The California Labor Bill and The Demise of the Lyft, Uber Business Model


By: Emma Trugman

A recent bill passed by the California Legislature will entitle drivers from ridesharing companies such as Lyft and Uber to protections like unemployment benefits and minimum wage.[1]  The purpose of the bill is to extend a 2018 state court ruling that set forth a new test for classified workers making them more likely employees if they “perform a function central to a company’s business.”[2]  The drivers for Lyft and Uber would easily fall into this categorical approach.  Effectively, the California Senate hopes to obtain more rights for drivers with this bill.[3]  However, the associated costs to Uber and Lyft when they rely on employees rather than contractors rise from 20 to 30 percent.[4] Although this bill may bring more rights to drivers, it will leave a significant financial impact on the ridesharing companies employing those drivers. 

            Exacerbating this issue is the fact that Uber and Lyft have been struggling to break even, let alone make profit on their business model. The companies’ financial struggles can be attributed to many factors, but notably Uber has spent millions on marketing to recover from the #DeleteUber movement after the company incentivized drivers to work during taxi boycotts after Trump’s travel ban.[5]  Further, numerous women have filed a case against Lyft claiming they were sexually assaulted by drivers.[6]  This past year Uber had large scale layoffs, cutting hundreds of employees,[7]  and Uber and Lyft are “still reporting billions worth of losses and have seen their stock prices decline since their initial public offerings.”[8]

            What makes this legislation significant in the business realm is that Uber and Lyft are the pioneering Silicon Valley business models of the century.  This rise in union power and labor rights groups is bringing to light the realities and inefficiencies of the model.[9]  The jurisprudence set forth with this movement is also heavily benefitting unions and is inevitably going to affect the future of technology as labor rights continues to influence legislation.[10] Given the fact that Uber and Lyft are already struggling to make profit, this movement is one of several road bumps the companies have already had in their short lives, and the end is sure to come.   


[1]See Kate Conger & Noam Scheiber, California Labor Bill, Near Passage, Is Blow to Uber and Lyft.n.y. times, Sept. 9, 2019, https://www.nytimes.com/2019/09/09/business/economy/uber-lyft-california.html;See generally2019 California Assembly Bill No. 5, California 2019-2020 Regular Session. 

[2]See Kate Conger & Noam Scheiber, California Labor Bill, Near Passage, Is Blow to Uber and Lyft. n.y. times, Sept. 9, 2019, https://www.nytimes.com/2019/09/09/business/economy/uber-lyft-california.html;See generallyDynamex Operations W.V. Superior Court, 416 P.3d 1 (Cal. 2018), reh’g denied (June 20, 2018).

[3]See Editorial, California Bill is Antidote to Uber and Lyft’s Excesses, financial times, Sept. 15, 2019, https://www.ft.com/content/ff166884-d4a6-11e9-a0bd-ab8ec6435630.

[4]  See id.

[5]Mathew Zeitlin, How Austin’s Failed Attempt to Regulate Uber and Lyft foreshadowed today’s ride-hailing controversies, vox, Sept. 13, 2019, https://www.vox.com/the-highlight/2019/9/6/20851575/uber-lyft-drivers-austin-regulation-rideshare.

[6]See id.

[7]See Gabrielle Canon, California’s controversial labor bill has passed.  Experts forecast more worker rights, higher prices for services, u.s.a. today, Sept. 10, 2019,https://www.usatoday.com/story/news/politics/2019/09/10/what-californias-ab-5-means-apps-like-uber-lyft/2278936001/.

[8]See Mathew Zeitlin, How Austin’s Failed Attempt to Regulate Uber and Lyft foreshadowed today’s ride-hailing controversies, vox, Sept. 6, 2019, https://www.vox.com/the-highlight/2019/9/6/20851575/uber-lyft-drivers-austin-regulation-rideshare.

[9]See Marco della Cava, Uber drivers and other gig workers in California could see improved lifestyle under proposed law, U.S.A. Today, July 17, 2019, https://www.usatoday.com/story/news/nation/2019/07/17/lyft-uber-drivers-center-california-employment-bill/1715578001/.

[10]See id.

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