AB 5 is already changing how Uber works for California drivers and riders

Feb. 3, 2020 6 AM PT

For years, Uber drivers have had a few requests. They’ve wanted to be able to see where passengers were going before agreeing to take them. They’ve wanted to know exactly how much Uber was keeping from each fare. Above all, they’ve wanted to make more money.

Uber’s frequent response, when it deigned to respond at all: If we made these changes, Uber might not work as well, and that would hurt drivers and riders alike.

But with a new California labor law making it harder for businesses to treat workers as independent contractors, the San Francisco-based company is reconsidering its resistance.

In a bid to comply with the stringent definition of independent work established by Assembly Bill 5, signed into law in September, Uber is now experimenting in cities around California with some of the features it has long dismissed as unworkable.

On the face of it, it’s a victory for drivers in the state, a predictable outcome of legislation that bolstered their legal rights.

But some drivers have expressed concern that at least one of the features being tested — the ability to set a fare higher or lower than Uber’s pre-set price — could end up driving down earnings by pitting drivers against one another and forcing them to compete for riders in a way they haven’t until now.

Customers could lose out in different ways. Another feature, which shows drivers trip destinations before they accept rides, could enable them to avoid lower-income areas.

Amid all this uncertainty, critics and labor experts cast doubt on whether these changes would do much to shore up Uber’s contention that it’s a technology platform, not a transportation provider, and therefore its drivers are not legally employees.

Labor expert and UC Hastings College of Law professor Veena Dubal doubts it.

“The only way for the company to legitimately claim it is a ‘technology’ company that does something different than what the drivers do is for them to actually allow workers to set fares and to entirely relinquish control of prices,” she said, noting Uber still controls factors including what percentage it takes and the matching of riders with drivers.

Uber says it will watch closely to see how the tests underway affect drivers’ and riders’ satisfaction and the availability of rides. In emails to both riders and drivers, the company warned that these changes may take some getting used to but that they are necessary to “help ensure that Uber remains a dependable source of flexible work for California drivers.”

Still, doing nothing in the face of potential enforcement efforts poses a far greater threat to Uber’s business. If Uber is found to be in violation of AB 5, failing the test of whether workers are contractors established by the underlying state Supreme Court decision, the company would be forced to treat its drivers as employees, providing benefits such as health insurance and paid time off.

The three-pronged test — called the ABC test — requires any company to prove that it does not exert control over how workers perform the job, that the work being performed is outside “the usual course of the company’s business” and that the worker regularly performs the same job in the same industry independent of that company.

The cost of treating drivers as employees could deliver a severe blow to Uber’s and Lyft’s businesses at a time when the companies have been forced to lay off corporate staffers to reach profitability.

“We have been clear for several months that we acknowledge that the new test is harder in California, but even prior to the product changes we were confident that we could pass the test,” Uber spokesman Davis White said in a statement. “The recent changes are a decisive effort to make our case as strong as possible.”

Some of the changes have clear benefits for drivers. In an email to drivers announcing the features, the company conceded it could do more to improve the driver experience so that they can “reap the full independence that the platform can provide.”

Enabling drivers to see where a rider is going before accepting the trip, for example, marks a partial return to the way Uber and other companies operated in the early days of ride-hailing.

Uber did away with the ability of drivers to see destinations before accepting a trip in 2014 in several markets, saying, along with Lyft, the change would reduce a form of discrimination familiar to many taxi customers, especially those who live in low-income areas or minority enclaves. But drivers have said being able to avoid out-of-the-way routes would enable them to maximize their earnings.

While Uber has experimented with similar features since then that allow drivers to choose destinations that they want to head toward while continuing to pick up riders along the way, the company found that it caused market disruptions and often negatively affected supply in places of high demand.

An Uber representative said that it’s too soon to say if the feature has had an effect on supply as well as whether it has resulted in drivers denying rides to avoid lower-income areas, but that the company is keeping a close eye on it.

In another change, Uber is returning to a simpler, more transparent pay structure. When Uber launched in 2009, the company paid drivers the amount a rider was charged minus a service fee. The fare was based on time and distance, among other factors.

In June 2016, the company introduced upfront pricing, under which riders were quoted a price before booking the trip and charged that amount, calculated based on historical data for similar trips and other real-time information.

Drivers, however, were still paid based on the actual time and distance of the trip. It was a controversial system that many drivers complained created major discrepancies between what riders were paying and what drivers were paid.

Now, the company is abandoning upfront pricing in California and once again charging riders the precise trip amount based on time and distance. Before booking, they will see only an estimated price range, not a single guaranteed price. Drivers will receive the amount the rider pays minus a 25% maximum service fee. That means less certainty for riders and the possibility of surprises.

In a further attempt to establish that drivers have control over the way they work, Uber is experimenting with enabling drivers to set fares higher or, starting last week, lower than the default rate.

At select airports, drivers can increase rates in 10% increments to a maximum of five times the rates Uber sets and lower rates down to one-tenth the company’s set prices, according to the Wall Street Journal.

But while drivers have more control over their rates, Uber still controls the matching of drivers and passengers, and its algorithm will match riders with the vehicle offering the lowest price. That could incentivize drivers to preemptively undercut others’ prices.

Drivers on online forums expressed concern that this would spark a race to the bottom as some people chase a higher volume of rides, as opposed to more expensive trips.

“That’s going to be kind of dangerous for us,” said Luis Gonzalez, who has been driving for Uber and Lyft in Palm Springs for five years. “Our biggest complaint is that the prices are so low that it’s not worth it to drive sometimes. So if we’re doing less than the regular pricing, that would undermine what we are always criticizing or complaining about.”

Harry Campbell, a former ride-share driver who runs a blog called Therideshareguy.com, said allowing drivers to lower fares could make it harder for drivers to offer higher-quality rides.

While Uber’s plans include allowing riders to designate favored drivers for priority matching when scheduling a trip in advance, matching them with the cheapest option effectively discourages drivers from trying to distinguish themselves on service.

“I think this is going to lead to a lot of competition,” Campbell said. “I’m sure some passengers would be willing to pay slightly more for a higher-quality driver.”

In addition to the uncertain effect on the rider and driver experience, it’s unclear whether these changes will ultimately help Uber’s case.

Shannon Liss-Riordan, a class-action labor attorney who represented Uber and Lyft drivers in employee misclassification lawsuits against the companies, argues that these changes haven’t proved that the drivers’ work is outside “the usual course of the company’s business,” or prong B in the ABC test.

“Though I expect some drivers may like these changes, these have nothing to do with whether Uber can satisfy the ABC test in Dynamex and AB 5,” Liss-Riordan said. Dynamex refers to the state Supreme Court case that established the ABC test.

“Uber is still a car service and so the drivers are its employees under prong B. These kinds of changes may loosen up the control Uber exerts that is relevant to the analysis under prong A,” she added. “But under the ABC test, the alleged employer has to meet all three prongs to justify a worker as an independent contractor.”

As Uber makes concessions it has balked at in the past while simultaneously claiming AB 5 is unconstitutional in a lawsuit against California regulators, Lyft continues to operate as if it’s business as usual.

Lyft spokesman Adrian Durbin said the company had nothing to share at this time. It’s not unlike Lyft to wait to see how Uber’s tests and decisions pan out before making its own move — it’s a tactic the company often employed when fighting to be legalized in states across the U.S.

There may be a larger strategy at play.

Hastings law professor Dubal, for one, sees Uber’s moves as an attempt to gain favor for its ongoing public campaign to garner support for a California ballot measure that would allow gig companies to keep treating workers as contractors.

Along with Lyft, DoorDash, Postmates and Instacart, Uber is in the midst of a $110-million ballot initiative to introduce a measure that would offer drivers some benefits such as a minimum wage but allow them to remain contractors. Gig workers started collecting signatures to get the measure on the November ballot last month.

If that effort succeeds, Uber and Lyft will have a lot more freedom to set the terms of ride-hailing as they see fit — even if drivers disagree.