The recent ruling has added on to the list of worries for Uber and Lyft. Will this be the end of Uber and Lyft Services in California or will they emerge victorious?

Until now, Californians have had the freedom of low rideshare and food delivery fares, along with a readily available driver, at the tap of a button with Silicon Valley start-ups competing for their business. But things might be different after Nov 3. Anyone keeping a keen eye on current affairs would know that California is the latest battleground for home grown tech companies Uber and Lyft fighting to keep business as usual and have their drivers remain employees rather than independent contractors. Resorting to sponsoring a state ballot, Proposition 22, and are spending a whopping $183 million to keep the current status quo. So, what is at stake here? 

What’s at Stake for Uber and Lyft?

Uber and Lyft’s business model relies heavily on hiring a large number of workers as independent contractors to provide rides, deliver meals and other services, allowing them to conduct business with minimal overheads and keep prices low for the end consumer. Assembly Bill 5 (AB5) will completely overhaul their current business model and will be a huge blow to the way they function.

Enter Prop 22, their last resort to maintain control. If Prop. 22 fails, Uber and Lyft will be forced to give their drivers employee benefits, which will increase costs on their end and would see prices increase by as much as 120 percent which no one in California wants to see. This is one of the main points Uber & Lyfts are advocating against AB-5. These companies are suffering a drop in ridership and profits due to the Covid19 pandemic as it is and should Prop 22 fail, it’s only going to worsen the situation.  

History has seen Uber and Lyft previously leave cities such as Austin, Texas for a year in order to force lawmakers to change regulations they didn’t like, but it’s unlikely that we will see a similar threat given that California is their biggest market and home soil. 

The backup plan that these companies are currently exploring is shifting to a franchise model, leaving the issue of worker classification to the third party such as taxi business — which would become their actual employer, while they continue to operate as nothing more than apps. Should Prop 22 fail Uber and Lyft are going to see some major changes in the way they operate. 

What’s at Stake for the Drivers?

Whilst Uber and Lyft argue that the drivers want to remain as individual contractors, Californian Unions and workers are fighting back. By becoming employees, drivers will get to enjoy a range of employee benefits such as paid sick leave, minimum wage and unemployment insurance – ever pressing during the uncertain future the pandemic presents. This also means that drivers will be able to unionize and bargain commissions like taxi drivers which would not be possible with Prop 22, which is designed to pit workers against each other to get the limited supply of jobs. Until now, gig companies have been trying to lower wages and undermine stable union jobs for drivers and other workers by using them as contract workers. 

However, the flip side of this is should Prop 22 fail, Uber says California’s AB5 law could cost 158,000 drivers their jobs in this extremely fragile economy. This simply means that the number of active drivers the company could hire would drop by 75% and countless people’s jobs are jeopardised. 

Lyft’s picture is similar. Currently, nearly 86% of Lyft’s workers drive for less than 20 hours a week, having the driving as a second job. With the new employee status, the drivers will lose the opportunities for flexible working hours and quit on the additional earning opportunity they currently have working on multiple platforms. This is because these giants would probably cut down service, particularly in less-profitable areas, leading to a reduction in the number of hours drivers can work. The result? Drivers are going to lose because they’re going to have less hours.

What’s at Stake for the People of California? 

The decrease in the number of drivers will also negatively impact passengers’ ride experience, who are accustomed to getting a car anytime and anywhere in California. Should Prop 22 fail, it is predicted that the minimum waiting time will increase from 7 to 14 minutes as Uber and Lyft would need to cut back on the number of drivers they employ. This would lead to a drop in the number of drivers out there and the cost of a ride will increase from 25% to 111% with additional costs these companies will have to provide the employee benefits to the drivers. The catch is here that this could lead to a never ending chicken and egg situation. As the price of rideshare increases, people would be less likely to use the service, lowering demand and creating a spiral that hikes the fare further. This might not affect larger cities such as San Francisco or Los Angeles who have the population to fuel the services, instead, these would double in small cities such as Fresno or Modesto with lesser demand. 

How will the pandemic and safety impact of public transport affect Californian voters? A recent online poll conducted last week by UC Berkeley’s Institute of Governmental Studies shows a tight race, with 49% voting ‘yes’ to Prop 22, 42% voting ‘no’, and only 12% undecided leaving it unclear which way the vote will go. 

But where a problem is found, a solution arises. We can already see new players arising  in California who are willing to comply with AB 5. Small Texas ride-hailing start-ups such as Alto and Arcade City already have plans to launch in Los Angeles. These two companies employ business models that are completely different from that of Uber and Lyft. There’s also taxi Yellow Cab that has the head start with established rapport that Californians can rely on. Especially, with the recent partnership of Yellow Cab with the local travel app Float Mobility, users will get to select the fastest, cheapest and greenest way to travel. The partnership provides a direct booking system allowing passengers to determine the best option for getting from point A to point B. It would also provide a variety of travel options, regardless of the uncertain future of California’s rideshare sector. And with a potential gap in the market, we might also see a rise in the usage of micromobility services that are raring to go. 

In short, the app-based companies have put in a gigantic effort to support the campaign and convince all the stakeholders to vote YES, and are tireless working on back-up plans should the campaign fail. Completely leaving the state will be a tough decision for both Uber and Lyth, as 9% of Uber’s and 21% of Lyth’s ride & food delivery services belong to California. Whatever the result is, it would be clear on November 3. So, what will the future of drivers and delivery workers look like going forward? We will have to wait and see. 

Meanwhile, for more information, check out further details of the upcoming voting here.