Voters got their chance to tune in to the two major political party conventions — to hear politicians express their visions for improving the lives of workers and moving the economy forward.
But until a last-minute state appeals court decision Aug. 20, those living in the fifth-largest economy in the world (home to some of the most innovative companies on the planet) were at risk of losing access to a years-old technology that is available everywhere, from Bangladesh and sub-Saharan Africa to Australia and the United Kingdom.
Uber and Lyft, popular ridesharing apps based in San Francisco, were on the verge of suspending operations in their home state of California (killing 100,000 jobs in the state) as a result of Assembly Bill 5, enacted last year. The companies were being forced to consider suspending operations in California because they cannot afford to comply with the requirements of the law without draconian cutbacks. A California appeals court granted a last-minute reprieve just hours after Lyft confirmed their plans to suspend operations, so the companies and their drivers are in the clear — for now.
AB 5 significantly narrowed independent contractor status under state law for numerous industries. It aspired to require the ridesharing companies to treat drivers as employees. Currently, Uber and Lyft drivers are independent contractors, able to determine their own schedules and enjoy several other benefits of entrepreneurship, using the ridesharing apps as the platform to do so. Under AB 5’s requirement that they be treated as employees, the companies would be faced with thousands of dollars in additional costs and responsibilities for each driver and would be required to exert more control over their schedules. The result would be reduced flexibility and reduced pay in return for benefits that only some drivers would prefer.
Both Uber and Lyft have struggled to turn a profit. They have laid off thousands of employees in 2020, largely as a result of the economic impact of the coronavirus pandemic. As an Uber company economist told the Wall Street Journal, they would be able to hire just one-fourth of their existing drivers — killing the jobs of 150,000 Uber drivers. The company would need to spend millions building a framework to track drivers’ schedules and oversee operations. As a result, the cost of an Uber ride could increase anywhere from 20% to 120%.
The additional costs notwithstanding, implementing the change would take weeks or months. That’s why it was such a big deal when a judge ruled that the companies had until midnight today to reclassify drivers.
Some are celebrating the legislation and the judge’s ruling, adamant that the companies should not be allowed to operate in California without classifying drivers as employees. But 79% of independent contractors prefer their existing arrangement to traditional employment, and the need for flexible work arrangements has only increased as a result of the coronavirus pandemic as families struggle to balance competing priorities of earning an income while children are stuck at home because of closed schools.
In addition to the drivers who will lose their jobs, the communities that would suffer most from the suspension of service are those most in need of it. Low-income and suburban communities benefit disproportionately from ridesharing services, but the companies would likely reduce their presence primarily in rural and suburban areas where demand is sparse. And one study of Lyft’s presence in Los Angeles showed that ridesharing disproportionately benefits low-income and minority neighborhoods where car ownership is rarer and where taxicabs often refuse to provide service.
Ultimately, the people most harmed by AB 5’s expansion of government rules are those most in need of economic opportunity. And unfortunately, the threat doesn’t end there.
Earlier this year, the U.S. House passed H.R. 2474, the Protecting the Right to Organize Act, which would codify AB 5’s language under the National Labor Relations Act, expanding its harmful impact nationwide. Worse, the PRO Act applies to even more industries than AB 5 and includes steep financial penalties for misclassification — further increasing its economic costs. It has been cosponsored by 41 senators and endorsed by the Democratic presidential nominee, former Vice President Joe Biden.
AB 5 has put at risk millions of California jobs and the services they provide, ranging from ridesharing to journalism to music to healthcare. At a time when people are most in need of flexibility and economic opportunity, California’s efforts to stifle flexible self-employment should serve as an important lesson to all people that government rules and regulations can do more harm than good and stand in the way of productive, mutually beneficial private-sector innovations.
Austen Bannan is a senior policy analyst at Americans for Prosperity.
