The Innovative Business Model Is The Reason For Uber And Lyft’s Success – Will It Be The Reason For Their Downfall?

The political scene in California has been anything but boring during the lockdown period as in recent days, they have seen their lawmakers propose a wealth tax on the golden state’s wealthiest individuals for the first time in their recent history.

Already known for being the state with the highest income taxes, Democratic public servants like Rob Bonta and David Chiu feel the wealthiest can do more as “millions struggle to feed their families and keep a roof over their head during this pandemic”.

With so many struggling in an unprecedented response to a global pandemic, the state’s legislators have decided to go after the way two silicon valley giants, namely Uber and Lyft, classify their employees.

It is an attempt by politicians to protect those who they consider to be exploited by the “gig” economy as they believe their independent contractors should be reclassified as employees.

It has definitely been a bit of a grey area over the years, as to what relationship an Uber Driver or an Uber Eats deliveryman has to the parent company and whilst the ruling is sure to provide clarity to the situation, it’s not going to end well for either side.

Uber and Lyft contest that a driver is self-employed and as such cannot claim for work protections that a typical employee may enjoy. The companies see this as a reasonable price to pay for the relative ease as to which they can start using their apps and start earning money.

The flexibility of being able to start “working” and using the app whenever you feel like is an important distinction in the case, as the implication it could have not just for Uber but for other companies who utilize the gig economy, like DoorDash, is massive.

Things Are Looking Bleak

Earlier this week it looked like the end of the ride-sharing companies’ presence in the golden state as a judge ruling regarding the employment rights bill, known as AB5 (Assembly Bill 5), ruled that Uber and Lyft should give their drivers employment benefits and could not treat them as independent contractors.

This meant that Uber’s workforce just went up by tens of thousands overnight, which was something the company couldn’t afford. It has even been estimated that Uber’s costs would rise by 30% overnight should the app users become recognized an employees.

One Uber spokesman told the Guardian, “When over 3 million Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry during an economic depression” .

Both tech giants appealed the decision immediately and have been given a temporary reprieve allowing them to continue operating until the appeals process is over.

The only source of hope for the company to continue its operations is for Proposition 22 to pass.

Proposition 22 (California Proposition 22: App-Based Drivers as Contractors and Labor Policies Initiative (2020)) was a direct response to AB5 and it aimed to give Californians a say on how the state deals with the issue. With public sentiment overwhelmingly in favor of the ride-sharing app, which does millions of lifts a day, the companies knew this was the best chance for them to survive.

Not only are Lyft and Uber committing themselves to the Proposition but even DoorDash, Instacart and Postmates have plowed millions of dollars into the project as they know they will be next on the list if they don’t help out now.

The proposition will be voted on in this year’s US Presidential elections in November and whilst it probably won’t be a subject of discussion in the Presidential debates, it will be something that will be discussed along the campaign trail.

This is not the first time Uber have been in hot water regarding their employment practices, as they were suspended from operating in London back in 2019 for not meeting the employment standards in the UK. Rapidly expanding into multiple markets across the globe has meant that Uber has had to deal with lawsuits on a regular basis as their business model fails to acknowledge the employment legislation of a particular country.

However, the gig economy is here to stay as it offers many the flexibility they require to provide an income whilst giving its consumers an affordable service. Whether Uber and Lyft are successful with their proposal in November won’t be the end of the saga as the debate will continue to rage on.