, why do Uber and Lyft (and maybe their drivers) care? Well, for Uber and Lyft, the difference would mean complying with both State and Federal minimum wage laws, but presumably drivers are already making more than minimum wage, or they’d go get another job — fast-food joints have been paying well above minimum wage in most parts of the US since the 1990s. But there are far larger issues than that. Remember, the U.S. doesn’t have national health-care. Under federal law, companies over 50 employees are required to offer health care to their workers, and to pick up at least 50% of the cost of said insurance. While insurance rates vary widely for a number of reasons, health insurance in the U.S. in 2019 averaged $20,576 for a family of four. An extra $12k (50%) cost per year per employee is non-trivial. Then there’s paid time-off. There is no U.S. requirement for paid time-off, and no California requirement for paid vacation, but there is a California requirement for paid sick time (again, explaining this oddity to my non-American readers: in the U.S., vacation time and sick leave are taken out of different pools of “time off” — which is a topic for a whole other essay ¯\_(ツ)_/¯ ). The minimum requirement is 6 days per year. That may not sound like a lot, but it’s more than one working week, which means it’s about a 10% increase in employee cost. Then there’s family and medical leave. Oh, and California employers with more than 25 employees must offer 40 hours per year (another work week) to working parents for school-related activities. And of course, on top of this, there is the tremendous administrative overhead of managing employees (anywhere, but particularly in the U.S. system, where payroll providers may charge up to $200 / employee / month — that’s on the high end, but even if you assume Uber and Lyft could do it internally for, say $25 per month, what does that mean? Your first 2, 3, 4 rides per month just go to covering this administrative expense?). And remember, these companies, while large in terms of revenue, are not yet profitable. They quite literally can not afford to do this.

Now, of course, California can argue that if you can’t afford to do this, then you’re not really a going concern, because you can’t compensate your “employees” fairly. But what’s the reality here? Do Uber and Lyft drivers actually want to be employees? Do they want to be taxi drivers? Do they want to lose the ability to set their own hours, and days? To run both Uber and Lyft at the same time, and pick and choose which fairs they accept? Because all of that flexibility goes away if they become employees. They would no longer be allowed to, for example, work 12 hours 3 days per week and take the other four days off (oh, did I mention, under California law, you have to pay your employees 50% more for any hours over 8 per day … which of course means these companies would never allow that).

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