Why the New CA Gig Economy Restrictions May Soon Impact your State

California lawmakers just passed a bill turning ‘gig economy’ workers into employees. Critics: This is another attack on small business.

Who works in the Gig Economy? Everyone. The gig economy is massive. According to the Bureau of Labor Statistics (BLS), in 2017, 55 million people, or more than 35 percent of the US workforce, were participants in the gig economy. By 2020, that number is expected to jump to 43 percent.

Many people, of all ages, choose to participate in the gig economy, whether it’s driving their own cars for Lyft and Uber, delivering groceries or food from supermarkets and restaurants with DoorDash, or assisting busy customers with errands with Task Rabbit. Workers will make their own hours, working when and how often they wish and for that freedom give up the benefits and restrictions of being an employee, which would require a set schedule and often more hours than is desired. For most workers, this is supplemental income they can bring in at night and weekends, which for many can assist with overhead, paying off loans, and even retirement.

Before rolling your eyes thinking this is another example of California’s assault on business, the bill is likely set a precedent for other states.  “It could alter the rights of at least 1 million workers including hundreds of thousands of Uber and Lyft drivers in California”, according to The New York Times.  Across the country, labor groups are pushing for similar protections. New York is likely to go after securing a minimum wage for ride-hailing drivers, something they already tried to pass last year, but failed, and bills in Washington state and Oregon will get a boost.

Here’s the overview:

• California lawmakers have passed a bill requiring Uber, Lyft, DoorDash, and other “gig economy” businesses to treat workers as employees instead of contractors.
• Uber and Lyft have said if signed into law (which is highly likely), would hurt workers by removing flexibility and would lead to customers paying more.

The blow to Uber and Lyft’s business models follows disappointing public debuts for both companies this year. Uber’s stock has slumped by about a quarter from its IPO price, while Lyft shares have dropped 37%.

Here’s what Uber and Lyft have said about the bill recently:

“You would hurt the majority of the drivers that are doing this on a more supplemental income basis and don’t want to work shifts,” Zimmer added.”You have the rigidity of an employment model where it’s helpful for a marketplace to have more flexibility on the hours people drive and the time of day and the size of the workforce given how fast we’re growing.”

Uber expressed similar sentiments.

“We think that there’s a better way forward,” Khosrowshahi said on the group’s latest earnings call. “The fact is that our drivers consistently tell us that the reason why they value Uber is they value their freedom. They’re their own boss. They run their own business. They can drive for us or not drive for us whenever they want, however they want.”

Their customers will stomach the higher costs.

Turning contractors into employees could raise the costs of gig economy companies by 20% to 30%, The New York Times said, citing industry officials.

Uber and Lyft have warned they would be forced to schedule drivers in advance, the newspaper said, most likely to avoid paying drivers during slow periods or in quieter markets. The upshot could be fewer jobs for ride-hailing workers.

Consumers could end up paying too.

It would save them money and give them more control over drivers.

Lyft expects to manage fewer drivers if the California bill becomes law, lowering the costs of inducting and equipping new drivers and running background checks, Zimmer said at the conference. The new rules would also combat the problem of Lyft spending money to onboard new drivers only for them to leave within months, he added. Employed drivers couldn’t quit as easily.

The group would also “gain more control over when drivers work and for how long,” Zimmer said. It could direct employed drivers to work specific shifts at specific times, potentially improving car availability for customers.

The requirements will ultimately reduce the number of positions available for workers and increase costs which will be passed onto customers. There is no win for anyone, except for maybe unions who are surely considering how to find a way to now unionize gig employees.