Uber, Lyft and other businesses that provide a service with the use of an app are in a fight to keep their costs down by not having their drivers classified as employees, but rather independent contractors. In 2019 California passed a bill called AB 5 which requires these online businesses to recognize their drivers as legitimate employees instead of low-cost workers labelled as independent contractors.

The downside is that you will mostly be expected to provide your insurance. If you, for example deliver fast food you will be responsible or finding  your own fast food delivery insurance. The insurance sector itself has evolved to offer on-demand insurance for the gig economy. Zego pay as you go insurance is a prime example.

With the new designation for the Gig workers for Uber, Lyft and other online delivery services are required to provide their employees with basic labour protections such as health insurance, sick leave, disability benefits, unemployment insurance and minimum pay guaranteed all workers in the state of California by law.

With all businesses, anything that costs them revenue and profits must be averted. With that in mind, these Gig businesses are investing more than $110 million in promoting Proposition 22 that voters will see on their ballots this coming November. This is a motion so the App-based corporation will to not have to adhere to the current state labour laws and keep their employees classified as independent contractors.

To help smooth things over, the App-based corporation are offering limited amounts of benefits to its drivers. These benefits include a minimum net pay, health insurance subsidies for those that qualify along with limited protection for sexual harassment, rest periods and overtime work. This offer is being made so that the businesses do not have to hire their contractors as employees.

What has to be taken into consideration is how these drivers are hired and work for App-based businesses. To get hired, all a person has to do is to download the app and designate they are available to make deliveries or be used in the ride-sharing services, and instantly they can begin to work. There is no interview, background or reference check. This path to hiring side-steps the Human resources department of the App-based companies and saves them money. If they are required to hire contractors as employees, the entire hiring process would need to be changed, which will require time before the new driver would be able to work. Since time is money in the business world, the number of drivers who would be hired would be less than what are currently working as independent contractors.

The App-based business model

For the gig or on-demand economy, businesses like Uber came up with a new business model. This uses independent contractors instead of employees to streamline the way their business operates and save the corporation money. It also provided the contractors with complete independence when they will contribute to the company. By changing that format, the business model for the corporation will have to be changed back to one that is used by most businesses, employers and employees, no contractors. This increases the costs to the corporation will force them to reduce the number of drivers needed or can be used.

For the drivers, choosing when you want to work will no longer be an option. Getting extra jobs tasks when you need to increase your revenue will also be eliminated. In the end, the number of drivers that are hired will be less, but they will be employees and have more benefits, but the hourly pay will be roughly the same.

Will the services provided by these App-based corporation change?

With the costs to the App-based corporations increasing and the number of drivers being employed will be reduced because of the costs, the services provided will have an increased price to them. With fewer drivers, the time at which delivers can be made will increase, causing customers to wait longer for their deliveries.

On January 1st of 2020, AB 5 was supposed to be implemented by the App-Based corporations. The response from the State of California was to file an injunction against Uber and Lyft for still classifying their drivers as independent contractors instead of employees. This filing occurred on June 24th and will be heard by the court in August 2020 unless it is postponed. Those involved in the filing include the Attorney General of California, along with the city attorneys from Los Angeles, San Diego and San Francisco. This filing also has the backing of the California Labor Federation which has 1,200 labour unions as members they represent.

What should the public be ready for?

If the App-based businesses are forced to follow the traditional business model of having employees as the backbone of their workforce, the costs of operating the business will increase and services reduced. The number of on-demand businesses offering deliveries will more than likely be reduced in number since the profit margin will be drastically reduced, forcing some out of business. Many of them are just not designed to use the old fashion business model.

What can the drivers expect?

If the businesses are forced to self employed courier drivers as employees, most of the current drivers will lose their jobs. The drivers that do get hired will indeed have better benefits and equal or better pay, but their choice of when to work will be gone. Because of that, many of the drivers are supporting the benefits package offered to them in Proposition 22. This provides them with some benefits and makes it possible for them to choose when they will be working.

The need for home deliveries was part of the growing trend in the world in the new on-demand economies. Now that COVID-19 has forced many to stay home and shelter in a safe place, this demand for home deliveries has increased. With the reduction in revenue, most homes are experiencing during this pandemic, the increased costs of having groceries and other essential delivered to homes will cause less affluent to go without.

The big labour union members already have jobs and an income, while the drivers of Uber and Lyft are just scraping by. The proposal by the unions to force the big corporations to pay millions of dollars in additional labour cost will only give them a reason to close down and cease operations. This will cause those who can’t go out in the pandemic to suffer, since most have limited revenue and might not be able to afford the new higher costs of food being delivered to their homes.