California continues to lead the nation in new regulations governing the new economy approaches to business. The latest ruling from the Golden State’s legislature potentially impacts gig workers, including drivers for services like Lyft, Uber, and DoorDash.
The ruling, known as California Assembly Bill 5 or AB5, is commonly called the gig-worker rule. AB5 requires app companies like Instacart, DoorDash, Uber, and Lyft to pay their workers a minimum wage, along with providing benefits such as health insurance and compensated sick days. That’s a far cry from the current arrangement, which doesn’t include these benefits.
The App Companies Are Fighting Back
The ride-sharing giants are fighting to get their business models exempted from the new ruling. They’re hoping to introduce and pass legislation in 2020 that would allow them to continue to operate as they have until now. The companies formed Protect App-Based Drivers and Services to spearhead their initiative to push back.
Lyft and Uber claim that AB5 is an existential threat to their business model, but analysts don’t share the same level of anxiety. The coming months will reveal much more detail about where gig workers and the gig economy are heading in the U.S.
Drivers Are in Line for a Lot of Benefits
If the companies are unable to get an exemption, the way these ride-sharing drivers work and live will transform quickly. Currently, drivers operate as independent contractors, not employees.
Once classified as employees of these companies, the workers qualify to get unemployment and health insurance, social assistance, and minimum wage, if applicable to local laws. The move would also position them to bargain for even more significant benefits and give them the option to unionize.
All of these new benefits will add a lot of expenses for Uber, Lyft, Instacart, and others. None of the app companies are profitable, and the rule changes bring a negative hit on earnings. An analyst for Barclay’s estimates that the new classification for California drivers will cost these firms an average of $3,625 per worker annually. The companies say they will pass those costs along to customers in the form of higher fares.
Why Is AB5 so Important?
California is out front in the battle to reign in the app companies, and the rest of the national legislators are eyeing the case. They feel that AB5 serves as an ideal blueprint to make changes in their cities. These app companies operate in all fifty states, all of whom are struggling to keep up with disruptive changes the gig economy brings. If the ride-sharing companies fail at securing an exemption, laws similar to AB5 will likely spring up around the country.
What Happens Next?
If the ride-sharing companies don’t get their way, fares will likely increase. Further, the companies will need to integrate and onboard millions of employees at an enormous expense. They’ll have to move fast and rely on their loyal customers to make up the difference.
Whether rideshare customers are willing to pay more is up to the marketplace to decide.
If you drive for any of these companies in the Southern San Francisco area and you need help with an automotive body repair, contact Peninsula Auto Body for more information on our repair and body service offerings.