Treat workers as employees? Uber, Lyft and others are scrambling for a compromise
Faced with a looming threat to their way of doing business, Uber, Lyft and other major on-demand companies are trying something they’ve historically been reluctant to do: seeking compromise.
Anxious to preserve the freelance work arrangements upon which they’ve built their vast workforces, these companies have been pushing for a grand bargain that will satisfy labor groups’ demands and stave off a California bill that could force them to treat workers in the state as employees — an outcome that would damage their hopes of long-term profitability.
In recent months, Uber, Lyft, DoorDash, Postmates and other companies have been in discussions with officials at two labor unions — including local chapters of the Teamsters and Service Employees International Union — over a possible legislative alternative to Assembly Bill 5, now working its way through the state Senate. The proposal, details of which are still in flux, would allow the firms to continue to treat workers as independent contractors while providing them some benefits and protections typically reserved for employees. (The California Labor Federation, which represents most of the state’s unions, remains committed to obtaining full employee status for on-demand workers.) At least two of the companies, Postmates and DoorDash, have also commissioned surveys to feel out how such a deal would play with Californians.
The longer the discussions drag on, the greater the pressure on the companies to secure a deal. Last week, an SEIU official in New York State criticized a bill that attempts to strike a similar balance wherein gig workers remain contractors but qualify for some benefits. In an op-ed in the New York Daily News, the president of New York’s local chapter of SEIU, Hector Figueroa, called the bill a “giveaway to gig companies” that “cherry picks which labor laws to apply to gig workers.”
“The Teamsters believe every worker in California deserves to earn a living wage, benefits, and to be able to join together with their co-workers so they can set standards for their jobs,” Doug Bloch, political director at the local chapter of the Teamsters union in California, said in a statement.
If it were to become law, AB 5 would codify and give additional legal force to the April 2018 state Supreme Court ruling known as the Dynamex decision, which created a three-part test for companies across industries seeking to classify their workers as independent contractors. Its most stringent requirement is that workers must be treated as employees if they provide a service that’s core to a company’s business. While Dynamex is now the law, AB 5 would ensure that workers would not have to file suit against companies one by one to make sure it is enforced.
Treating their workers as employees would mean the tech companies would have to guarantee a minimum wage and overtime, pay into Social Security and Medicare, and offer unemployment and disability insurance, workers’ compensation, sick leave and family leave. They would also have to reimburse workers for mileage and maintenance of their vehicles.
On-demand companies say this legal regime would handicap their ability to recruit workers to keep pace with demand and add significant costs to their bottom line at a time when none of them is yet turning a profit. For Uber alone, the additional cost could be as high as $500 million per year, according to a study by equity research analysts at Barclays.
Echoing their arguments, the California Chamber of Commerce last week asserted that classifying ride-hailing drivers as employees “would undercut the innovation of a business model that has powered economic growth for the state,” resulting in less flexibility for drivers and longer wait times for passengers.
Historically, consultation and cooperation have not been preferred ways of doing business in the on-demand sector. From the start, Uber and other on-demand platforms have faced challenges to their legality, from their classification of workers to their liability for accidents to their regulatory status. The default response to such challenges has been to fight back, both in court and in the arena of public opinion. Over the years, they’ve made various concessions to the demands of workers and customers, but as recently as the beginning of this year Lyft sued New York City to stop it from imposing a minimum wage requirement.
The major on-demand players have been equally fractious in their dealings with each other, jousting for workers and customers and employing the occasional dirty trick to find an edge. For these companies now to be harmonizing their messaging and seeking parlay with some of the same parties they’ve long rebuffed shows how seriously they’re taking the threat AB 5 represents.
What companies are proposing would look a lot like the broad framework Lyft and Uber executives laid out in an op-ed in the San Francisco Chronicle recently. It would include some kind of wage protection, potentially tied to the state minimum wage; a portable benefits fund that each company would contribute to; and some sort of formal worker association through which contractors could voice their concerns.
“The goal is to preserve drivers’ independence,” Lyft said in a statement, “while guaranteeing a minimum earnings floor, establishing worker-directed portable benefits, and creating a new association in partnership with labor groups to administer the benefits that best meet driver’s individual needs.”
“DoorDash’s focus is on crafting legislation this year that preserves the flexibility and autonomy Dashers value while establishing groundbreaking protections and benefits tailored to the unique nature of work on our platform,” Max Rettig, head of public policy at DoorDash, said in a statement. Uber did not provide a statement but confirmed its participation in the discussions.
Both Postmates and DoorDash have conducted early polling to get a read on how California residents feel about the general contours of the legislative deal.
“Modernizing a safety net that decouples the delivery of benefits from an historical employment model (and enacts new floors of protections for a mobile workforce) is hard work,” Vikrum Aiyer, the vice president of public policy at Postmates, said in a statement.
“That’s why we’ve been routinely surveying Californians, including workers who use Postmates across the country, to understand their sentiment around the gig economy and how they view a new deal like the one we have been whiteboarding with labor,” he continued.
Uber and Lyft attempted to mobilize drivers this month to lobby for their cause, citing the possibility of less flexible hours and lower pay if they were treated as employees.
But some of those workers say they don’t trust companies such as Uber and Lyft to offer consistent wages in the existing contractor model and favor government-mandated labor protections.
Rebecca Stack-Martinez, who drives for Uber and Lyft, says she initially preferred to remain a contractor because of the flexible schedules but has come to believe AB 5 is necessary.
“These companies have had their chance to do right by the drivers,” said Stack-Martinez, who also is a member of labor group Gig Workers Rising. “But I think it’s come to a point where drivers realize Uber and Lyft can no longer be trusted to do the right thing. And so it’s going to take this legislation to force them to do the right thing, even though I would say the majority of drivers would prefer to stay independent contractors.”
Ultimately, the hope is if these labor groups and tech are able to come to some sort of agreement, the deal could be proposed through some kind of legislative vehicle. One possibility is that it could be proposed as an amendment to the Assembly bill if its author, Assemblywoman Lorena Gonzalez (D-San Diego), is open to it. Or, if AB 5 moves through the Senate faster than a deal could be cobbled together, it could be introduced as a separate bill, according to some of the companies. They declined to comment on how far along negotiations are, though they’ve confirmed they have yet to come to an agreement with labor.
“I’m glad the companies are realizing they’re not paying enough, but I have yet to hear any proposals from these tech companies that would truly give their workers basic labor protections, collective bargaining rights and a voice on the job,” Gonzalez said. “I also would be curious to know if the long-existing ride-share worker associations are involved in these discussions.”
The question of employee classification is a divisive one among many gig workers, and even more so when it comes to the possibility of a third worker classification beyond the employee/contractor binary. For Stack-Martinez, the potential for a third legally enshrined worker classification that mixes the flexibility of being a contractor and the benefits and other labor protections afforded to employees is intriguing.
“If they were going to go the way of legislation and make sure that this was something regulated and not just promised by companies, I think drivers would be all about that,” Stack-Martinez continued. “But unfortunately, that’s not on the table at this moment.”
Other drivers such as Nicole Moore, an organizer of an independent driver group in Los Angeles called Rideshare Drivers United, don’t want to settle for less than what they would be entitled to as employees.
“If the courts are trying to say we’re actually employees, why would we want less than employment?” Moore said. “We gain nothing by agreeing that we’re some third category.”
“If we’re going to negotiate about our rights, let’s do it in contract bargaining,” she continued. “Not undercover between parties that are not even drivers.”
But there’s little disagreement when it comes to the proposal for a worker association that is not run independently of the companies and thus may come with conditions such as an inability to strike. Moore and Stack-Martinez want to avoid being part of a group that looks like the pseudo-driver union in New York City, called the Independent Drivers Guild, which Uber agreed to create as part of a five-year labor agreement with the local machinists union.
“It’s a nice conversation with the companies, but then the next day there’s no guarantee that they’re even going to do what the drivers asked,” Moore said. “That’s what a drivers association is, it’s a company union. It’s basically fancy focus groups.”
Helping to firm the resolve of workers and their representatives, Uber and Lyft are not being coy about the stakes of this fight. “A change to the employment classification of ride-share drivers would pose a risk to our businesses,” Uber Chief Executive Dara Khosrowshahi, Lyft CEO Logan Green and Lyft President John Zimmer wrote in the op-ed. Lyft stands to lose an additional $290 million per year, according to the Barclays report; it recorded losses of $1.14 billion in the first quarter of 2019.
On-demand businesses have thrived by using two-sided software marketplaces to keep their labor costs in line with their revenue. Transitioning to more durable employer-employee relationships may require major shifts in how the businesses are operated. Already, in New York City — where a minimum wage for ride-hailing companies incorporates how often a company’s drivers ride around without passengers — Lyft has imposed a new rule limiting how many people can drive at once based on passenger demand in the area.
“This means if there’s low demand, you may have to drive to busier areas or wait to go online and drive once demand picks back up,” a company blog post read.
Consider Deliv, a same-day delivery company that announced last week that it was transitioning its contractors in California into employees in part in response to the evolving regulatory landscape.
Deliv CEO Daphne Carmeli said the transition to an employee model is simpler for it because, for one, the company has always paid workers hourly and allowed them to schedule shifts for themselves.
As employees, Deliv drivers can continue to choose their own shifts, maintaining to a degree the flexibility of working when they want to work contrary to what some gig economy companies have argued. The difference is the company can now require that once workers choose the shifts, they have to show up.
As for the business costs of reclassifying contractors, Carmeli says the transition in California will be cash neutral because the employee model is much more predictable and companies can spend less on things such as sign-on bonuses during periods of high demand.
“When you’re dealing with independent contractors, there might be lesser costs of benefits and so forth,” she said. “However, you’re dealing with the reality of drivers who might not show up and you might be churning faster. So you have the acquisition costs of drivers, you have the retention costs of drivers and that whole funnel to manage.”
As workers continue to agitate for basic labor protections across the U.S., the passing of the bill in California could set a precedent for regulating gig work. In regulatory filings, Uber and Lyft warned investors about the risk of cities following the examples of New York City and now California and forcing them to reclassify drivers or otherwise treat them like employees. “Any such reclassification would require us to fundamentally change our business model, and consequently have an adverse effect on our business and financial condition,” Uber’s filing read.
One way or another, it looks like some degree of change is now inevitable.
Times staff writer Margot Roosevelt contributed to this report.