The state of California recently passed a bill that mandates app-based companies such as Lyft and Uber should treat their workers like employees instead of entrepreneurs.
This could set a precedent for other states to sign up their own similar legislation on these ride-sharing companies.
There are definitely benefits to being treated like an employee instead of an entrepreneur. Employees are guaranteed minimum wages and social insurance.
But there is a cost to becoming an employee. One of the biggest is that it eliminates the freedom and opportunity workers have to decide their own working hours and pace of work.
This is why some experts believe that the law is a bad move.
Kerry Jackson, a Fellow in California Studies at the Pacific Research Institute, is one of them. “If the governor signs the bill, a lot of those workers who were cheering when it passed are going regret that it was ever introduced,” he says. “They're no longer going to be able to decide when they work and for how long, they'll lose the freedom they had to work for multiple companies at the same time, and they're going to chafe at being supervised in ways they weren't before.”
Jeff Kreisler, the Editor-In-Chief of Peoplescience.com, agrees. “The new rules could negatively impact the entrepreneurial freedom of those contract workers who are either well-paid or advanced enough in their career and status to withstand the many uncertainties of the gig economy,” he says. “That’s an important segment of contract workers – especially when taking a broader, undeniably important advancement-of- entrepreneurship perspective - but, sadly, it’s not the vast majority of them. “
Meanwhile, the California law could actually mean some people are entirely out of work, according to Jackson. “Just as companies have to cut hours and oftentimes jobs when government forces them to increase the wages they pay, businesses that have relied on contract workers will have to cut staff hours and staff members to pay for the added costs of hiring full-time employees,” he says. “It's not a matter of if, it's a question of how many jobs will be lost.”
Michael Droke, a labor & employment partner at the international law firm Dorsey & Whitney in California, agrees. "Payroll costs--breaks like meal time and rest periods, and other administration burdens--will cause services like Uber and Lyft to decrease the number of workers who are engaged,” he says. “The companies are going to want a smaller number of workers who can commit to schedules and work more hours. The workers who can commit to this will benefit from the extra income.”
That wouldn’t be the case for the rest. “Part time contractors, who may only be driving for a few hours here and there, will lose out on that additional income,” Droke adds. “It won't be worth the new administrative costs the bill would cause for the companies. Uber and Lyft will start concentrating on the workers who can meet the new scheduling and other requirements.“
Change their business model, that is.
The California bill actually comes at a very bad time for Lyft and Uber. The ride sharing companies have been losing money. And Wall Street has taken notice, sending the shares of the two companies south, well below IPO levels.
Financial experts aren’t too optimistic for the future of the companies.
“Although the ride sharing concept is a good one, investment into these companies may not necessarily be at this time,” says George Andreadis, Adjunct Professor of Finance at LIU POST. “At this time, I am not a fan of these two companies from an investment standpoint.”
Clement Thibault, analyst at financial markets platform Investing.com, agrees.
"As long as the losses are piling up and the concept of profitability is wishful thinking, neither can be considered good investments,” he says. “The plunge both companies have taken since their IPO is 100% justified, and we've seen with WeWork how private valuations are meaningless once these companies hit public markets. I'd consider both moonshots, rather than rational investments at this point."
