Did California lawmakers deal a deathblow to the gig economy with a new law requiring companies to treat people as employees if they provide the company's core product? Or are they simply placing sane limits on an increasingly untenable business model? You decide.

California's new employment law, Assembly Bill 5 (AB5), expands the definition of an employee to include anyone whose work is not "outside the usual course of the hiring entity's business." Uber responded with the surprising claim that its drivers are outside the course of its business, since it's actually a technology platform and not a ride-providing company. 

That claim is sure to be challenged in court. Meanwhile, other states are considering laws to protect rideshare drivers, and some places, such as New York City, have already passed laws guaranteeing them minimum pay. It could all spell the death of the gig economy, some say.

You might be tempted to blame those crazy, left-leaning Californians for ruining a good thing. But consider that it might not be their fault. Instead, consider blaming the founders and executives who prioritized world domination over the welfare of the people working for them, and over common-sense necessities such as making a profit or building a sustainable company. And maybe you should save some of the blame for the investors who enabled them, and the hard-driving startup culture that affects us all.

At the intersection of the sharing and gig economies

Ridesharing is a simple but powerful idea at the intersection of the gig and sharing economies. Connect people who need a ride with other people who have an appropriate car and the need to make some money. The approach shook up the antiquated taxi and limousine industry which is highly regulated, full of backroom deals, and very ripe for disruption. So far, so good. But the rideshare unicorns Uber and Lyft cut prices to compete with each other and with the taxi industry, thus reducing what they paid drivers. They made plans to go public--a necessity given that VCs had made huge investments in them and were looking for a payoff. But preparing an IPO meant opening up their books and letting the world see their stunningly huge losses. They needed a path to profitability, and that meant cutting drivers' compensation again. 

Eventually, both companies' hopes and dreams of building a self-sustaining, profitable empire came to rest on their ability to pay drivers less and less. And they did. Uber and Lyft may not admit to cutting driver compensation--they have complex formulas that they frequently change, making it hard to tell whether pay is going up or down. But drivers themselves report that their pay has been dwindling for a long time. 

If you repeatedly cut someone's compensation, that person is not going to be happy about working for you. And increasingly rideshare drivers have become unhappy with Uber and Lyft. Inevitably, they banded together in their discontent, and that banding together led to representation through organizations such as Rideshare Drivers United. Increasingly, groups representing rideshare drivers have pushed for legislation to help them, such as the minimum wage law in New York City or AB5. It was bound to happen.

Uber founder Travis Kalanick drafted a lengthy letter to Uber employees right before being forced to resign as CEO. In it, he said the company needed to rebuild relationships with its drivers and that he would share more information about that the following week. But by that time, it would be too late. He hasn't publicly said what he had in mind when he wrote the letter, so all we can do is guess. It's too bad he never got the chance to make his plan a reality. Whatever it was, maybe it would have helped.

Published on: Sep 12, 2019
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