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For decades, the major ride-hailing companies have been engaged in a fierce battle to determine who can be labeled their "customers," and in many cases, who must be classified as their employees.
Now, a California law may force Uber and Lyft drivers to accept that they are employees rather than independent contractors. If passed, AB 5 could effectively force these companies to treat drivers like employees instead of independent contractors.
Uber and Lyft have made a strategic decision to go all in on the pursuit of the driver's seat. From cutting costs to courting top talent, these ridesharing giants are becoming a force to be reckoned with in an age marked by a resurgent competition from taxis and limousines. A renewed sense of pragmatism is finally giving these companies the boost they deserve - most notably by reclassifying drivers as employees.
At the time Lyft and Uber began, founders Logan Green and John Zimmer believed they were solving a problem: an absence of transportation alternatives in urban areas. Furthermore, both men were passionate about creating a platform that would reduce dependence on private car ownership - ideals which they continued to champion internally according to four current and former employees from both companies.
Uber and Lyft faced legal battles during this period regarding how to classify their drivers as independent contractors. Uber invested millions of dollars in fighting a California law that would have classified its drivers as employees and required it to provide them with benefits and protections.
Both companies are now seeking a way to treat their drivers as employees without altering their business models, but it remains uncertain how this will be accomplished. One potential solution could be licensing their brands to operators of vehicle fleets, keeping the companies at arms' length from their drivers.
But to achieve this goal, they would need to invest in the technology needed and maintain an extensive network of drivers who could meet demand across the country. This is a massive undertaking and potentially expensive due to both companies' size.
Another potential solution is to simply increase driver compensation. Washington State has taken this approach, guaranteeing drivers $1.65 a mile as well as benefits like worker's compensation insurance and paid time off.
This could help them avoid costly litigation that has recently plagued their business models, and it could allow them to keep expanding into new markets while maintaining profitability. But to do so, they would need to invest in technology and build an extensive network of drivers across America - a process likely to be expensive and take years to complete.
According to the Wall Street Journal report, both companies have been seeking ways to improve driver satisfaction and make them more productive. Although they convene dozens of employee groups to investigate this problem and propose improvements, neither company has responded or taken action on those suggestions.
One major obstacle facing some drivers at Uber and Lyft is the company's misclassification of them as independent contractors. This means they lack basic pay and benefits like health insurance, sick leave, or pensions; thus companies like Uber and Lyft are advocating for state-level laws that would make them legal employees.
In 2020, Uber and Lyft publicly supported and promoted California's Prop 22, which would have required rideshare companies to guarantee their workers minimum wage and health insurance. But drivers have taken issue with the campaign, believing it was an attempt by companies to mislead them and profit off of class-action lawsuits they were facing against them.
Many drivers across the US are now calling for a strike that will last days in cities across America. The demonstration seeks to raise wages, promote transparency in how ride fees are allocated and advocate for legislation that safeguards drivers against dangerous conditions like the recent fatal accident of an Uber driver in Pittsburgh.
The strike is supported by organizations such as Uber Drivers United and Riders for Justice, along with advocacy organizations Rideshare Drivers United and Workers' Rights Alliance. They contend that Uber's misclassification poses a danger to drivers' safety and livelihood, so should be made illegal.
Uber and Lyft claim they provide drivers with insurance, yet the amount often is not enough to cover drivers' costs - such as medical bills, dental expenses, vehicle damage/theft and emergency repairs. This is especially true for uninsured or Medi-Cal drivers - the public healthcare program for people at low income levels.
It's no wonder rideshare drivers are growing increasingly dissatisfied with the industry. As rider demand has grown and fuel and energy costs have skyrocketed, some drivers have seen their take-home pay decrease significantly.
Drivers report feeling pressured to accept rides even when they know the passenger will cancel, or when the passenger has a poor rating or reputation in their city. Furthermore, some complain of repeated pings from the app for the same rider - leading them to accept rides multiple times just to maintain access bonuses and acceptance rates.
Uber and Lyft are two of the biggest players in this space. Although the ride hailing industry has seen tremendous growth over the last few years, it's difficult to forecast what direction things will take with so many apps competing for customers' attention and money.
Analysts still view ride-hailing as a potential growth market, however. A new report from Goldman Sachs indicates that ride-hailing services will revolutionize transportation services.
This will include the advent of autonomous cars. While their promise is that they will replace all private car ownership and reduce traffic congestion in major cities, there are also some concerns about their cost and safety.
Ride-hailing companies are facing obstacles related to their drivers' status, with some governments and airports seeking to restrict or ban services. Changes in laws could impact how much tax money these businesses must pay outright.
Many governments have charged that companies are violating tax laws by not paying their drivers enough. This has ignited a fierce battle over driver status.
Due to these changes, the company's profits could be negatively affected. It is possible that they may need to raise prices or reduce services offered.
No matter the outcome, this could have a major effect on both Uber and Lyft's profits. This is something many investors are anxious to know as these companies prepare to go public.
If the companies were forced to raise their prices, a large segment of the population may no longer be able to afford these services. Therefore, demand for ride-hailing may not continue growing at its current rate.
This could indicate that companies could begin to lose drivers, potentially leading to a decrease in their market share. It's possible their rivals like Didi Chuxing could catch up quickly and overtake them in terms of ridership.