Trial: Some Uber Drivers Can Now Set Their Own Fares

Filed Under: Uber

With recent changes to the law in California that impact the gig economy, Uber is trialing a new feature that lets Uber drivers set their own fares. Could we see this spread to other markets?

California’s Assembly Bill 5

In September 2019, Assembly Bill 5 was passed in California, which has major implications for independent contractors. This has huge ramifications for Lyft and Uber, since their drivers are classified as such.

A lot of companies go to great lengths to try to hire independent contractors rather than employees, given the implications it has for overtime pay, a guaranteed hourly wage, and the requirement to offer benefits, like healthcare.

With this, California has adopted a higher standard for classifying people as independent contractors. Specifically, in order to be classified as an independent contractor:

  • The individual must be free from direction and control, under his/her contract for the performance of service and in fact
  • The service must be performed outside the usual course of business of the employer
  • The individual must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed

Ride sharing companies have on principle done everything possible to avoid classifying drivers as employees, because of the precedent it sets. They’d typically rather pull out of a market and/or spend tens of millions of dollars campaigning, rather than changing the structure of their employment status.

Uber has already made changes in California

A couple of weeks back we saw Uber make some changes in California, which the company hopes will help them in their fight to continue to have drivers classified as independent contractors:

  • With the exception of UberPool, passengers no longer see upfront pricing, but rather see a range of prices, with the final price determined by the actual time and distance traveled
  • Passengers can select drivers as “favorites,” giving them preference for future rides
  • Drivers can see more information ahead of time, including the destination, distance, time, and estimated fare, before accepting a trip
  • Drivers can reject trips without penalty, potentially leading to more cancelations for short trips, or for neighborhoods that drivers don’t want to go to
  • For both passengers and drivers, surge pricing is prominently displayed

Uber letting California drivers set own fares

Uber has now started to let their drivers set their own fares. As of now this is only being tested in California, and specifically for pick-ups at airports in Palm Springs, Sacramento, and Santa Barbara.

Uber is specifically trying this in smaller cities first to see how it works, before deciding whether to roll it out in larger markets.

How does this work? Drivers have the opportunity to increase the price of their fare in 10% increments, up to five times the fare originally set by Uber.

Essentially this creates a bidding system for rides, as the drivers willing to drive for least will be matched with riders first, while those setting higher fares would be matched afterwards.

This won’t necessarily lead to higher pricing, at least not more than the current system would necessarily lead to. In other words, just as you might otherwise have surge pricing when there’s limited supply, in this case those setting the highest prices would only be selected after the less expensive drivers have been matched.

This is intended to help Uber comply with California’s new law and give drivers more independence.

Bottom line

Many have argued that ride sharing companies — and for that matter tech companies that are part of the “gig economy” in general — have used exploitative employment practices.

Only time will tell how this plays out in California, and if Uber’s collective efforts to change aspects of how the platform works will help them in any way.

To Uber riders & drivers in California, have you noticed any changes since these new policies have been put in place?

  1. Long Time Reader, First Time Poster

    One change I’ve noticed is that I use Lyft instead of Uber 🙂

    All Jokes aside, pricing appears to have gone up in the Bay Area by a good amount, where the lowest possible cost on Uber almost always matches the fixed cost on Lyft. If this is the direction that these ride operators want to go, then lets bring back a service a la Sidecar, where you (as a passenger) select your driver, car, and price, and the drivers set there price in percentages of base cost, including higher (for premium vehicles; because we all know a Ford Explorer “Uber Black” is very different from a Mercedes S Class Uber Black) or lower than base cost if they choose to (for example, they drive an EV and the cost of transport is lower for them).

    In Uber’s new system, it appears that the cost will never be lower than some arbitrary minimum they set, which in and of itself does not appear to meet the spirit of the new law.

  2. Glad to see this.

    Uber and other ridesharing companies have to decide:
    – If these drivers are employees, then Uber can lock in rates and do business as it always has. They simply have to follow the existing laws that apply to literally every other company in the United States.

    – If the drivers are contractors using a platform – as Uber purports – then drivers SHOULD be able to set their rates and let their clients (ie passengers, NOT UBER) determine whether they want to accept the offered price. Y’know, like independent contractors do.

    Uber has been avoiding the law at all costs (literally). I’m glad to see that they’re finally putting their money where their mouth has been all along. For some drivers, it will allow them to get a pool of riders/clients that they regularly can work with (ie who favorite them), and price-segregate themselves if they’d prefer. You know. Like contractors…

  3. With the exception of drivers being able to reject trips without penalty it’s hard to see how any of the other changes address the actual terms of the law. And that change will eliminate or greatly reduce the big advantage that ride-share services have, which is that they can pretty much guarantee a car for any ride you want to take.

  4. @ Ben — This should be a disaster. These companies (especially Lyft) barely honor their pricing now. The ride costs more than it should? Sorry, no adjustment. What happens once drivers start having the chance to manipulate the prices? Time to dust off that old BART card.

    I now give the rideshare company one chance to correct the price when I am overcharged. Then, straight to credit card dispute, which always goes in my favor.

  5. Independent contractors, outsourcing things to contractors (e.g., many hotels outsource room cleaning), etc. needs to stop and companies need to give their employees benefits including health care and insurance. I’m no fan of taxi companies but I’m also no fan of how companies like Uber treat both employees and customers. Too bad the new CEO of Uber hasn’t improved things as I had hoped.

  6. I don’t understand the mentality that drivers are entitled to be treated as employees with benefits. Uber and Lyft offer a low barrier of entry for nearly anyone with a car and a phone to make extra money. If you need a group health insurance plan or to feed a family of four then this sort of work is not for you.

    I use Lyft daily for my commuting and the vast majority of drivers I encounter are retired, in college, new immigrants, or making extra cash on the side. Without fail, the only drivers who complain to me about wages and tips are the ones trying to make a full time career out of driving. The rest seem grateful for the opportunity. Several have expressed concern over AB 5 and losing the flexibility.

  7. @Simon, interesting indeed.
    My guess is that in the centers of big cities, with large pools of drivers, pricing to the customer won’t change much, but in smaller cities/out of the way neighborhoods where the market is much thinner, people might see dramatically higher prices at times when the only driver out there is setting a high price.

  8. I love all the whining from entitled riders in this article.

    The only reason the fares were so low on Uber or Lyft was because the rides themselves were/are subsidized by VCs and shareholders.

    Letting the drivers set their fares allows the riders to decide if they want to accept it or not. That’s how the true free market works. If the shared rides are too high, then the rider can take alternative transportation or get a car.

    That’s how the free market works and if you don’t like it, then move to mother Russia.

  9. Seriously though, most of us have been followed by the Uber pyramid scheme. Once they have driven taxi services out of business, with loss leader pricing, they will begin/have begun to massively increase prices to actually match costs, and line their pockets with huge profits.

    My wife had an Uber ride yesterday estimated at $31 at pickup which ended up over 20% higher at drop-off. We are done with Uber.

    Classic bait and switch.

  10. We should have transportation for all budgets, but uber and lyft were too low in price and where starting to effect city transportation buses, light rails, and bicycle use. Do not worry more app network companies are coming for all jobs truckers, salesmen, mail carriers and all office jobs. They proved we will do it for less.

  11. Interesting to see if the denial of rides ends up being an issue. I could see problems if you deny rides based off name or destination. SF taxis aren’t supposed to deny rides based off destination and only if a passenger falls under a certain set of rules. Would this put Uber and Lyft under these kind of rules or set up a battle that they should? They are serving as public transportation (the original reason for implementing these rules). Also, because you have lots of data from the company, you could look and see a pattern of discrimination across drivers which sets up a political and PR battle if not a legal one.

  12. Chase must be loving this.

    Talk about unintended consequences with Lyft now becoming more valuable and the CSR now offering the Lyft benefit.

  13. I find it a bit humorous that everyone keeps discussing the “free market,” as these changes are being made as a direct result of government interference in the way a company does business.

  14. Do people think Lyft won’t do this? Lyft is in the exact same boat Uber is as far as trying to fight these sort of regulations, and the likelihood is they will have to adopt it in order to avoid the same problem. It would be unusual, and totally out of the blue, if Lyft simply want all in on people being employees.

  15. Uber (and the other TNCs) are caught between a rock and hard place. Uber is loosing boatloads of money every minute with their existing model of using contract drivers and cannot afford to go to a employee model at the rates they currently charge. So they are heading in the direction of enabling drivers to have more control. But none of this works at the current artificially low rates which as has pointed out by others are subsidized by the VCs and other TNC investors.

    The market is very elastic and once rates start to go up demand will decrease significantly as users start to go back to the way they used to commute/travel (public transit, taxis, driving their cars). As an example as the fares to the airport rise — as they doing right now– I expect to be switching back to parking my car at my old airport off-site parking lot.

    So is Uber destined to become the Angie’s list of part-time drivers???

  16. neil I think you hit it right. The reality is that Uber/Lyft were always working off economics that only made sense in the short-term if taxis were the only transportation option they had to beat. Turns out however that people still do use those other modes of transit, and they will simply return to those if the prices go up which is exactly what is happening. There’s a reason why point to point car service was out of the reach of most people prior to Uber; the actual costs of providing it are high and the margins relatively low.

  17. So now I can’t see what the price is ahead of time? Guess its time to uninstall uber. Seriously the whole benefit to it is knowing the price up front. If I want to be taken the long way so they can run up the bill or deal with any of those other games I can simply take a taxi. Good job california.

  18. I agree with @Scott: I lost two platinum benefits (price protection on a route & flexible cancelations) which show up as “Unavailable in your city” in my Los Angeles based account. These were two benefits I really liked considering I use uber to commute to the office if I miss the train. I’ve started shifting some uber rides to Lyft as a consequence. Also, ueber stopped offering me a ride pass at the end of December, which I used frequently.

    Uber pricing hasn’t gone up dramatically on my rides, maybe $3.00 a ride. They are charging a marketplace fee.

    I don’t think Lyft pricing has gone up yet. They have been offering me promotions with discounts on rides: last week it was 40% off for a couple days and this week is 25% off my next 10 rides. Without the promotions, Lyft still offers a fixed price compared to Uber’s range of pricing.

  19. Just as we’re now near the end of the golden age of travel, I believe we’ll soon look fondly back at the early days of rideshare with little regulation and investors willing to subsidize unprofitabilty in the name of market capture.

  20. I have only used Uber a handful of times when I am in cities with no public transport, with no competitors like Bolt or Grab and untrustworthy taxis.
    I am not a fan of the way that they refuse to work with regulators and are essentially trying to run a business model that is not really economically feasible in the long run. I mean, as it is, they are losing money even though they are avoiding all of the laws and regulations that taxi firms have to follow. I mean, I get that it is very American to just tell everybody else to fuck off and do whatever you like without considering consequences, but not sure it is the best business model and it doesn’t seem surprising that they are losing billions of dollars per year.

  21. @Jerry

    I donno… the whole employee vs contractor concept is a government construction to begin with, so this is just the 2020 update to it.

    One of Uber’s initial concepts was dynamic surge pricing based on the balance between supply and demand. While “surge” is not longer marketed, the concept is still present AFAIK. So drivers setting their own prices is just a logical extension of demand-based pricing.

  22. Will I know what the price will be before pickup? If so, and I find it too high, can I cancel and get another car? If so, how many times can I do this, keep cancelling and trying a better fare?

  23. It is my intent to drive to Palm Springs to really see how this works. I am a firm believer in integrity and honesty with people, so it remains to be seen how this will all work. I want to go there to have my experience of trying it to see how it goes.

    As with anything else that happens, everything will remain to be seen as far as how things will pan out.

    We can all speculate and all of that, but do we really know? I do see where Uber is trying to get around the law, but that will also remain to be seen how that works itself out.

    I am one to explore things that come out from Uber and find out the facts for myself. There is actually so much misinformation out here that I need to experience things for myself, to see firsthand how it affects me as a driver. It will definitely be interesting to see and experience this fare setting deal…..

  24. I’ve noticed changes from Uber. Back to 1x, 2x,3x type of surge pricing, no penalty for canceling rides except after 3 cancels, the system boots you and asks if you want to go back online. Lyft… No changes that I’ve noticed. They still are collecting surge pricing from passengers and not passing that to drivers. I only know because passengers will comment about the high surge price while on my side is shows no bonus pricing. Lyft still warns you about not accepting rides. Driver doesn’t see upfront price or destination before accepting rides.

  25. The problem I see with drivers setting prices: they will undercut each other and cause customers headaches and will cause many to be left behind.

    I love the flexibility of being able to work when and where I want. I have worked many areas of Cali. Although the money is not great at times, I still love to drive and love person to person interaction.

    I have driven airport shuttles, parking shuttles, sedans, limousines, and tour buses for over 30 years.

    Most people who drive rideshare are retired, or for other reasons.

    Personally, I would not want to be an employee. I do see loyalty and integrity as being an integral part of the rideshare experience. I have learned the rideshare is a BUSINESS and should be treated as such.

    Look around at these businesses that suddenly close their doors and leave people without jobs. This has happened many times and probably won’t change too soon.

    In closing, in the words of the late Bill Walsh: ” If you don’t believe in what you are doing or hate what you are doing, then why do it? Life is too short for all of this, and you need to live it to the best of your ability.

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