California lawmakers approved a heavily debated bill that could reclassify some on-demand contractors as employees. The law will take effect in January but the companies that will be impacted the most—Uber, Lyft, DoorDash, and Instacart—say they’ll continue to fight it.
The California State Senate approved Assembly Bill 5, with a vote of 29-11, late Tuesday. On Wednesday, the state assembly also signed off on it, leaving the final approval to Governor Gavin Newsom, who has already expressed support for the bill.
At stake: Companies will have to reclassify hundreds of thousands of on-demand workers from self-employed contractor to employee with benefits. The change would include everybody from Uber Eats and DoorDash food delivery people to Lyft drivers to Instacart personal shoppers. The companies would have to provide often-pricey health benefits and pay a portion of taxes for each employee. This comes at a time when Uber and Lyft, both of which went public earlier this year, are struggling to cut massive losses and prove they have a path to profitability.
Uber has already had two layoffs of more than 800 employees this year and the departure of two C-level executives. Meanwhile, Lyft has also been shedding some of its key leaders, like COO Jon McNeill who exited after a year and a half on the job.
“It’s a clear financial negative,” Dan Ives, analyst at Wedbush Securities, said in a note on Wednesday. “We expect Uber, Lyft, and other gig economy companies will reduce hiring and reduce flexibility of its workforce in California.”
While Uber, Lyft, DoorDash, and Instacart were disappointed in the outcome of the vote, they say their fight is not over.
“Today, our state’s political leadership missed an important opportunity to support the overwhelming majority of rideshare drivers who want a thoughtful solution that balances flexibility with an earnings standard and benefits,” Lyft spokesman Adrian Durbin said in a released statement. “We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers and riders want and need.”
Lyft, and Uber already ponied up $60 million—a number expected to increase in the coming days—for a campaign that would push the issue to California voters. The goal is to pass an alternate resolution that would give on-demand workers guaranteed minimums, the ability to organize unions, and benefits but still allow them the flexibility of working when and where they want, according to the companies. DoorDash separately said it was investing $30 million in the cause, and Instacart said it would continue to work with lawmakers and voters for a “better solution.”
Meanwhile, Uber went a step further to suggest that even if its alternative option, which the company already uses for European drivers, is not adopted, the new law doesn’t necessarily change anything.
Tony West, Uber’s chief legal officer, on Wednesday said AB 5 only raises the bar for companies in specific industries, including tech, to classify workers as independent contractors. It does not automatically reclassify drivers, for example, as employees.
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