New Law Makes Uber and Lyft Drivers Official Employees with Company Benefits

A new law in California could transform companies like Uber and Lyft by classifying their drivers as employees rather than independent contractors.

This month, California Governor Gavin Newsom signed new legislation stating that many “gig economy workers,” like those of the rideshare apps, would now be reclassified as employees–an update that will most likely completely change the business models of tech companies such as these.

Regarding the bill signing, Newsom called it a “landmark legislation for workers and our economy.” It is  clear the bill will have a tremendous impact–especially when more than 1% of the United States workforce drive with Uber and Lyft.

The new law is set to go into effect in January, and will allow drivers to work as official employees, making available to them benefits including minimum wage, unemployment and disability insurance, as well as union rights.

Newsom wrote in his letter to California lawmakers that the bill is an “important step” toward fighting against the “hollowing out of our middle class.” He also says reclassifying contractors will create a significant rise in income equality for the middle class.

Drivers often choose the rideshare driving lifestyle because of its flexibility; however, independent work includes challenges–such as higher levels of stress regarding earnings stability, insurance protections, and the ability to have your voice heard by the companies that hired them.

Additionally, in the case of Lyft and Uber driver-related accidents, lines around coverage have been blurry, as it is often unclear whose insurance policy would apply–the at-fault driver’s or the company’s? Generally, when an innocent passenger or other driver is hurt, financial responsibility comes from the driver at fault and their personal insurance. 

This can create difficulty, especially if the driver happens not to have a policy with enough to cover initial hospital bills. Becoming an employee of the company would deem the company itself liable for covering the costs.

However, Lyft and Uber have been lobbying against the measure.

In an open forum for the San Francisco Chronicle, Dara Khorsrowshahi, chief executive of Uber Technologies, along with Logan Green and John Zimmer, co-founders of Lyft, plead against the reclassification, saying it would “pose a risk to [their] businesses.”

“First, most drivers prefer freedom and flexibility to the forced schedules and rigid hourly shifts of traditional employment,” they said. “Second, many drivers are supplementing income from other work.”

Their argument is that this kind of flexibility for drivers would become impossible under regulations of becoming official employees of their respective companies.

Even after the bill was passed on September 11th, Uber stated it would still not be classifying its drivers as employees under the new law, saying its “drivers’ work is outside the usual course of Uber’s business.” 

Uber claims this is because its drivers pass the “ABC” test–that they A) are free from control and direction of the company, B) their work falls outside the company’s usual business, and C) they work in an independent business that is of the same kind as the company’s–and therefore can be considered independent contractors. regardless of the new law.

As soon as the bill was expected to push through, Uber said it would be looking into “several legal and political options” to be able to continue classifying drivers as contractors. One of these initiatives includes a statewide ballot initiative, which is planned for next year. 

It is also still unclear how exactly the law will affect Uber, Lyft and their drivers when put into practice. Currently, it includes exemptions for workers who set their own rates and hours, such as hairstylists, freelance writers and real estate agents.

Hundreds of rideshare app drivers are part of the group Gig Workers Rising, which had been protesting throughout California in favor of the bill. The group defines itself as a “campaign supporting and educating app and platform [for] workers who are organizing for better wages, working conditions and jobs,” and is comprised of rideshare drivers, delivery workers and couriers.

“American history is full of shameful examples where powerful industries exploited workers in pursuit of greater profits,” said presidential candidate Elizabeth Warren in an op-ed for the Sacramento Bee. “In many industries today, it takes the form of worker misclassification.”

Other candidates have supported workers’ demands along with the bill, including Kamala Harris, Bernie Sanders, and Pete Buttigieg.