New California “Gig Economy” Law Could Crush Uber’s Already Wildly Unprofitable Business Model
Uber, which posted an astounding $5 billion loss in its earnings report in August, looks like it may not be heading closer to profitability anytime soon (big surprise) – especially if California has anything to say about it.
California could be the first state set to disrupt Uber’s business model “gravy train” of essentially being able to use drivers as employees, but classifying them as independent contractors, according to Bloomberg. It’s a move that could significantly disrupt the ride-sharing company’s business model and, because of that, is prompting a legal response from Uber.
What does that rock solid legal response look like? Uber is arguing that driving isn’t its core business.
In California, lawmakers are seeking to reclassify workers that are treated as independent contractors. The move could wind up “dramatically” boosting costs for Uber and other companies built around the “gig economy”. The bill, Assembly Bill 5, would require that many workers be provided a minimum wage, mileage reimbursement and workers compensation. The California senate approved the bill on Tuesday. It now goes back to the Assembly before being sent to the governor for his signature.
The bill has the support of Governor Gavin Newsom who, along with supporters, says that it will finally provide contract workers what they are owed. Uber, and those similarly situated, say that if the bill becomes law, it may not meaningfully change their business model because there would still be questions about which workers qualify.
Tony West, Uber’s general counsel said:
“AB 5 doesn’t all of a sudden — magic wand — change everybody’s status to employee. Instead, new criteria would be used to determine whether workers are employees or contractors. Now, whether or not we win under that test in California remains to be seen.”
No it doesn’t, Tony. The company would almost certainly not “win” from this type of regulation.
Echoing our sentiments are skeptics of the company, who believe Uber may be too optimistic. The company has been able to get out of classifying independent contractors as employees by using litigation and settlements thus far. But AB 5 could pose a significant risk to the company and, even more terrifying for Uber, could also pave the way for other parts of the United States to do …read more