California’s Uber Verschlimmbessern*

There was a reason it was called the “gig” economy. The industries it tapped weren’t new. There were taxis and hotel rooms long before Uber and Airbnb. But they saw an opportunity to tap into a new resource to feed into the industry that would allow these companies to bootstrap a digital platform to connect people who wanted a ride or a room to people who had a car and some free time, or a spare room or apartment, to connect, and they took a cut out of the middle for their service.

And if they didn’t feel like driving that day, or decided to sleep in the room that night themselves, they could, because they were free to do so. After all, it was just a “gig,” like a band doing a Friday night at the local pub. They didn’t have to show up and play again Saturday night.

It was cool. It was edgy. And it was going to eventually be profitable for the company, desirable to its users and, for the people who chose to put their service into the mix, a decent gig to fill the time between real jobs. But that was all it was, a gig, because when it stopped being a gig, then the whole concept fell apart. Remember, there were taxis and hotels before. That wasn’t what made this different.

California, always on the cutting edge of disaster, decided that this was abusive to workers. They received no health care, paid vacation or severance. The companies got the benefit of a workforce, while the workers didn’t get the benefits of being employed. So they fixed it.

The ride-hailing apps Uber and Lyft have long disingenuously insisted that they are not transportation companies. This is a legal strategy that, so far, has allowed them to label their legions of drivers contract workers, depriving them of company-backed benefits like health care, paid leave and severance pay.

The argument against why the law shouldn’t apply to them was, indeed, disingenuous, although legal arguments can be that way, desperately trying to manufacture a pretense to avoid the consequence of the law. For Uber and Lyft, the real reason was obvious to everyone. Their business model only worked if drivers were independent contractors rather than employees to hold down the cost of their workforce. Hell, that was the only piece of this business that made it different than any other ride hailing company. That was the “gig,” and without it, they were just a taxi company with a weird name.

They said that if they weren’t exempt from California’s new law that turned gigs into jobs, and made them employers with all the ordinary burdens that go along with that, they would shut down Califorinia operations. Push is about to come to shove, and tomorrow may be the last ride.

Save rideshare in California!” one from Lyft read.

“Service update: Ridesharing in CA may be suspended,” Uber wrote.

The warnings are the result of California’s efforts to bring gig economy companies in compliance with state labor law — a clash that could come to a head this week. By Friday, the millions of Californians who use Uber and Lyft to hail rides may find themselves forced to resort to other modes of transportation.

There are often two sides to a serious argument, and the side that prevailed when California enacted AB5 was the one that saw these gig companies as taking advantage of workers, denying them the benefits they deserve. It was a ham-fisted law, failing to be sufficiently fine-tuned to allow people who were, and wanted to be, independent contractors from writing for various magazines.

The reclassification of independent contractors to employees wreaked havoc with actual independent contractors, but the law’s proponents saw that as an unfortunate unintended consequence that other people had to suffer lest they allow a loophole that companies would exploit. They wouldn’t let workers be exploited in California, even if it killed the workers. It was an option, whether to leave a gap in the law to allow actual independent contractors to work or sweep them up with the rest so that no one who was meant to be helped would be left out.

And who was meant to be helped? Exploited workers, like the poor drivers for Uber and Lyft.

“Uber and Lyft are threatening to kill jobs in California. I believe the companies are trying to force us into a decision around giving them what they want, and that’s Prop. 22, which is to keep denying us basic labor protections and benefits we have earned,” said Cherri Murphy, a ride-hailing company driver for about three years.

For its part, Uber is still being disingenuous.

Uber pushed back on this assessment, saying many drivers prefer to remain independent contractors. “The vast majority of drivers want to work independently, and we’ve already made significant changes to our app to ensure that remains the case under California law.

Drivers love their freedom, even if they’re driving for Uber twelve hours a day so they can work hard and earn no benefits, is not the most credible claim on its own, but it’s even sillier given that Uber’s “gig” business model isn’t a big secret. Hook up a person with a decent car and some extra time on her hands with another person who needs a ride. The driver gets a few bucks where before he had a car sitting unused and dead time. The passenger gets a nicer, and maybe less expensive, ride. Uber gets a piece for doing the hook up.

Whether Uber can turn a profit if its drivers become employees is a fair question. Whether drivers stopped being a guy with some dead time and turned into employees being directed to be at work by nine and dress in khakis is another. Whether passengers will pay $30 for what used to be a $10 ride is still another.

We’ve long had a taxi industry, and there was money to be made even if it wasn’t cool, edgy or a good way to fill in dead time. But this was different. This was the gig economy. California fixed it, and now it’s dead. Even if Uber returns, this aspect of its business will just be a taxi company, just like any other old taxi company. Like so many cool new concepts, it seemed like such a good idea until it didn’t.

*Verschlimmbessern, a long German word meaning to make things worse by a well-intended but misguided effort to make things better.

19 thoughts on “California’s Uber Verschlimmbessern*

  1. DaveL

    And it was profitable for the company,

    That’s news to me, unless the California tech sector has invented some new and innovative definition of profitability.

    1. SHG Post author

      Yeah, that was a mistake on my part, which I’ve now corrected to reflect the future expectations of profitability.

  2. B. McLeod

    But it’s California, right? They just need to get the legislature together for a quick law to prohibit rideshare companies from discontinuing service.

  3. Earl Wertheimer

    Uber and Lyft and the drivers are also trying to do an end-run around the government controlled taxi monopoly. Until Uber and Lyft appeared, the price of NY medallions kept going up, to a high of $1.3 million.

    As Reagan said about government: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

  4. Curtis

    “For every complex problem there is an answer that is clear, simple, and wrong.” Every government action has side effects – sometimes pleasant, sometimes not. Unfortunately, legislators (especially progressives but conservatives as well) refuse to acknowledge this and voters do not hold them to blame. My biggest fear about Biden is what doubling the minimum wage will do in poorer parts of the country.

  5. Drew Conlin

    I know a little about this. I once drive taxi in a mid sized college town ( Ann Arbor) ride Sharing killed the taxi business.
    Maybe I’m being callow but had Lyft et, al increased the percentage of money to drivers to allow drivers money for maintenance etc there might have been less dissatisfaction.

  6. Skink

    I sure don’t hope this happens in Hotelland. Every person working the joint is a contractor. It would sure be sad to sell the pool and cabana to pay the extra.

    But I see the motivation differently, which is probably from living in the Swamp with critters having simple motivation. So the motivation wasn’t to help the non-employees. It couldn’t be because it’s impossible to miss the certain resulting harm to the drivers, food deliverers, and the real gigs–musicians, though the last might fit in an exception. Nope, this was for taxes. Contractors can fudge some numbers and have deductions employees don’t. It’s as simple as the motivation when a gator eyes a duck.

  7. Pedantic Grammar Police

    Another example of how a socialist managed economy harms the people that it claims to be trying to help.

  8. Jake

    I once got in a taxi after a long day of travel and ended up with a talkative driver who let me know he was a Libertarian. So I asked him what he thought of Uber. He didn’t get it.

  9. Sloop John C

    I drove for Uber & Lyft full time for 3.5 years in the Bay Area, until the pandemic hit. The law is a mess. Classic California verschlimbesser-ing.

    WRT being independent contractors–I work simultaneously for Uber and Lyft, two cutthroat competitors. I work when I want and stop when I want. Personally, I like a good hard 12 (or more) hour day sometimes. Or a 0 hour day if I have something better to do. I’ve had jobs where “independent contractor” was a fudge, but this isn’t one of them.

  10. Shadow of a Doubt

    This would have driven me out of business if I’d been operating in Cali, though I didn’t have a fancy app and I’ve never driven a car in my life. It’s possibly the most misguided piece of legislation I’ve ever seen.

    My main “job” these days is martial arts coach, but prior to selling my old company it was mostly a personal training company and roughly 85+% of my employees were independent contractors.

    All of that group were fitness nuts with regular day jobs who wanted to take a few hours worth of clients a week, usually 10 at most, usually after work. They all performed work in the “usual course” of the business, as they did the training and I verified their credentials and hooked them up with compatible clients and prospects, taking a small cut off the top. I would have had to can every single one of the with this law in effect, because even if I demanded they show up for a full “shift” (as if there is such a thing in personal training), there would have been full time work for less than 10% of them and it’s an untenable job for most people to work full time.

    3/4 of a company fired, all that tax revenue lost and a chunk of people left without service, all for the “benefit of the workers” who now don’t work anymore. Who the hell wins here? Are people in Cali wishing for the days of paying a taxi driver to come back again?

  11. norahc

    California may completely tank their economy if AB5 remains law and is applied to the vast number of independent contractors that drive trucks hauling freight into and out of California. The law was meant to target “gig” companies but was written so broadly it applied to interstate trucking. There is a lawsuit challenging AB5 being applied to the trucking industry on the basis of federal preemption but who knows how that will go.

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