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Uber and Lyft threaten to leave California as state attacks gig economy

Rideshare services Uber and Lyft have said they’d leave California if courts don’t reverse the decision of a lower court judge on employee taxes and benefits. The lower court ruled last week that the companies can’t classify their drivers as independent contractors under a new California law, AB5, that has caused chaos and job losses in other industries through the state.

“The companies say it is practically impossible for them to comply with a San Francisco judge’s order last week that said they had violated a new state law known as AB5 and had misclassified hundreds of thousands of their drivers as contractors rather than employees,” says CNBC.

The law targets independent contractors and freelancers, forcing companies to pay payroll taxes, unemployment, worker’s compensation and other costly benefits, thereby killing the low-cost gig economy and freelance work.  

The companies say that they simply cannot afford to provide benefits to employees who already qualify under IRS rules as independent contractors, and thus should not be required to pay those extra expenses.

The drivers, who often work part-time to simply finance their autos, aren’t asking for the changes. They want to be independent contractors, but the state would rather kill those businesses than forgo the collection of taxes under the scheme.  

If Uber and Lyft leave the Golden State, it will hurt everyone: government, drivers, companies and riders.

“I am concerned with the dwindling travel options during COVID, especially for underserved communities,” Robert Hampshire, a professor of public policy at the University of Michigan’s Ford School told Wired. “First, it was reduced public transit service. Now it is the possible departure of Uber and Lyft. The lives of people that depend on these services, as opposed to personal vehicles, is getting more and more difficult.”

Ridesharing services offer steep discounts over taxi service in part because of the independent nature of the employment agreement, while riders enjoy fixed price service and the convenience of rides on-demand while returning value to the shareholders.  

“I do think we have the system that’s optimized… it’s called capitalism,” Uber CEO Dara Khosrowshahi told the liberal website The Verge. “It’s not called labor-ism. It’s not called socialism. It’s capitalism and it’s a system that’s built to maximize shareholder value and capital.”

Already, AB5 has caused chaos in other parts of the gig-economy, such as writing and content creation.

“In December, Vox Media announced it would not renew the contracts of around 200 California-based journalists who write for the sports website SB Nation, instead replacing those contractors with 20 part-time and full-time employees,” said Reason about the effects of AB5. “Rev, which provides transcription services, and Scripted, which connects freelance copywriters with clients, similarly notified their California contractors that they would no longer give them work.”

Previously, Uber and Lyft left Austin, TX after the city started requiring mandatory fingerprints for all drivers.

“Everyone was shocked that Uber and Lyft pulled out and it basically happened overnight. And I think the same thing is going to happen here,” said Harry Campbell, founder of the blog The Rideshare Guy in Austin according to Business Insider.

A year later, the companies returned to the city after the state legislature in Texas passed a law eliminating the fingerprint requirement.

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