On September 11th, lawmakers in California passed a bill that requires most companies to classify contract workers as full time employees. The law is slated to take effect January 1, 2020. When it does, per the parameters of the legislation, Uber and Lyft drivers will be deemed employees with a minimum wage guarantee, workers compensation, sick leave and unemployment benefits. The bill's sponsor, Assemblywoman Lorena Gonzalez (D), stated that, “it will help workers, not Wall Street and their get-rich-quick IPOs.”
At TQC, while we are not sure which companies Ms. Gonzalez is referencing – Uber was founded in 2009 and didn’t go public until 2019 and the timeline was similar for Lyft - we have no reason to believe that she is being insincere in her effort to help drivers. Unfortunately, what Ms. Gonzalez and CA Governor Gavin Newsom (D), who lobbied intensely in favor of the bill, do not seem to comprehend or want to concede, is that the vast majority of Uber and Lyft drivers ply their trade on a part time basis, by choice. Many drivers have other full-time jobs and drive occasionally for extra money. Some drivers are students looking to earn pocket money between classes or study hall. Other drivers juggle multiple responsibilities and pick up a shift or two during a little downtime. A retiree might even get behind the wheel to stay active and engaged with his or her community.
The minimum wage guarantees embedded in the Golden State’s legislation ring hallow. While the majority of Uber and Lyft drivers in CA do not work full time via standard 8 or 10-hour shifts, the vast majority of those drivers that do already earn considerably more than minimum wage.
The legislative changes to be enacted in CA will probably have a deleterious effect on drivers and consumers alike. The most important benefit Uber and Lyft offer drivers is flexibility. Their respective platforms allow drivers to work when they want, where they want and for as long (or short) as they want and not on a rigid schedule dictated by management. If drivers become fulltime employees as mandated by California law, the aforementioned ancillary benefits will cease to exist, the appeal of working as a driver will decrease and the cost of ride will increase. Said Lyft communications director Adrian Durbin:
“Only ‘a small fraction’ of Lyft’s roughly 325,000 drivers in California will keep working if the law takes effect. Some experts reckon ride fares could rise by as much as 30%.”
I Will Guarantee You One Tank of Gas, Even Though You Already Have Two
In New York State, Governor Andrew Cuomo (D) is pushing for similar legislation that would classify Uber and Lyft drivers as full time employees. This summer New York City Mayor Bill DeBlasio (D), never a fan of the two ride hailing apps, extended a pre-existing moratorium on new TLC licenses for another year. DeBlasio cited congestion and poor wage conditions for his (flawed) reasoning. In his own words, DeBlasio stated:
“We are not here to serve the corporate titans, we are here to serve the people.”
In Mr. DeBlasio’s city, a greater proportion of Uber and Lyft drivers do indeed drive “full time;” it is hard work. To toil behind the wheel of a Toyota Camry for 8 to 10 hours a day, 5 or 6 days a week, in Manhattan’s trafficked streets takes stamina, patience and concentration, but those who do earn an average of ~$80,000 per year. If Mr. DeBlasio is truly interested in serving the people of New York City, he should immediately repeal the stay on new TLC licenses. The mortarium is bureaucratic red tape that stinks of special interest meddling. Most importantly, it inhibits hard working individuals (who otherwise might be flipping a burger for the minimum wage the fundamentally flawed legislation in CA is “guaranteeing”) from an opportunity to work hard and earn significantly more.
Uber and Lyft are doing a far superior job catering to working New Yorkers than the sclerotic Mass Transit Authority (MTA). New York’s subway is plagued with constant delays, overcrowding, filthy cars, and unreliable service. Uber and Lyft offer inexpensive, safe, clean, convenient carpooling options in all boroughs of the city. In fact, the incrementally lower cost of an Uber “Pool” or Lyft “Line” is rapidly converging with the rising cost of a subway ride ($2.75). While traveling 3 mph in an Uber Pool during rush hour is suboptimal to say the least, it sure beats being trapped underground in-between stations in a packed, filthy subway car with inadequate ventilation and inaudible conductor announcements.
Recently this author, while riding in an Uber stuck in insufferable traffic, had a chance to discuss with his driver the proposed changes to driver status from independent contractor to employee. The driver had recently relocated to New York; driving for Uber was the most efficient and effective way to earn a solid wage on his own schedule while searching for an office job of his liking. He mentioned that while the potential for paid sick leave and a health insurance option were interesting, in no way would those benefits outweigh the flexibility he has, the freedom of being his own boss. While one subject is certainly not a statistically significant sample, he did stress that many of his cohorts share similar sentiments.
In a recent op-ed to the Sacramento Bee, CA Governor Newsom argued that ride hailing platforms should not be allowed to “shirk responsibility” and should cough up for things like medical benefits, unemployment insurance and paid sick days. New York City is in desperate need of an infrastructure upgrade. The city is plagued with congested, potholed streets and the MTA must be modernized. This will cost billions of dollars on top of the generous lifetime benefits granted to its unionized employees.
Because Uber and Lyft drivers are independent contractors, the companies do not have to incur a payroll tax, the proceeds of which would normally end up in state coffers. This is despite the fact that their drivers use public resources that cities and states must pay to maintain. In our view, while we do not think Uber and Lyft should be required to provide health insurance, unemployment benefits and sick leave to independent contractors, we do think they have a responsibility to help maintain the public resources their drivers use, even though they are independent contractors.
Earlier this year, New York City introduced “congestion pricing.” Uber and Lyft vehicles will pay $2.75 per ride (75c for carpools) if a passenger is picked up south of 96th street, in Manhattan. If those funds are actually allocated to help fix the cities' dilapidated roads and or modernize the subway, we support this. Congestion pricing is a sensible middle ground. If the funds generated are used as intended, the result should be mutually beneficial to everybody. Yellow cabs are also required to pay a $2.50 congestion fee. We do not support this. Ride hailing apps have decimated New York’s yellow cab industry. While the specifics go well beyond the scope of this article, the price of a yellow cab medallion has collapsed from ~$1,000,000 (pre-Uber & Lyft) to ~$150,000 today. Many owner operators have negative equity in their medallions and have seen their income severely squeezed. They have already felt enough pain, some cabbies have even committed suicide. The city should take immediate action and repeal the yellow cab congestion fee.
Looking In The Rear View To Move Forward
Even before the legislation passed in California, Uber and Lyft raced into 5th gear in an all-out effort to fight back. They committed $60 million to the effort; DoorDash, a delivery platform that uses contract employees, jumped onto that bandwagon pledging another $30 million. Currently, Uber and Lyft are trying to maintain the status quo and placate lawmakers by offering a floor on earnings and to reimburse drivers for certain expenses. If that does not suffice, they are willing to take their argument directly to California’s voters, gathering enough signatures on a petition “to kick-start a ballot initiative that would sidestep California’s lawmakers.” We support these efforts.
By limiting the ability for individuals to make an informed and independent decision to work for a ride share company as an independent contractor, politicians in California and New York risk creating economic misfortune for those very drivers whose interests they claim they want to protect.