Uber and Lyft brought this upon themselves:
A sweeping new law in California that will force the ride-hailing companies to treat their drivers as employees rather than as independent contractors.
As employees, rather than contractors, drivers will be entitled to a minimum wage, overtime pay, benefits and legal protections.
It’s a huge win for ride-hailing workers, who went on a nationwide strike in May to protest low wages and poor working conditions, and it could mark the beginning of a major new regulation of America’s growing “gig economy.”
Other states, including Illinois, will be tempted to follow California’s lead.
Our view is that Illinois should take a more wait-and-see approach. The economic ramifications of California’s law, which will intrude boldly into the free market, are by no means clear.
But here’s a little unsolicited advice for ride-hailing services in Illinois: You might be smart to start doing better by your drivers right now.
The California law raises many fundamental questions.
Will the law stifle free market innovation? What about drivers who, for whatever reason, truly want to remain contractors, not employees?
What about the cost burden? Uber and Lyft already lose more than $1 billion a year, and an estimate by financial services firm Barclays says the new regulation could cost Uber another $500 million annually, Lyft another $290 million.
Should we even care?
And what about the consequences for other American businesses that are involved, whole or in part, in the gig economy, such as newspapers? In California, newspapers are covered under the law and some execs are worried about what this will mean for the hiring freelancers and delivery people.
Uber and Lyft should have seen this coming. Their rewards system is so out of whack.
Ride-share companies are founded on a business model that requires drivers to be paid as little as possible — often effectively less than the minimum wage — even as top executives take home tens of millions in pay and incentive bonuses.
As contractors instead of employees, drivers receive no overtime pay, unemployment insurance, health benefits or other legal protections, such as the right to form a union.
No wonder drivers pushed back. They saw Uber CEO Dara Khosrowshahi make $45 million last year, according to Business Insider. They saw Uber’s top five executives take home a total of $143 million. They wondered how this could be possible when they couldn’t earn enough to pay the rent.
In Chicago, drivers earn roughly $11.53 per hour, after paying for gas and car repairs. The city’s minimum wage is $13 an hour.
Under California’s law, companies must treat their workers as employees unless they can prove they are contractors, based on three criteria.
For one, workers must be legitimately free from company control. They must, for instance, be able to set their own schedule, work for other companies and do work that is not central to the company’s business.
Uber insists that its workers pass the three-prong test so it won’t comply with the law. Uber drivers set their own hours, use their own cars and are free to work for anyone else, the company says.
All true, but the claim rings hollow.
In our nation’s growing gig economy, millions of Americans work multiple jobs because they have to, not because they want to. They’re not free spirits, driving for an hour or two to make a few extra bucks. They’re juggling two and three low-paying jobs — all that’s out there for them — to make ends meet.
Nationally, 16.5 million people are “contingent” or “alternative” workers, part of the tech-driven gig economy. Those people — ride-hail drivers, delivery people, maids, dog walkers, errand-runners — are ripe for exploitation. And they deserve well-crafted laws that protect them without overly stifling new business that grow the economy.
There was a time in the United States when children worked in factories, nobody was paid a minimum wage or overtime, and workplaces were disastrously unsafe.
As each of these wrongs was challenged, employers cried foul. Government was interfering in the free market! If an employee was dissatisfied, he or she — or the child — could quit!
Quit to go where?
In a changing American economy, where good-paying jobs, often protected by unions, are increasingly scarce for workers of limited education and mobility, the alternative to one poor-paying job can be another poor-paying job.
We fear that California’s lawmakers have overreacted, rewriting the rules that govern the relationships between employers, employees and “partners” in profound ways that will become apparent over time.
But California got this right:
We cannot allow the gig economy to become the American economy.
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