Q&A on California’s AB 5 and how Uber and Lyft will be impacted, Saudi Arabia drone airstrike escalates oil tensions

A landmark law that would make many gig economy workers employees was approved by the state senate late Tuesday night in California, after months of tension between labor groups, on-demand mobile app companies like Uber and Lyft, and workers’ rights advocates. After endorsing Assembly Bill 5 on Labor Day, Governor Gavin Newsom is expected to be signing the bill into law very soon. If so, the measure will go into effect on Jan. 1, 2020.

Experts say AB5 has the potential to curb labor violations, increase employee bargaining power, and fundamentally alter California’s booming gig economy. US Senator and presidential candidate Bernie Sanders has introduced a similar bill in Washington (Workplace Democracy Act), and other states are expected to launch copycat bills in their legislatures. Labor unions could be brought in, or some other entities representing groups of workers for collective bargaining and enforcing the new law (such as new groups including Gig Workers Rising.) It was first introduced in December by Democratic Assembly member Lorena Gonzalez Fletcher, and since then the bill has gone through several iterations.

The state wants to stop losing tax revenue — which is another part of how it came to be. California’s Department of Industrial Relations estimates that the state loses about $7 billion a year in payroll taxes due to company misclassification.

What companies will be most affected by it?

Under AB 5, close to one million ride-hailing workers, on-demand delivery drivers, manicurists, and janitors in California will be eligible for the same benefits, minimum wage, and vacation days that full employees are. The final version of the bill includes exclusions for certain industries: lawyers, architects, realtors, hairstylists, fishermen, and freelance writers and editors. That’s based on their jobs not being subject to the law because their industries allow them to negotiate.

The companies most affected will be app-based on-demand mobility companies — in California its made up of about 400,000 people driving for Uber and Lyft, delivering meals for Postmates and DoorDash and groceries for Instacart, other competitors in mobile app services, and for those fulfilling specialized services such as Task Rabbit. A few of these companies, led by Uber and Lyft, say that the law will provide an existential threat to their continued existence. Barclays estimates that Uber’s annual operating costs in California will grow by more than $500 million, and Lyft’s will grow by $290 million.

Trucking firms are quite concerned about AB 5 impacting their profits, as working with independent contractor truck drivers has been common in the industry for years. The bill was opposed by the California Trucking Association through the argument that one of the laws’s standards would make it difficult, if not impossible, to continue using independent contractors. In more recent years, startup firms have been using Uber’s model with a software platform that can bring together drivers with trucking companies for freight-hauling trips.

Who will be representing drivers?

That’s one of the leading questions for those impacted by AB 5. Labor unions are mentioned frequently, but there will be other entities representing drivers and other workers affected by AB 5. New groups are being organized to represent independent contractors under the new law, but there are a few experienced law firms that have been representing gig economy workers in recent years.

One likely scenario is that the first version of collective bargaining will start with lawyers filing for labor arbitration hearings and class-action lawsuits in California courts. Attorney Shannon Liss-Riordan is well known for filing for arbitration, and class-action suits, against Uber and other mobility companies, seeking fair pay for drivers and classifying them as employees. There are several other large law firms in California that have negotiated settlements for independent contractors working for Uber, Lyft, DoorDash, Postmates, and other gig economy firms.

The first suit has already been filed — on Wednesday afternoon when an Antioch, Calif.-based Uber driver filed a proposed class-action case against Uber Technologies, Inc., for misclassifying her and other California drivers as independent contractors rather than employees. Filed in the US District Court for the Northern District of California, the case cites AB 5.

Where did all of it start?

A 2005 lawsuit in California paved the way for AB 5. In 2018, the California Supreme Court ruled in favor of workers in the case Dynamex Operations West v. Superior Court. Dynamex is a nationwide same-day courier and delivery service that offers on-demand pickup and delivery services. Prior to 2004, Dynamex classified its California drivers as employees. Starting in 2004, the company converted all of its drivers to independent contractors as a cost savings measure.

The 2018 ruling essentially created the “ABC test” as precedent, but it only relates to workers seeking minimum wages and overtime pay. Under the test, a worker is only an independent contractor if they meet all three parts:

> The worker is free from the control and direction of the company in relation to the performance of the work, both under the contract and in fact;

> The worker performs work that is outside the usual course of the hirer’s business;

> The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hirer.

Another way of saying it is that if the worker is performing a task that’s central to the company’s functioning, and if their wages are set by the company, they’re more likely to be considered employees.

What do Uber and Lyft think?

Uber and Lyft are dismissing AB 5, and say it will remain business as usual on how drivers are paid. They know that many pleas will be made to reclassify drivers, but they say they’ll be able to pass the new test and their drivers will remain independent contractors. But they and several other mobile app companies fought hard against the bill passing.

Fares will have to go up to cover these additional costs for these two publicly traded companies that have struggled to become profitable. One analyst estimates that 25 percent fare increases in California will be a necessity. That will take some of the edge away from competing with taxis, livery companies, limousine operators, shuttle services, and other transportation providers. But it will still be much lower, with Uber and Lyft typically described as being half the cost of other transportation modes.

Uber, Lyft, and DoorDash have all contributed $30 million each into a fund for a 2020 California ballot proposal that would counteract AB 5. The proposal hasn’t been written yet, and it’s expected to include some concessions to labor such as a guaranteed wage floor if drivers aren’t classified as employees.

What do drivers think?

Uber and Lyft drivers have had their share of work stoppages and public protests calling for fair pay, and sometimes for reclassification as employees. A lot of drivers, however, would like things to stay the same. They may not be making the kind of income they need long term, but they do appreciate the opportunity to quickly bring in decent earnings under flexible conditions.

Unlike other on-demand jobs that require scheduling, Uber and Lyft drivers can set their own hours. They can sign in and out of the app at will to take care of personal business and get some time off to relax and have a meal. Other mobile apps offer some flexibility, and drivers are allowed to set their own weekly schedules during a set time, on a first-come, first-served model.

Yet no matter how often the argument is made about freedom over strict work hours, drivers are feeling the squeeze. They’re typically given generous incentives for joining the networks, getting five-star customer ratings, bringing in their friends as drivers, and working long hours. But that eventually fades away when per trip earnings are cut back as the companies cite pressure to reduce their costs. Drivers have to find the best, peak demand hours to work where they will get rides and deliveries, and earn decent pay. They also face the ominous threat of being “deactivated,” which would mean being fired if they were employees, without warning.

The inconsistency in the work and pay can be very frustrating. There’s nothing worse than scheduling a block of hours, and then to sit there looking at your smartphone for long periods wondering when the trips will begin. Near the end of the shift, downtime could be dragging on when suddenly another ride or order is offered to you that will take an extra hour after the end time to fulfill, and may conflict with personal plans. 

Drivers do value the flexibility in meeting their goals, but the advantage always goes to drivers willing to work long hours. The new law could push Uber and Lyft to give preference to the workers who can and do work full-time hours in California, says Robert Maxim, a research associate for the Brookings Institute’s Metropolitan Policy Program.

Which labor unions could be representing these workers?

This is a gray area, as most drivers in passenger trips and freight hauling don’t have union membership. Labor unions have progressively lost membership since the 1980s, and are taking on battles as much as they can such as the UAW announcing a nationwide strike after negotiations with GM stalled. Here are a few unions that could be involved in representing California workers under AB 5………..

> Teamsters has 1.3 million members, representing heavy-duty truck freight hauler drivers and over 200,000 UPS drivers. Independent truck drivers may want to join up with them.

> Service Employees International Union (SEIU) disputed reports of a backroom deal made with Uber and Lyft executives, saying that the union supports AB 5 and full employee status for drivers. SEIU is known for its 1.9 million members in hospitals, home care, and nursing homes; public services (such as city and county workers); and property services (janitors and cleaners). With AB 5 addressing janitors and cleaners, SEIU will likely be involved in contract negotiations for these workers.

> Transport Workers Union of America represents more than 150,000 members across the airline, railroad, transit, universities, utilities, and services sectors. They’re not likely to be involved and see most of their membership on the east coast.

As mentioned earlier, new entities such as Gig Workers Rising are being created to take advantage of the opportunity to collectively organize for independent contractors.

A few interesting news briefs:

  • Yemen’s Iranian-backed Houthi rebels hit major Saudi Arabian oil installations during a drone airstrike early Saturday. The Khurais oilfield operated by Saudi Aramco, the state-owned oil giant, and the Abqaiq oil processing facility, were struck by a number of drones that caused fires at the plants. Saudi Arabia shut down half its oil production Saturday, which is expected to impact almost 5.7 million barrels of crude production a day, about 5% of the world’s daily oil production; and up to 70 percent of the country’s crude output. The government said the attacks also led to a halt in gas production that will reduce the supply of ethane and natural gas liquids by 50 percent. Saudi Aramco CEO Amin Nasser said nobody was hurt in the attacks and emergency crews contained the fires. Secretary of State Mike Pompeo blamed Iran for ordering the attack, in tweets on Saturday, while Iran said it had nothing to do with the bombing. President Donald Trump later tweeted that the US has “reason to believe that we know” who is responsible for the attack and the country is “locked and loaded depending on verification.” Houthi rebels in Yemen have claimed responsibility for the attacks, and said 10 drones had targeted the oil installations; reports are coming out that the attack may also have been caused by cruise missiles. The US secretary of state and presidents’ remarks came amid rising tensions between Washington and Tehran after President Trump’s decision last year to pull the U.S. out of the Iran nuclear deal.
  • The Frankfurt Motor Show continues to showcase electric vehicle launches as European automakers invest tens of billions into their new lineups to comply with stricter emissions rules and expected growing demand. Volkswagen, Porsche and Mercedes-Benz unveiled electric models that will be heading to dealerships soon. VW’s ID.3, the first model from its new MEB product line, and Porsche’s high-performance Taycan electric sports car, grabbed much of the attention. Pressure is mounting on automakers to go green. On Saturday, thousands of protesters marched in front of the car show to demand a swift end to internal combustion engines and a shift to clean vehicles.
  • For fans of the HBO series, “Game of Thrones,” Henrik Fisker is in a good position to showcase his upcoming all-electric SUV. Nikolaj Coster-Waldau, who played Jaime Lannister on the recently completed popular TV series, has been a United Nations Goodwill Ambassador for climate change and other social issues. Now he’ll be serving as a partner and sustainability adviser to Fisker Inc. chairman and CEO Fisker in working toward a future with advanced, affordable, electric mobility. It will be a good fit in helping the UN meet as many sustainability goals as possible, the company said. Fisker Inc. will unveil its electric SUV at the end of this year. The company said it will offer a range of approximately 275 to 300 miles per charge.
    German auto supplier Bosch said it has earned about 13 billion euros ($14.5 billion) since the beginning of 2018 through “electromobility” orders. That product lineup includes software, production projects for electrical powertrains, automated valet parking, and other projects focused on making mobility more automated, connected, and personallzed.
  • Volvo Group North America became the first trucking OEM to join the US Department of Energy’s Better Plant Supply Chain Initiative. The company recruited eight Volvo Group vendors to commit to reducing energy consumption by 25 percent over 10 years. The federal agency said that 85 percent of US energy consumption is a result of the industrial supply chain, a majority of which is comprised of small- to medium-sized manufacturing companies.

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