UNITED STATES—A recent injunction filed in San Francisco could have significant repercussions on the ride-share industry. On August 10, San Francisco Superior Court ruled that Uber and Lyft drivers in California must be classified as full-time employees.
In addition to San Francisco, California’s attorney general and the cities of Los Angeles and San Diego supported this injunction. According to the state, Uber and Lyft must legally grant their drivers full-time benefits under the recently passed Assembly Bill 5.
The Full Impact of Full-Time Benefits
Currently, rideshare drivers in California are classified as independent contractors. Shifting this status to an “employee” status has a barrage of financial implications for these companies.
Full-time benefits go beyond providing health insurance for employees, which is a massive expense for a company with a huge employee base. In addition, Uber and Lyft would be forced to pay Workers Compensation insurance on behalf of every employee. Other considerations must be made for family and medical leave, unemployment insurance, and additional payroll management expenses.
AB5 Rate Increase Consequences
In response to these demands, Uber and Lyft threatened to cancel services throughout California. Both companies have argued they can’t continue to offer services in the Golden State under AB5’s strictures. Economists suggest this new law could increase Uber and Lyft’s labor costs by 30 percent.
Taxi operators in San Francisco say they most likely couldn’t accommodate a surge in demand if Uber and Lyft were to exit the city. According to the San Francisco Taxi Workers Alliance, there are about 1,300 taxis on the streets, but that figure could be lower due to COVID-19 lockdowns.
California Prop 22
Although California Superior Court gave Uber and Lyft ten days to comply with the injunction, the companies have successfully appealed the decision. It’s now expected both ride-share companies will make their case in court on October 13.
To block AB5, many companies in the “gig economy” are now sponsoring Proposal 22 on the November ballot. If Californians approve of Prop 22, businesses like Uber and Lyft would be exempt from meeting AB5’s employee requirements. Even though Uber and Lyft drivers would still be covered by the rideshare programs’ insurance policies, they would be considered independent contractors and adopt labor and wage policies that are specific to rideshare/app-based diving companies.
Considering California is the largest US market for ride-hailing, November’s decision could have severe implications for the industry. Other states like New York are working on similar proposals to California’s AB5. If Prop 22 doesn’t succeed in November, some analysts believe other states will put forward similar laws.