As the COVID-19 pandemic and recession continue to cause economic uncertainty and high unemployment, the choice to deny individuals the ability to earn income would appear to be a toxic position for any politician to support. But, unfortunately, California continues to do just that. The state continues to support Assembly Bill 5 (AB 5), the 2019 law which reclassified drivers for companies like Uber and Lyft as “employees” and subjects them to unfavorable compensation schemes and increased regulation.
AB 5’s impacts have been disastrous to both customers and drivers. And Uber and Lyft continue to challenge the law in court after a recent ruling went against them. In August, the Los Angeles Times reported:
Uber Technologies Inc. and Lyft Inc. were ordered Monday to convert their California drivers from independent contractors to employees with benefits, an early loss in a court battle that the gig economy can’t afford to lose.
The judge’s Monday ruling won’t be the last word, as the ride-hailing companies are expected to appeal the far-reaching preliminary injunction. If the companies are forced to reclassify their California drivers as employees, they would be on the hook for overtime, healthcare and other costly benefits.
The case brought by California officials to enforce Assembly Bill 5, a state labor law that took effect this year, is the most serious legal threat yet to the gig economy — and it comes at a particularly difficult time for the ride-hailing industry.
Few, if any, states have benefitted as much from ride-hailing platforms as California, and AB 5 cutting into those benefits looks to be a matter of “how much” not “if.” A 2019 analysis of AB 5 estimated that the additional costs of its mandated benefits, which include health insurance, workers compensation, and sick leave, would add around 30 percent to 50 percent to the cost of a typical ride in California.
Drivers are harmed, too: both younger and part-time drivers value income compensation over benefit compensation. The pressure to cut costs could cause more drivers to lose all their ride-hailing income, as well as encourage consolidation of ride-hailing platforms, which kills competition to the detriment to customers and drivers, who will have fewer firms to choose from.
In the year since AB 5 was signed into law, workers have sought exemptions from its provisions. Appraisers, coaches, interpreters, musicians, photographers, translators, and writers are expected were among the most recent batch of legislatively-approved exemptions in AB 2257, which California Gov. Gavin Newsom signed earlier this month. While the full repeal of AB 5 seems to be a nonstarter in Sacramento, a voter-initiated proposal, Proposition 22, will be on the statewide ballot this November. Prop. 22 would give California voters an opportunity to give drivers the same relief from AB 5 that many other industries have gained via various exemptions. It would “define app-based transportation (rideshare) and delivery drivers as independent contractors and adopt labor and wage policies specific to app-based drivers and companies.”
As Uber and Lyft wait for election results and consider the prospect of leaving the state, supporters of AB 5 should think about whose interests they are serving. Is it the workers in whose name they claim to speak, or is it personal and political preferences?
Consumer preferences should also be taken into account: If ride-hailing is eliminated it is unlikely that there would be a surge in transit ridership since most ride-hailing customers are not formal transit users. Across the state, Southern California and much of the Bay Area have unreliable public transit systems that don’t reach many key areas. Because traditional taxi and shuttle services were also unreliable and expensive, digitally hailed on-demand rides to chosen destinations were a welcome innovation to many residents. Most importantly, ride-hailing platforms have provided income streams for many who otherwise would not have them, critical in a state with notoriously expensive housing and thousands of square miles of dispersed suburban development.
In reality, many drivers say they prefer the flexibility of the payment arrangements in their contracts. In August The Rideshare Guy, found that 71 percent of drivers surveyed from his email list said they preferred the status quo of independent contracting to AB 5’s employee designation, down from 81 percent before the pandemic.
Some proponents of AB 5 claim that ride-hailing platforms “exploit” drivers. But drivers appear to prefer obtaining compensation through income rather than benefits. For most drivers, ridesharing is a part-time way to make money. Many of them receive health insurance and other benefits from a primary employer. But even those who get their primary source of income from ride-hailing shouldn’t be forced to enter a compensation arrangement that does not meet their preferences. Flexibility with work time and compensation is what attracts so many to deploy their expensive and depreciating assets (cars) into producing income via rideshare platforms.
In fact, claiming to know someone’s preference for compensation—precisely what AB 5 does—and consequently limiting that person’s ability to earn an income could be described as exploitation of another kind. As identified nearly 250 years ago by Adam Smith in The Wealth of Nations:
What is the specie of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his own situation, judge much better than any statesman or lawgiver can do for him.
The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which can safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
Those continuing to supporters AB 5 are indeed assuming an authority that cannot be safely entrusted to any group of individuals: that of deciding how people can peacefully earn a living. Ride-hailing platform drivers are merely one of the many classes of workers that may see their incomes reduced or eliminated in the name of saving them from “exploitation.” Ultimately, politicians should let individuals decide how to best employ their human capital free from government meddling, rather than reduce their choices and decide for them.