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?
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