On Uber, Lyft, and Labor Law

A storm has been brewing in California. No, not the Coronavirus pandemic or the massive fires, though both are incredibly important and widespread. California is trying to reign in a few powerful tech industry players. What we're witnessing now may become either a cautionary tale or a key example of just how these battles can be waged in the future against even bigger and more powerful giants.

Uber and Lyft have both circulated the idea that they will soon halt operations in California after a state judge forced them to comply with A.B. 5, the California law that requires businesses like Uber and Lyft to classify certain workers as employees instead of contractors. The law, which went into effect in January and has been debated for over a year in the state, would force Uber and Lyft to classify most of their drivers as employees. This change would ensure that those drivers maintained a minimum wage, health benefits, and other benefits under state law, none of which are available to contractors.

After the law went into effect, Uber and Lyft sued and have been both pursuing a legal case and supporting a ballot measure that explicitly excludes ride-share companies from A.B. 5. According to the San Diego Union Tribune, in early August a state judge, "ordered the companies to classify their drivers as employees rather than independent contractors," when they'd prefer to wait until the fate of their ballot measure is decided in November. They also argue that they don't have enough time to comply, even though they've been given months before the law went into effect and eight more months afterwards to comply.

This legal battle is unlike the one waged over the California Consumer Privacy Act (CCPA) which also went into effect recently, and was primarily targeted at data-brokers like Facebook, Google, and others. CCPA, which merely requires a few key, common-sense measures, did not directly hinder the operations of Facebook, Google, or others. It simply made their practices more transparent to users and was slightly annoying for them to implement. A.B. 5 is different. The law represents a fundamental threat to Uber and Lyft's current business model. Both rideshare companies, to varying degrees, rely on huge investor subsidies and loopholes in labor laws to make their business viable. Uber alone, loses over $1.5 billion each quarter. Let that sink in. Both companies are growing, but to do so they require investors to subsidize rates and they rely on underpaid drivers to balance their revenue model. What neither company wants to say, but that is abundantly clear from their reactions, is that they cannot exist as multi-billion dollar companies if they had to comply with California's labor laws, and they can't attract massive amounts of venture capital if they can't grow at current rates. To be fair, I'm sure that Exxon-Mobile, Walmart, Google, and Apple would be far more profitable if they could ignore labor laws too. Paying people a living wage is expensive, as is giving them health care, so companies don't want to do it, but that's why we have these laws.

During the initial debate of A.B. 5, Uber and Lyft, as well as many other rideshare and delivery apps, made their case to the voters in California and to the legislators that passed the bill, but they lost. Now both companies are threatening to take their ball and go home rather than accept that perhaps their entire business model is flawed and should be fixed. Uber and Lyft could reclassify their workers and still be enormous companies, but not as enormous as they are today, or they could choose to pout telling their users that it's all or nothing. I don't want to see Uber and Lyft leave California or disappear (even though Uber's corporate culture is often disgraceful and cause for separate concern). They offer a useful service. I've used both companies a lot over the years. I've also used Uber Eats, Postmates, Doordash, and other delivery companies to get a burrito and to satisfy a craving for Saag Paneer at 2AM. But that doesn't mean that I think their service is so valuable that they should be immune from laws that other companies are subject to. Taxi companies and delivery drivers have been around for a long time. Those endeavors can be profitable, and they can be mutually beneficial for both the company and the workers. This, however, isn't the framing that Uber and Lyft are building around this debate. In their eyes, either they get a pass on obeying labor law, or they go away. But it's important to remember, that's not the only choice they have. It's not the only path they could take. It is, however, the one they've chosen to take.

I'll just say this: if your company can only exist if it violates civil rights or labor law, then I don't think you should exist. - my post on Pine.blog