End of the road for naysayers obstructing Uber, Lyft and the whole gig economy system from sticking to their traditional model of classifying their workers as independent employees. In a landmark voting round, California residents have agreed 58% to 42% to retain the independent contractor model as against the employee model, California Secretary of State’s Office had said. This decision has, therefore, finally put to rest all the controversies generated by California’s new employment law, often referred to as Assembly B5. The ballot, known as Proposition 22, put up on November 3, the same time as the US presidential election, invited any eligible voter in California to vote, for or against, on whether Uber and Lyft be granted an exemption from the law. The voting round for Proposition 22 was reportedly the most expensive ballot initiative in California’s history.
What Was This California’s New Employment Law All About?
The best way of summarizing it is that the law attempted to reclassify, disrupt, remove and destroy everything you know about the gig economy, such that if you decide to register with Uber as a driver, in say Lagos Nigeria, for instance, you would no longer be seen as working independent of the e-hailing company, but as its employee; even though the car is yours and you command some influence on how you choose to do your work.
And of course, as an employee, you’re entitled to daily or monthly wages or salaries, and are subject to Uber’s control and authority.
But this is the most simplistic interpretation of the law.
In Details, Here Is What The New Law Fully Stated
- The law, entitled Assembly B5, or simply AB5, had attempted to change the criteria for being an independent contractor in California.
- Under it, for a company to classify a worker as an independent contractor, it must prove three things (you may hear this being called the “ABC Test”). If they can’t, then the worker is treated as an employee.
- First, companies must prove that “the worker is free from the control and direction of the hiring entity in connection with the performance of the work.” In other words, companies can’t manage contractors the way they would employees. As an example, if a catering hall contracted a chef to prepare food events, but controlled how the chef prepared the food — giving them custom orders from customers, giving a strict schedule for production, and instituting standard procedures — they would likely not satisfy this part of the test.
- Second, companies must prove that “the worker performs work that is outside the usual course of the hiring entity’s business.” This means that a company like Uber has to prove that driving users from location A to location B is outside the company’s usual course of business. Uber said as much in a press release, contending that the company is actually a “technology platform for several different types of digital marketplaces.”
- Third, the companies must prove that “the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.” For example, an electrician doing contract electrical work is still a contractor. It’s unclear if ride sharing or meal delivery companies will be unable to clear this bar.
- Consequently, under this new law, all of these independent contractors could earn employee status if the companies can’t satisfy the ABC test.
This was why Uber and Lyft fumed and threatened to suspend all their operations till further notice, save for the success of Proposition 22 at the polls, which now implies that the word “independent contractors” still be tagged along with the drivers.
Although Proposition 22 envisaged some changes to give drivers minimum-wage standards, limited health benefits and flexibility, while maintaining the rideshare model, if voters had disagreed with it, Uber and Lyft, and other ride-hailing firms, would have been forced to fold up — an option, not likely to be on the table as California, alone, accounts for about 16 percent of Lyft’s business, according to John Zimmer, Lyft’s president.
One analyst, Mr. Ives of Wedbush Securities had estimated that implementing any changes to the existing rideshare model would cost Uber $500 million a year and Lyft $200 million a year. This is even compounded by the fact that both companies have remained unprofitable, as per reports, and have also been gravely affected by lockdowns associated with the coronavirus pandemic.
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Read also: What African Ride-Hailing Startups Must Learn From Uber And Lyft’s Frustration In California
If Assembly B5 Finally Had Sailed Through At The End Of The Day, It Would Have Had Domino Effects Across Jurisdictions, Including Africa
For one thing, the influence of California in the US and around the world cannot be overstated. Apart from the fact that the state is the largest of any US state — economy-wise — it is also the world’s fifth largest economy, behind Germany and ahead of India. The state is also home to “Silicon Valley” and some of the world’s most valuable companies such as Apple, Google, NetFlix, Twitter, Uber, and Facebook. A natural argument from the success of Assembly B5 would have been, therefore, that if the tech-supported gig economy was inspired by the innovations brought about by Silicon Valley, it wouldn’t make much sense to continue to hold onto the traditional definition of the concept, when those who first laid its foundation have gone ahead to redefine it.
And although Uber and Lyft had argued that they were simply tech platforms and not transportation businesses, the argument does not hold firm for all seasons. Uber, for example, has had to bend its operations in Germany and Spain to fit into the country’s transportation rules, which permit working with fleets, even though it is a tech platform.
One thing, however, needs to be pointed out here: even though the Assembly B5 law does not apply to only rideshare business models, but to the entire gig economy, it seems, nevertheless, that the rideshare model would be the most affected given that it is often seen as being at the front lines of the economy.
But for the success of Proposition 22, African governments would have replicated Assembly B5. At least, governments of all major African countries and cities housing the continent’s gig economy ecosystems have spent the past five years caressing and testing their power to make laws that will severely touch tech startups wherever they may be located in the world. Lagos, Africa’s most valuable startup ecosystem, recently introduced a set of new regulations which will take off from August 27, 2020. The regulations, among other things, state that each e-hailing company must pay N8 million ($20.5k) per 1,000 cars as fresh licencing and renewal fees; that the companies will have comprehensive insurance for each driver while the driver is working with them; that a flat fee of N20 ($0.052) per trip, called a Road Improvement Fund, will be levied per trip.
Under South Africa’s National Land Transport Amendment Bill, which has been passed in parliament and sent to South Africa’s president for assent, drivers on car-hailing platforms like Uber and Bolt who do not have operating licences — not driving licenses — may incur a fine as much as R100 000 ($6000) for those platforms (Uber, Bolt and others), which would definitely be levied against the affected drivers directly or indirectly.
In Ghana, from Uber to Bolt to Yango, drivers who rely on ride-hailing to sustain their livelihoods would start paying a mandatory GHC 60 ($11) annual fee, in addition to their cars undergoing roadworthy tests every six months. Ghana’s Driver and Vehicle Licensing Authority (DVLA), which imposed the GH¢60 ($11) annual fee noted that the guidelines will cover the current ride-hailing platforms like Uber, Bolt, and Yango and will also cover companies who intend to operate ride-hailing platforms in Ghana in the future.
The implications of AB5 across ecosystems have, therefore, been well noted.
“AB5 is riding two waves,” said Alex Rosenblat, a technology ethnographer and author of Uberland: How Algorithms are Rewriting the Rules of Work, to The Verve, “ a longstanding effort to restore workplace protections to misclassified workers; and it comes on the heels of the techlash.”
Rosenblat further argued that while the California law was about more than just Uber and Lyft, the drivers became the face of all workers exploited by giant tech companies. “That’s why AB5 is a symbolic and remarkable shift towards accountability, in labor and in tech,” she said.
On a final note, and as more of advice to the enablers of the entire gig economy, Bradley Tusk, president of Tusk Ventures and an early Uber investor has this to say: “ if the sharing-economy companies can’t radically reframe the narrative from ‘evil Silicon Valley powerhouse vs workers’ to ‘what this actually means for workers and consumers vs groups looking to profit from the changes,’ they’ll keep losing everywhere.”
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer