Uber and Lyft drivers could become employees with this law: 10 things to know

Come January, a landmark law is set to go into effect and possibly turn ride-hail drivers into employees. This could upend the gig economy as we know it.

Dara Kerr Former senior reporter
Dara Kerr was a senior reporter for CNET covering the on-demand economy and tech culture. She grew up in Colorado, went to school in New York City and can never remember how to pronounce gif.
Dara Kerr
8 min read

Uber drivers held a protest in San Francisco in November calling out the disparity of wealth between themselves and company executives.

Dara Kerr/CNET

Gig worker rights were front and center in 2019. News headlines showed hundreds of Uber and Lyft drivers protesting against the companies. California became the first state to pass a landmark law aimed at protecting such workers. And more states appear set to follow suit. No surprise, the companies vowed to hold their ground.

Independent contract work has been around for decades, but Silicon Valley and the app-based economy have created hundreds of thousands of new jobs that fit into this category -- from Uber and Lyft drivers to DoorDash and Postmates delivery people to TaskRabbit do-anything helpers. When first introduced about a decade ago, these jobs were seen as a way to help workers make ends meet. Gradually, they morphed into some people's sole income.

Now, as these workers say they have to work longer hours for lower pay with no benefits, the gig economy is facing a reckoning.

Watch this: Uber, Lyft drivers in CA closer to employment, AppleCare now offered as a subscription

California's new AB 5 law could require these companies to reclassify their workers as employees. Other states, like Washington, Oregon, New York and New Jersey, are looking at similar laws.

Gig workers typically don't get benefits like health insurance, paid sick days and overtime. And Uber and Lyft drivers have to pay for their own cars, gas, vehicle maintenance and insurance. Many drivers say this system has led to exploitation.

The problem for the companies is that managing workforces of this size can be unwieldy and expensive. Both Uber and Lyft are struggling to become profitable, and labor costs could add millions of dollars to their bottom lines. A Barclays analysis from June said that reclassifying California drivers as employees could cost Uber $500 million per year and Lyft $290 million per year.

This could be why the two companies have fought AB 5 throughout the entire process. Before the law passed, in a rare showing of cooperation, the CEOs of Uber and Lyft wrote a joint op-ed in the San Francisco Chronicle, saying drivers should remain independent contractors. The companies also circulated petitions to drivers and passengers warning of fewer cars on the road and higher prices if they had to reclassify their workforce as employees.

Once AB 5 was signed by California's governor in September, Uber and Lyft spent $30 million each to sponsor a ballot initiative for November 2020 that could exempt them from the law. It's unclear if the initiative will make it onto the ballot or if it will pass. In the meantime, AB 5 is set to go into effect come January -- and both companies told CNET they have no plans to reclassify their drivers.

Here's 10 things you need to know about AB 5, the ballot initiative and worker classification:

1. What is AB 5?

It's a California law that could require companies using independent contractors to reclassify them as employees. AB 5 was signed into law by California Gov. Gavin Newsom in September.

The law is based on a California Supreme Court decision from last year known as Dynamex that requires companies to use an "ABC test" to classify their workers. Under the test, workers can be classified as independent contractors if they A) are free from the company's control B) do work that's not key to the company's business, and C) maintain their own independent business in the same industry. If all three of those standards aren't passed, then employers must classify their workers as employees.

Lawmakers look at several factors in considering how much control a company has over its workforce, including whether workers wear uniforms, have a set schedule, make set wages, attend company trainings and use company equipment.

2. When does AB 5 go into effect?

The law is set to kick off on Jan. 1, 2020. But, here's the rub: it's unclear how it will all play out. 

Lyft has said AB 5 doesn't automatically reclassify drivers as employees; a company spokesman declined to comment further. An Uber spokesman told CNET, "We have no plans to re-classify our drivers or change our business model."  

Tony West, Uber's chief legal officer, said in September that he believes Uber drivers will pass the ABC test. "Just because the test is hard doesn't mean that we will not be able to pass it," West said. "We continue to believe drivers are properly classified as independent."

Enforcement of AB 5 depends on various California labor agencies and city and state attorneys. If companies don't comply with the law, they could be sued for violating it.

3. Does this law extend outside of California?

California was the first state to pass a law explicitly around gig workers. But other states have begun to follow suit. Washington, Oregon, New York and New Jersey are now considering legislation similar to AB 5.

Assemblywoman Lorena Gonzalez, who sponsored AB 5, said one of the objectives of the bill was for California to set the standard for gig worker protections worldwide.

"We are disrupting the status quo and taking a bold step forward to rebuild our middle class and reshape the future of workers as we know it," Gonzalez said in September. "As one of the strongest economies in the world, California is now setting the global standard for worker protections for other states and countries to follow." 

4. Do Uber and Lyft drivers want to be employees?

Some drivers want to be reclassified. Others don't.

One of the main reasons why AB 5 passed was because drivers rallied behind the bill demanding fair wages and better protections. They met with lawmakers, staged protests and even drove a caravan across the state drawing attention to their cause. 


Some Uber and Lyft drivers want to be employees. Others want to remain independent contractors.

James Martin/CNET

Uber and Lyft have said drivers will lose their flexible schedules if they become employees, so a lot of drivers say they want to remain independent contractors. In a survey of nearly 1,000 drivers from across the country, the Rideshare Guy blog found that 66% of the drivers it surveyed wanted to stay classified as contractors, likely to maintain their flexibility. Only 15.8% said they wanted to become employees.

5. Will drivers actually lose flexible schedules if they become employees?

Not necessarily.

Being able to work "when you want" is something Uber and Lyft have long touted to their drivers. Once AB 5 gained steam over the summer, the two companies messaged their drivers, saying if the law passed they could lose that flexibility.

"Fight for driver flexibility in California," read one notification Uber sent to its drivers that included a link to a petition against AB 5. "Recent changes to California law could threaten your access to flexible work with Uber."

But nothing in AB 5 says drivers can't maintain flexible schedules. In fact, the bill states: "Nothing in this act is intended to diminish the flexibility of employees to work part-time or intermittent schedules."

The on-demand temp worker platform Bluecrew uses gig workers who are employees. "It's a false narrative that the flexibility of gig work and worker protections can't coexist," CEO Adam Roston said in an interview.

Some drivers also say that working 50 to 60 hours a week to make ends meet doesn't leave much room for a flexible schedule.

6. What's the benefit to being an employee?

Actual benefits. When classified as employees, workers are entitled to far more than contractors. They get minimum wage, workers' compensation, unemployment insurance, paid sick and vacation leave, overtime, health insurance and more.

Employees are also protected from fluctuations in pay. Many drivers complain that Uber and Lyft often change their pay structure without notifying them. If drivers were employees, there'd likely be more controls around this.

7. What are Uber and Lyft's stance on AB 5?

Both companies have said their businesses rely on drivers being classified as independent contractors. When Uber filed to become a publicly traded company in April, it said, "Our business would be adversely affected if drivers were classified as employees instead of independent contractors."

Reclassifying drivers would be a costly and complex process for the two companies, neither of which is yet profitable. They'd have to rework their business models, pay added worker costs and manage a workforce of tens of thousands of drivers in California alone.

When it became clear AB 5 would pass, Uber and Lyft said they'd sponsor a ballot initiative for November 2020 to take the issue to California voters.


"We think that there's a better way forward" than AB 5, said Uber CEO Dara Khosrowshahi during an earnings call in August.

James Martin/CNET

8. Wait, a ballot proposal?

Uber, Lyft and food delivery company DoorDash have chipped in $30 million each to sponsor a ballot initiative, known as the "Protect App-Based Drivers and Services Act." Instacart and Postmates have also added $10 million each, bringing the total raised to $110 million. An Uber spokesman said the company will contribute more if needed.

The idea is to create an alternative to AB 5 that would maintain drivers as independent contractors, while adding more worker protections. Those protections would include a minimum earnings guarantee, expense reimbursement, a health care subsidy and insurance to cover on-the-job injuries.

The "earnings guarantee" will be at least 120% of the minimum wage, while the expenses include 30 cents per mile for gas and wear-and-tear. The companies say that works out to about $21 per hour, when drivers have a passenger in the car.

Several economists, however, have said the proposal may sound better than it is. The University of California at Berkeley Labor Center factored in hidden costs, such as unpaid waiting time, unpaid payroll taxes and underpayment for driving expenses, and concluded the actual wage drivers will likely make is more around $5.64 per hour.

UC Berkeley Labor Center

Part of the issue is that drivers will get paid only from the time when they accept a ride until they drop the passenger off. That means no pay when they're waiting for rides, which averages out to about 70% of drivers' time, according to the Labor Center. Uber disputes these findings.

To get on the November ballot, the proposal needs to collect more than 623,000 signatures. The signature gathering will begin in January.

9. National politics weigh in

Democratic presidential candidates, current and former, have lined up behind AB 5, including Bernie Sanders, Elizabeth Warren, Kamala Harris, Pete Buttigieg and Julian Castro.

Conversely, the National Labor Relations Board, which is headed by Peter Robb, an appointee of President Donald Trump, concluded in an April memo that ride-hail drivers are independent contractors and not employees. This decision can be reversed, but while it's in effect it can guide the board in how to enforce federal labor law.

10. AB 5 applies to a lot more independent contractors than just ride-hail drivers

While Uber and Lyft drivers have been some of the most vocal advocates of AB 5, the law actually applies to all industries that use independent contractors. Truckers, translators and some medical professionals could be reclassified as employees, as well as housekeepers, campaign workers and exotic dancers.

Some types of professions can be exempt from the law based on licensing and how workers negotiate their pay rates. Those professions include doctors, dentists, insurance agents, stock brokers, lawyers, accountants, engineers, real estate agents, hairstylists, artists and more.