As the result of a new law in California, popular rideshare businesses like Lyft and Uber could be forced to deal with a drastic shift in the way they do business.
Last week, both chambers of the California state legislature approved AB 5. Democratic governor Gavin Newsom previously said he would sign the bill. The bill requires app-based businesses like Uber, Lyft, DoorDash and many more to treat workers like employees. Until this point, drivers and workers for various segments of the gig economy were treated as contractors.
State assemblywoman Lorena Gonzalez authored the bill. In a statement, Gonzalez argued the California state government will not allow firms like Uber and Lyft to profit by taking advantage of workers.
“Today the Legislature made it clear: we will not in good conscience allow free-riding businesses to profit off depriving millions of workers from basic employee rights that lead to a middle-class job,” Gonzalez said.
The legislation plays off a California Supreme Court ruling from last spring. The ruling and law laid out a three-part test for businesses to determine if workers can be treated as contractors or full employees. According to Vox.com, businesses cannot hire independent contractors for work unless they are free from the company’s control, are doing work not central to the business operations and have an independent business in the industry.
Uber put out a statement late Wednesday evening commenting on ways in which the law will impact the ridesharing business. In the lengthy statement, Tony West, chief legal officer, Uber, argued the business is able to, and has already passed, tests similar to the one outlined above. West points to several rulings where drivers’ work is considered outside of Uber’s usual course of business.
Drivers will not be automatically classified as employees once the law takes effect in January, West said. Uber points to driver behavior, such as driving for competitors, as one way in which they are independent and free from the business’s control.
At the end of the statement, Uber explained potential strategy for the future, including coming to a compromise with legislators, introducing a statewide ballot initiative with other app-based businesses and more.
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