Uber Has Bigger Problems to Worry About Than the Shutdown

(Bloomberg Businessweek) -- For companies like Uber and Lyft, the biggest 2019 headlines will come when they go public, as long as the federal shutdown ends and the U.S. Securities and Exchange Commission gets back to work. But the more important news may be 3,000 miles away in Sacramento, where lawmakers will have to deal with the fallout from a sweeping 2018 state Supreme Court verdict. The decision made it much tougher for companies to label workers independent contractors rather than employees—a direct threat to the business model of ride-hailing companies, among others.

“We cannot just put our heads in the sand with respect to the future of work,” says Evan Low, a member of the California Assembly who co-chairs the legislature’s tech caucus. “Status quo is unacceptable, and you will start to lose money.”

Now that millions of Americans have experimented with work in the so-called gig economy, there’s been a lot of talk about how much old laws and new startups should bend to accommodate each other. This year you can expect some action. Empowered by voters, squeezed by lobbyists, and provoked by judges, Democrats in states around the country will have to take sides. Although prospects for passing legislation in a divided Congress remain dim, California is one of several states poised to consider rules that could reshape the debate at the national level. Uber spokesman Nathan Hambley said in a statement that the company is committed to working with labor, government, and other businesses to ensure workers “have access to the social safety net” and that it sees “an opportunity to make real progress at the state level, including in California and Washington.” Lyft declined to comment.

In a case involving courier Dynamex Operations West Inc., California’s high court ruled unanimously that staff can’t be considered contractors under state wage law unless they’re doing “work that is outside the usual course” of their boss’s business. The ruling reshapes how judges must consider whether Uber drivers or Amazon.com couriers, say, are entitled to a minimum wage and overtime. It’s left local labor advocates with unprecedented leverage, though companies that rely on gig work are widely expected to secure at least some concessions from new Governor Gavin Newsom and the state legislature.

Newsom has been pulling together labor and business representatives when he spots them at events and urging them to hash out a deal, union and tech leaders say. The governor, who declined to comment for this story, told reporters on Jan. 14 that he wanted “to work to see if there is common ground” on the Dynamex issue.

Compromise could mean weakening the Dynamex standard in exchange for extending nondiscrimination protections to contractors, setting up a benefits system that lets workers accumulate perks such as paid sick days, or establishing some sort of negotiating arm short of a full-fledged union. Uber cut a deal in New York in 2016 to provide funds for a guild that’s affiliated with a national union and can raise workplace issues but can’t call a strike.

In California, companies including Uber have been discussing similar ideas with the Teamsters and the Service Employees International Union, say people familiar with the matter. Bob Schoonover, the president of a California SEIU chapter, acknowledged meeting with gig companies but said, “I don’t think there should be any compromise about workers’ rights.” Doug Bloch, political director for a Teamsters affiliate, says, “We are having a conversation within California labor about how we can best help these workers. So we need to look at every single model that’s out there.”

Labor also has fresh leverage in Washington state, where this year Democratic legislators have larger majorities. Lawmakers plan to introduce legislation there in the coming weeks that would tighten the definition of who can be called an independent contractor, require companies to help fund benefits, and create “sectoral bargaining” meetings in which contractors, management, and government hash out standards for wages and benefits. Such a system could offer a less legally vulnerable alternative to the Seattle City Council’s ordinance that tried to establish collective bargaining rights for app-based drivers, which a federal appeals court signaled last year would likely be struck down on antitrust grounds.

Here, too, there’s a chance of further compromise. Last year, Uber and an SEIU local in Washington state said they were discussing a portable benefits proposal. Uber has said it would want such a deal to concede its drivers aren’t employees. “I think everyone’s hoping for a grand bargain,” says former local SEIU president David Rolf, board president of labor advocate Working Washington. But “everyone’s idea of a grand bargain is always the one most favorable to their side.”

Democratic election wins have also boosted labor advocates’ efforts in New York, where Governor Andrew Cuomo pledged in December to “ensure workers have labor rights in the gig economy,” and in New Jersey, where Governor Phil Murphy has created a commission to recommend ways to crack down on employee misclassification. Other big states, including Republican-controlled Florida and Texas, have recently moved in the opposite direction, but this year gig companies are on the defensive, says Bradley Tusk, a consultant who’s advised Uber and managed the last mayoral campaign of Michael Bloomberg, majority owner of Bloomberg Businessweek’s parent.

Labor and business leaders expect the coming slew of laws to set the terms of the debate in more of the country and, eventually, at the federal level. That’s especially true of the debate in California. An employment standard mirroring Dynamex’s has already been included in an overhaul of federal labor law proposed by Vermont Senator Bernie Sanders and co-sponsored by many Democratic presidential contenders. Business leaders, meanwhile, have been lobbying against the Dynamex standard in the nation’s capital. “Democrats have a choice here,” says University of California Hastings College of the Law professor Veena Dubal. “They can either take a stance against growing economic inequality, or they can be seduced by shiny technologies and the political capital of venture capitalists.”

To contact the editor responsible for this story: Jeff Muskus at jmuskus@bloomberg.net, Eric Gelman

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