Uber and its more than 200,000 drivers in California have fallen victim to the state’s assault on the gig economy. The ride share giant announced yesterday that they are likely temporarily shutting down operations in California.
The company was sued by the state of California and lost for their failure to follow the law that would force an entire restructuring of their business. Given an impossible time frame of 10 days, Uber has two options: hope their appeal is successful, or shut down.
The bill responsible for destroying a source of income for hundreds of thousands was endorsed by both Joe Biden and Kamala Harris, the current Democratic nominees for president and vice president. Hopefully, the failing experiment will be relegated to California and not brought upon the rest of the country.
Last fall, California passed Assembly Bill (AB) 5, which set unrealistic and severe limits as to what type of work classifies as employee versus independent contractor. The bill was intended to limit the use of contract workers, forcing companies to hire contractors full-time.
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However, the result instead financially harmed both the companies providing work and the contractors who relied on these jobs as either a primary or supplementary source of income.
The business model of rideshare companies sees drivers paid exclusively based on the rides they provide. AB5 would force Uber to pay drivers an hourly rate along a set schedule, which goes completely against their method of drivers clocking in and out based on availability, which allows Uber driving to be so beneficial for supplementing one’s income.
Many companies that rely on independent contractor relationships, such as Uber, Lyft, and Doordash, lobbied against AB5, but the state government proceeded, with Gavin Newsom signing the legislation in September.
Nevertheless, Lyft and Uber continued to fight, rather than accept the regulations. In May, the state sued both companies for their refusal to reclassify their drivers as employees and compensate them accordingly. The lawsuit hit just as the pandemic decimated the demand for rideshares.
Last week, the Superior Court ruled in favor of California, giving the companies 10 days to comply with the law, a deadline which expires today. Since compliance in so short a window was impossible, Uber is likely temporarily shutting down in the state. The drivers, customers, and company will all be harmed by these policies.