This was not a matter of if, but when—and it didn’t take too long for Uber and Postmates to file a lawsuit against the state of California. The Golden State’s new law AB5 took effect on New Year’s Day. It aims to classify contract workers as employees—and they’re looking at you, Gig Economy companies.
The law has far-reaching ramifications on the business models of on-demand services including ride-hailing, plus grocery, restaurant meal, and other delivery services. But the new law also impacts almost every contract worker such as writers, photographers, and even truck drivers.
In addition to Uber and Postmates, other companies, Lyft, DoorDash, and Instacart are lining up to insert a ballot initiative for the November election. In any case, expect a protracted struggle as the legal action moves forward. Winners: lawyers and lobbyists. Losers: Consumers and the On-Demand Economy.
A Wall Street Journal article discusses more on this topic which is excerpted below.
Gig economy companies may or may not win their legal challenge to California’s ambitious new law. Their investors still could use the additional clarity—however it goes.
Uber Technologies Inc. and Postmates Inc. filed a federal lawsuit Monday against a new California law known as Assembly Bill 5, or AB5. The law—set to take effect Wednesday—seeks to classify more independent contractors as employees. The two companies and their competitors such as Lyft, Instacart and DoorDash currently rely on large fleets of drivers working as independent contractors to provide their services.
Uber and Lyft, both of which went public in the first half of 2019, warned in their initial public offering filings of adverse impacts to their businesses if their drivers had to be classified as employees rather than as independent contractors.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group