The governor of California signed into law a bill that will require many gig economy companies like Uber Technologies Inc. and Lyft Inc. to classify workers as employees.
Assembly Bill 5 was awaiting Gov. Gavin Newsom's signature after the California State Senate voted to pass it Sept. 10.
"Assembly Bill 5 is landmark legislation for workers and our economy," Newsom wrote Sept. 18. "It will help reduce worker misclassification — workers being wrongly classified as 'independent contractors' rather than employees, which erodes basic worker protections like minimum wage, paid sick days and health insurance benefits."
The law, which is set to go into effect in January, will require gig economy companies, including the two ride-hailing companies, to classify their workers as employees instead of independent contractors if the workers meet certain criteria.
Uber and Lyft, along with food-delivery service DoorDash Inc., are preparing to fight the law with a 2020 ballot measure that would label drivers as nonemployees and establish new pay standards and benefits. The three companies have pledged a total of $90 million for the measure.
"We agree with Gov. Newsom that California still has an opportunity to support the overwhelming majority of rideshare drivers who want a thoughtful solution that balances flexibility with earnings guarantees and protections," a Lyft spokesperson said in an email. "We are confident that with his leadership we can reach a historic agreement, but if necessary we are prepared to take this issue to the voters to preserve the freedom and access drivers and passengers want."
Lyft has approximately 300,000 drivers in California, and Uber has more than 200,000 drivers in the state.
"We've been proudly advocating for a new progressive framework that would for the first time give minimum earnings guarantees, access to benefits, and a right to organize to independent workers," an Uber spokesperson said in an email. "We've engaged in good faith with the Legislature, the Newsom administration and labor leaders for nearly a year on this issue, and we believe California is missing a real opportunity to lead the nation by improving the quality, security and dignity of independent work."
Both companies have posted major quarterly losses since going public earlier this year, and the law has the potential to increase annual costs for Uber by $400 million to $500 million, and by $100 million for Lyft, according to Wedbush analyst Daniel Ives.
Ives said in a Sept. 11 research note that if per-driver costs go up by approximately 30%, the companies could reduce hiring and flexibility of their California workforce.
"On the expense side for Uber/Lyft, this would lead to fewer drivers partially offsetting the higher costs associated per employee, reducing the overall impact," Ives said. "In other words, if per driver costs in California go up by ~30%, but Uber/Lyft impose shifts, and raise the hurdle to onboard a driver (thereby limiting training and other costs), it should limit the overall impact."
Any remaining extra costs are expected to be passed on to consumers or offset through cost cuts such as layoffs, he said.
