Is Uber, Lyft & gig economy battle over drivers nearing its end game?
In this image from Warsaw, Poland, on September 21, 2022, an Apple iPhone is seen with the Uber app open and displaying a map of New York City bringing the question that Is Uber, Lyft & gig economy battle over drivers nearing its end game?
Uber and Lyft are essentially starting over. Shares of Uber, Lyft, and food delivery services like Doordash, which regard gig workers as independent contractors with little protections under labour law, sank dramatically last week as federal regulators prepared to tighten Trump-era labour regulations. The Department of Labor’s proposal does not, however, instantly turn gig workers into full-time employees entitled to overtime pay, unemployment insurance, and other benefits.
Given that an estimated one in six Americans has participated in the gig economy in some capacity, it is evident that the ongoing dispute over how these on-demand businesses treat their drivers is not going away. Some analysts and commentators who follow the ridesharing business believe that the Biden administration’s pro-union position would eventually lead to workers being categorized as employees. This compromise approach, known as independent contractor-plus, will give drivers at least limited benefits.
Both options would probably result in higher costs for Uber and Lyft, as well as a new economic model for the drivers who effectively operate their cars as their own little businesses. Each also emphasizes the unfulfilled potential of ridesharing business models: Investors initially anticipated that the introduction of self-driving vehicles would increase company profits and push out the majority of drivers.
“It seems like the start of a Game of Thrones battle between the Department of Labor and the gig economy,’ Wedbush analyst Dan Ives said. “When pressure was confined to the states, it was one thing. It has added another variable.”
For the time being, the DOL’s proposed regulations will prevent drivers from becoming workers, who would then be eligible for benefits including protection for the minimum wage, overtime pay, and payment when they are at work but have no passengers in their car. Although Morgan Stanley analyst Brian Nowak said state-level action might possibly force such change, such a move would probably put pressure on the companies to offer the drivers health insurance and vacation money, especially for the minority of drivers who do gig work full-time.
After the Labor Department issues a proposal on gig workers, shares of Uber and Lyft decline.
For the time being, the DoL regulations will use a more extensive set of criteria to identify who is actually an independent contractor and who is not. The flexibility of rideshare employment, which allows drivers to choose their own hours, is cited by the firms as evidence that drivers are independent contractors.
According to proponents of treating drivers as employees, Uber and Lyft establish workers’ wages, send them on trips, and closely monitor their work, even employing technology to ask customers during a ride whether their driver is acting strangely based on the speed of a vehicle.
The change in government policy, which essentially reinstates the existing quo under the Obama administration (and most of the Trump years, given the previous administration didn’t relax the rules until early 2021), comes at a precarious time for both rideshare businesses.
Each has assured that it will soon start to earn a profit. They have arrived by some measures, particularly the more forgiving earnings before interest, taxes, depreciation, and amortization. Although Uber had a positive free cash flow in the second quarter, neither company meets formal accounting rules for profitability and neither has had a positive free cash flow in the previous 12 months.
The Covid epidemic, which caused fewer drivers and passengers to use car services, severely hurt both industries. Each business had a value decline of more than 50% in 2020, a recovery to record highs by the previous year, and subsequent share price drops in 2022.
According to Nicole Moore, president of Rideshare Drivers United in Los Angeles and a rideshare driver herself, that suffering has been transferred to drivers, who have had their earnings lowered ever since the pandemic.
According to Moore, “They got America hooked on cheap rides, and drivers hooked on what they got paid,” Moore said. “Now passengers are paying more, and drivers are getting paid less.”
Uber asserts that the proposed rule does not target rideshare drivers specifically and that the Department of Labor is instead concentrating on sectors like construction that also use gig workers rather than ridesharing.
The manager of federal affairs for Uber, CR Wooters, said in a statement, “The Department of Labor listened to drivers, who regularly and overwhelmingly report that they prefer the unique flexibility that comes with being an independent contractor. Today’s proposed rule adopts a cautious approach, effectively taking us back to the Obama administration’s rule, when our industry experienced exponential growth.”
Is Uber, Lyft & gig economy battle over drivers nearing its end game?
The business rejects Moore’s assertions as well. According to this, the rate for a driver’s hourly wage, as defined by Uber, has increased to $37. The typical utilization rate—the proportion of hours a car is carrying passengers while a driver is on the clock—is not disclosed in the company’s 10-Q filing, but according to Sergio Avedian, senior contributor at the industry blog The Rideshare Guy, it is around 60%. Additionally, Uber drivers are responsible for providing their own vehicles and fuel; nevertheless, the business began charging drivers a per-trip fuel cost in March.
Outside an Amazon warehouse in Redondo Beach, California, on March 16, 2022, Uber and Amazon Flex drivers demonstrate against the rise in fuel prices and demand more pay.
Lyft lures drivers, prices come down, and lack of bathrooms. LegalRideshare breaks it down. https://t.co/wTZSm8YUKT
— LegalRideshare – Injury Lawyers (@LegalRideshare) October 16, 2022
