The future of ridesharing might be decided in California
If you’ve traveled into an airport of any size in the last few years, the chances are that as you waited for a cab or airport shuttle, you’ve also seen lines of Ubers or Lyfts—vehicles and drivers part of the “ridesharing” economy. Or perhaps you’ve learned to use these services to get where you need to go.
I was late to the game of using ridesharing, but once I started, I became a believer. No taking a chance on the condition of the cab. No fighting to get on public transportation. Instead, my experiences with Uber and Lyft have resulted in me ordering a ride from the airport once I got into the airport terminal, and having the driver and car (and I could see both the driver’s photo and the car’s type) pulling up as I exited the terminal.
Services like Uber and Lyft are part of the “gig economy”—a concept defined by the Oxford Dictionary as “a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.”
Of course, the gig economy isn’t a new concept. When I was young, many teachers in my small town had “side hustles” during the summer—working construction, painting houses, helping out local farmers, and so on. They were jobs that allowed them to put some extra money in the bank, and they could decide how much or little they wanted to take on during their three months of break. They were independent contractors rather than employees.
And this is how Uber and Lyft have operated. The companies provide a networking tool that allows drivers and riders to connect. Passengers get on the app when they need a ride; drivers get on the app when they’re available to drive. Payments and tracking the location of drivers are done via the app, and both sides of the transaction get to rate the other side so that future drivers and riders can decide whether to enter into a “contract for service” with the other. It’s slick, and it’s a great example of the free market in action.
Not all have liked this model of business, though. Certainly, the expected opponents include potential competitors—cab drivers/owners, for instance—and lawsuits have popped up around the country.
One, in California, where both companies got their start, has recently threatened the continued operation of Lyft and Uber in the state.
As part of an ongoing lawsuit, a California court last Monday ordered the companies to reclassify their drivers in the state as employees rather than independent contractors in 10 days, or by this Friday [8/21].
The question of how drivers are classified is at the center of the controversy. For California policymakers, it’s a big deal because if Uber and Lyft drivers are treated as employees, many of them would be eligible for benefits—which, of course, Uber and Lyft don’t want to pay for.
The drivers are stuck in the middle—with some of them wanting to be treated as employees with the assorted benefits, while others are content to have more control over their scheduling.
Uber and Lyft both announced earlier this week that they would cease operations in California; Lyft had announced that it would suspend at midnight on Thursday night to avoid having to comply with the law. That’s now been delayed, due to an appeals court order which halted the lower court order from going into effect.
The gig economy is perfect for letting people be the masters of their own fate—of working when and how they feel most appropriate. Customers of those engaged in these transactions have opportunities to choose whether or not to use a particular driver, and there is high motivation for the drivers to treat their passengers with great service.
Uber and Lyft have put significant funding behind a ballot measure, Proposition 22.
If voters in November vote yes on Prop 22, app-based rideshare and food delivery services like Uber and Lyft will be carved out from the obligations of AB5. It could render any unfavorable rulings against them virtually meaningless. The companies could more or less continue operating under their current models, though the ballot measure entitles workers to additional protections like minimum earnings, health-care subsidies and car insurance.
If Uber and Lyft end up deciding to cease operations in California because they are unable to secure carveouts in these new state regulations, it will be a dark day for driver/entrepreneurs, as well as for passengers who like having more choices in transportation needs. But more importantly, this overregulation of the market could result in the reduction of the ability for those who will “hustle” to get ahead and reduce the choices available for consumers.