The gig economy grew faster than anyone could have imagined. Borne out of the financial crisis of 2008, people were willing to take on whatever work they could to make ends meet.
Uber and Lyft started in the early 2010s with just a handful of drivers, resembling car-pool services more than a professional transportation service. While Uber and Lyft initially tried to mimic black car services, they quickly promoted the idea that drivers were drawn to the apps by the novelty of gig work, rather than the promise of traditional employment.
So, people became drivers and hit the road en masse. All was good until Uber and Lyft’s little secret became clearer. They wanted to flood the streets with as many drivers as possible.
At first glimpse, this seemed like it could be good. More drivers would feasibly mean more work – but not always. In this case, since Uber and Lyft were treating drivers as independent contractors rather than employees, it doesn’t cost Uber and Lyft a penny to encourage as many drivers to go out on the street to wait for a job.
If Uber and Lyft had to pay drivers like employees, they would not have been encouraging drivers to go out en masse and flood the streets. Their business model would have quickly imploded.
Here is the problem: The interests of drivers and Transportation Network Companies (TNCs) are not aligned. Uber and Lyft want to pay drivers as little money as possible and don’t want to provide any benefits or protections. At the very least, drivers want as much work as they desire. Once Uber and Lyft flooded the streets with drivers, the laws of supply and demand dictated that someone was going to be worse off. In this case, it was the drivers who were going to lose the battle against the big bad TNCs.
Let me explain: Supply and demand are never in perfect harmony. Similarly, the number of people seeking pre-arranged transportation is never in perfect harmony with the number of drivers willing to provide pre-arranged transportation.
For decades, before Uber and Lyft arrived, the For-Hire Vehicle (FHV) industry in New York City did a great job of balancing supply and demand. The consumer got transportation when they needed it from the dispatch base of their choosing and the drivers had plenty of work. When more calls for pre-arranged transportation came to a particular base, drivers flocked to that base. The number of drivers a particular base maintained would shift slightly, based on that logic, but the broader number of drivers on the road and in the industry remained relatively stable.
Then, suddenly, the number of Uber and Lyft drivers on the road far exceeded demand from consumers. Drivers were performing fewer jobs, and that meant smaller paychecks. When drivers are making less money, they have less money to buy health insurance and other benefits that employees typically receive from their employers.
Then came the issue of whether Uber and Lyft drivers were employees or independent contractors. It makes a world of difference to both drivers and TNCs.
To date, TNCs have yet to be profitable. This means that to become profitable, they either need to earn more revenue or pay drivers less.
Now, throw in the monkey wrench of whether Uber and Lyft drivers are employees or independent contractors. The cost of hiring someone as an employee is generally 25% higher than the costs of an independent contractor. This is primarily due to employers being legally mandated to provide certain benefits and protections to employees that independent contractors are not entitled to. At a time when Uber and Lyft are still not profitable, the last thing they need is to pay 25% more in costs. If they did, in all likelihood, profitability would never be achieved.
We know the TNC industry has been defiant since day one. Regulators and lawmakers let it go and didn’t address the issue. In all fairness, it is a hard issue to address. Whether someone is an employee or an independent contractor differs not only from state to state but also the test used to determine if a person is an employee or an independent contractor varies depending upon the forum you are in (unemployment, Workers’ Compensation, labor law, etc.).
Even within the same forum, different judges often rule differently, even if based upon substantially similar facts and circumstances. The lack of a clear test of when a person is an employee or independent contractor makes this issue hard to tackle.
The leaders at Uber and Lyft knew from the beginning that the legal system is slow and that there was no real clear test to make the determination of whether an Uber and Lyft driver was an employee or an independent contractor – and used it to their advantage. They were able to use the grindingly slow pace of our legal system to continue to pay drivers as independent contractors. Of course, all of this was and remains to be to the detriment of FHV drivers.
Lawmakers in California saw an opportunity to regulate the defiant TNC industry. As I detailed in prior articles, California lawmakers passed a law named “AB5”. This law made Uber and Lyft drivers automatic employees. There was no more test, no more long legal process, no more stalling and no more exploitation of drivers. According to California lawmakers, it was time for TNC drivers to get their due and receive the benefits and protections that an employee is entitled to.
In most states, if you want a law passed, elected lawmakers have to introduce and pass a law. In California, like some other states, if you want a law passed, then you can have what is called a referendum. This is a general vote by the people on a single political question which has been referred to them for a direct decision.
While lawmakers in California wanted to bring Uber and Lyft in compliance with the law, they never counted on Uber and Lyft amassing over $200 million dollars to fight the AB5 law that they passed. The referendum created by Uber and Lyft was called Proposition 22 (Prop 22). Uber, Lyft and the delivery service DoorDash purposefully designed Prop 22 to exempt the companies from the state law that would have forced them to employ drivers and pay for health care, unemployment insurance and other benefits.
Uber and Lyft pulled no punches. They used all their power, all their money, all their influence and put forth the most expensive initiative in history. They flooded the press and airwaves with what they claimed to be the benefits of drivers remaining independent contractors. They influenced the media to believe drivers would earn less or be laid off if they were forced to pay drivers as employees. They threatened the elected leaders in California that they would exit the market if they lost. They scared the public into believing that Prop 22 did not pass, then waiting time for a pick-up would go up drastically. They even went so far as to offer reduced rides to the public to get them to the polls to vote in favor of their proposition.
Well, the election came and went. Most people tuned in to see if Joe Biden won the presidency or if Donald Trump would remain President of the United States. Not many people paid attention to the decision of the California electorate on the issue of Prop 22. In the end, California voters carried Uber and Lyft to victory, approving the Prop 22 ballot measure that allows TNCs and other gig economy companies to continue treating drivers as independent contractors. Now, drivers and other workers for gig economy companies in California will not become their employees. Californians rejected the lawmakers’ policy and now Uber and Lyft are exempted from these rules and gig workers can continue to work independently and not receive benefits.
Right after the election and the passing of Prop 22, Uber’s stock price jumped more than 14%, and Lyft’s rose more than 11% at the close of trading. Is this good for drivers? The answer is “no”. Is this good for Uber and Lyft executives? Yes. Is this good for those who own stock in Uber and Lyft? Yes.
So, why would people vote in favor of Prop 22? In my opinion, Uber and Lyft prevailed on Prop 22 because they fed false information to some driver groups and gave incorrect information to the electorate. Uber and Lyft told drivers that, if forced to make them employees, they would have to limit their hours due to costs and drivers would no longer be able to set their own hours.
This is simply not true. A company can use employees and allow the employees to set their own hours. The law does not prohibit this. But that is not what Uber and Lyft told drivers and the public. Uber and Lyft threatened to withdraw from the state if drivers were mandated to be employees. Do you really think Uber and Lyft would totally withdraw from one of their biggest markets? No way. So, the public bought Uber and Lyft’s bad bill of goods. In essence, Uber and Lyft bought themselves an election and bought themselves out of compliance with the law.
Whether Prop 22 will be good for drivers in California remains to be seen. Its passage is a harsh loss for elected officials who have long seen the TNC companies as obstinate upstarts that shrugged off any effort to follow the rules. But, there are 49 other states who may or may not fall for the same trap. Will elected officials in the other 49 states become “gun shy” in their efforts to make Uber and Lyft comply with the law? That remains to be seen.
Emboldened by the election, Uber, Lyft and other gig economy players are now likely to pursue federal legislation to enshrine gig work in the nation’s labor laws. In my opinion, California was too soft for too long when it came to regulating Uber and Lyft, and naïve about how powerful and influential they were. Uber and Lyft banked on their timidity and is banking on the same result throughout the country.
I always thought it was important to fight for the rights of drivers AND consumers. Uber and Lyft claim to be ready to champion new benefits structures that are portable, proportional and flexible. They claim to want to partner with workers and policymakers. Uber and Lyft can provide benefits to drivers in a variety of fashions, but their public pronouncements are far from the stark reality of what they do.
The passage of Prop. 22 is a setback in the long effort to regulate tech giants like Uber and Lyft, despite Federal lawmakers claiming to be eager to take on Big Tech. Members of Congress in both parties’ support cracking down on misclassifications for independent contractors. It is time for everyone to speak up, take action, bring the truth to light, and tell Uber and Lyft they cannot control what the future of work looks like for drivers.
Somebody has to stand up for FHV drivers. I have always been a staunch advocate for FHV drivers and the ground transportation industry in general. I have many ideas on how to make it work for the companies and the drivers so everyone can flourish. I get the feeling my thoughts and pleas for fairness often fall on deaf ears, but I will not stop my fight to make this industry a better place to work so all can thrive and survive.