A California Bill Has Uber and Lyft Running Scared

Ride-hail companies desperate to stop a proposed California law that would force them to treat workers as employees are suddenly offering to boost driver pay and benefits. And they’ve pledged $60 million to fund a state ballot measure aimed at keeping drivers from being classified as employees.

Uber and Lyft said on Wednesday that they’re willing to pay California drivers a minimum of “approximately” $21 per hour, including some expenses, though that pay rate would only apply while the drivers are on a trip. (More on that later.) They say they would provide drivers access to “robust new benefits,” like paid time off, sick leave, and a form of workers’ compensation. The companies also said they would “empower” drivers to “have a collective voice” and to “influence decisions about their work.” The proposal did not, notably, include the word “union”.

On Thursday, the companies announced that they had amassed a $60 million war chest to fund a 2020 state ballot measure. The measure would create an alternative classification for drivers, and it would provide some worker protections and a guaranteed minimum pay rate—but would not consider them employees. The delivery company DoorDash also contributed $30 million to the effort.

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The companies’ proposal—and ballot measure threat—come in response to Assembly Bill 5, a measure already approved by the state Assembly and widely expected to pass the Senate in the remaining two weeks of the legislative session. AB 5 would codify a 2018 California Supreme Court decision that set more stringent limits on when employers can classify workers as contractors rather than employees. To qualify as contractors, workers must not be under the control or direction of the company they’re working for; must perform work that’s outside the “usual course” of the company’s business; and must do business in the industry even when they’re not working for that specific employer.

Uber and Lyft drivers—and many contract caregivers, dog walkers, and delivery workers—would likely not pass this test. And reclassifying their drivers as employees would screw with the companies’ business model. In June, analysts with Barclays estimated that the change would cost Uber and Lyft an extra $3,625 per driver in California—adding up to more than $500 million a year for Uber and $290 million for Lyft. Both companies are already losing money: Uber reported losses of $5.2 billion last quarter; Lyft said it lost $644 million.

So finding a compromise on this California bill is very important to ride-hail companies, which according to public records, spent hundreds of thousands of dollars lobbying Sacramento lawmakers on AB 5 and other issues between April and early August, the last reporting period. And while California is a critical market for these companies—especially for Lyft, which only operates in North America—the bigger fear is almost existential: that this type of employer reclassification legislation might spread to other US states. (In March, Uber settled for $20 million a lawsuit over worker misclassification with some drivers in California and Massachusetts, which offers similar protections for gig workers.)

Uber and Lyft argue that their proposal is good for drivers. Uber rolled out a website this week full of testimonials from drivers asking that California lawmakers preserve their independent contractor status and keep their jobs flexible.

But many drivers are not convinced, and they point to the conditions attached to the $21 per hour offer. For one thing, it’s unclear how the ride-hail companies might account for “average expenses,” or the overhead such as gas, maintenance, and regular cleanings. Uber spokesperson Davis White said “average expenses” would not be calculated by individual drivers, but he didn’t respond to further questions. Lyft did not respond to questions.

Moreover, the proposed hourly wage only applies when drivers are “on a trip.” According to a report commissioned by Uber and Lyft and released by the transportation consultancy Fehr & Peers this summer, drivers spend plenty of time not on a trip. Drivers travel about half their total miles while they’re waiting for ride requests or traveling to pick up riders, according to the analysis, which examined six major metros.

In 2015, transportation researcher Alejandro Henao signed up to be a ride-hail driver, in an attempt to develop his own data set about ride-hail expenses. While driving in the Denver area, he found that driver pay averaged out to about $15.60 an hour—but take-home pay dropped to between $5.72 and $10.46 per hour when accounting for expenses and those miles that drivers travel while “deadheading”, searching for or driving to the next fare. Other research suggests that expenses cost Uber drivers between 30 and 40 cents per mile.

“$21 doesn’t mean much without taking into account the deadheading and factoring in expenses, because that can drive the hourly rate to lower than minimum wage, or even lower than $10 an hour,” says Henao.

Nicole Moore, a part-time Lyft driver and volunteer organizer with the LA-based group Rideshare Drivers United, puts it more bluntly. “$21 is a complete bogus number,” she says.

Uber and Lyft, though, are hoping drivers and riders come to their corner. This week, both companies sent out mass notices to drivers about AB 5. Lyft also emailed its California passengers, asking them to sign a petition against AB 5 and “help protect rideshare in California.” Tactics like that have worked for the ride-hail companies before. When Uber urged passengers to contact New York mayor Bill de Blasio about new regulations in 2015, the public outcry forced the mayor to back down.

At least one other person is deeply hoping for a compromise: California governor Gavin Newsom. The former San Francisco mayor has historically enjoyed support from both unions and tech companies. If AB 5 makes it to his desk, he will have to choose whether to veto the legislation.

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