Uber and Lyft drivers will be classified as employees instead of independent contractors in California starting Jan. 1, a change that could dramatically effect the business models and pay structures for the companies and workers.
This is thanks to a new law approved by the legislature and signed by Gov. Newsom this week.
The new law will affect the gig economy – a free market system in which employers work with independent contractors for temporary positions – Uber and Lyft.
Under the new law, Uber and Lyft are required to set a minimum wage for their drivers, provide employee benefits and labor protections, including but not limited to paid parental leave, workers’ compensation, health care subsidies, overtime pay, unemployment insurance and a guaranteed $12 minimum hourly wage, according to the new law, which will implement an “ABC” test to determine whether a worker is classified as an employee or an independent contractor.
The test consists of three requirements that must be met for a company to hire an independent contractor: the individual must a) be free from the company’s control , b) do work that is outside of the company’s focus, or c) be an independent business apart from that company, according to the California Employment Law Report.
If any of the three requirements is not met, the company must hire the individual as an employee.
Christopher Livingston, a senior broadcast journalism major and Campus Times staff writer, who used to drive for both Uber and Lyft in the La Verne area said he thinks the new law will be good for drivers.
“More times than none you don’t get a long trip that will leave you with a pretty good amount of money,’’ Livingston said. “For me personally, it would take at least six hours to get $20, and that was on a good day.”
Livingston added that he often needed to drive to downtown Los Angeles to find customers who were traveling more than just around the block.
Livingston said the new law will limit the large investment that drivers are forced to make when applying for the position.
“I was losing more than what I invested in gas,’’ Livingston said. “To start off, I had to get my car repaired since any little dent needs to be fixed to pass their inspection. Also, since I bought and registered my car in New Mexico I had to change my insurance policy to that of California’s, which is much more expensive. All of this cost me much more than what I earned.”
Uber and Lyft, which are two of the largest employers of independent contractors tried to keep the law from passing and are working on ways to lessen its impact on their businesses
Immediately after the bill passed California’s legislature, Uber, Lyft and DoorDash vowed to provide a total of $30 million or more as a way of funding an alternative to the bill where they would still offer a minimum wage during a driver’s pick ups and drop offs and some benefits, but at a much smaller scale than what the bill proposes.
Matthew Scott, senior business administration major, said that although he agrees with some aspects of the bill, there can be a possible downside for the customers who often ride with Uber or Lyft.
“I like the workers’ compensation benefit because that way, in case a driver gets into an accident, they’ll be covered,’’ Scott said. “As for customers however, the prices for rides will definitely need to be increased since the companies will now have to spend more money on their drivers while still maintaining a profit margin.”
According a report by MarketWatch, California will pay an additional 70 cents to $1.80 per ride as a direct effect of the new law. This could defeat the purpose of the companies, which became popular because they were more affordable than taxis, the report found.
“The one good thing that could come out of this is that Uber and Lyft will hopefully become more strict in their background checks since they will have a much smaller number of drivers,’’ Scott said. “Now that they need to pay drivers a minimum wage, the companies are not just gonna hire anyone, they will pay more attention to the safety qualities of a driver and how good of a service they offer.”
Uber recently confirmed a loss of approximately 835 workers in its product and engineering departments since July.
Citlally Grande, sophomore criminology major, said that the new law may be beneficial to drivers who work full-time for Uber, but could hurt part-time drivers.
“If driving for Uber becomes a real job, drivers would need to follow a system that could feel like a regular 9-5 hour job, and some of them who work part-time don’t want that,” Grande said. “People work for these companies because it’s a good way to earn money while still going to school or work at another job.”
A 2015 research study on Uber out of Princeton University found that 51% of Uber drivers drove 1-5 hours per week while only 7% drove more than 50 hours per week.
Chris Kechichian, senior business finance major, said the quick and cheap nature of Uber and Lyft is what attracts him to use the services.
“The great thing about Uber and Lyft is that it’s super convenient for most people to get where they need to go,” Kechichian said. “If the change in their policies cause a disruption in their accessibility and cheap prices, the customers are no longer receiving what they want in transportation.”
Alondra Campos can be reached at email@example.com.