The Uber app utility with a map of New York City is seen on an Apple iPhone cell phone on this photograph illustration Warsaw, Poland on 21 September, 2022.
Nurphoto | Nurphoto | Getty Images
In some methods, Uber and Lyft are again to sq. one.
With federal regulators set to tighten Trump-era labor requirements that permit Uber and Lyft, in addition to food-delivery providers like Doordash, deal with gig employees as impartial contractors with few protections below labor regulation, shares dropped sharply final week. But whereas a shift, the Department of Labor proposal does not instantly remodel gig employees into workers entitled to extra time pay, unemployment insurance coverage and different advantages.
What’s clear is that the continuing battle over how these on-demand corporations deal with their drivers is not going away, since an estimated one in six Americans has labored within the gig financial system in a technique or one other. Analysts and pundits following the rideshare trade assume the longer term holds some collection of compromises that can give drivers at the least restricted advantages — a mannequin referred to as impartial contractor-plus — with some believing that the Biden administration’s pro-union stance will result in employees being categorised as workers ultimately.
Both options could be more likely to increase Uber and Lyft’s prices — and create a unique enterprise mannequin for the entrepreneurs utilizing their automobiles to run, in impact, small companies of their very own. And every highlights the unrealized promise of ridesharing enterprise fashions: The absence of self-driving automobiles that buyers as soon as believed would make earnings on the corporations soar and put most drivers out of enterprise.
“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 stress was confined to the states, it was one factor. It has added one other variable.”
For now, the rules proposed by the DOL won’t make drivers into employees, who would also be entitled to benefits such as minimum-wage protection, overtime pay, and to be paid when they are at work but don’t have a passenger in their car. Such a move would likely also cause pressure on the companies to offer the drivers health insurance and vacation pay, especially for the minority of drivers who do gig work full-time, though Morgan Stanley analyst Brian Nowak said state-level litigation could also force such change.
For now, the DoL rules will apply a broader series of tests to determine who is a truly independent contractor and who’s not. The companies point to the flexibility of rideshare employment, which lets drivers set their own hours, as a sign that drivers are independent contractors. Advocates for drivers being treated as employees argue that Uber and Lyft set workers’ pay, dispatch them to trips, and monitor their work as closely as they would an employee’s, even using technology to ask passengers in mid-ride whether their driver is acting erratically based on a vehicle’s speed.
The shift in federal policy, largely restoring the status quo under the Obama administration (and most of the Trump years, since the last administration didn’t loosen the rules until early 2021), comes at a delicate time for both rideshare companies.
Each has been promising Wall Street that it will soon turn profitable. By some standards — especially the more lenient earnings before interest taxes, depreciation and amortization — they have gotten there. But neither makes money under formal accounting standards, and neither has had positive free cash flow over the last 12 months, though Uber was positive in the second quarter.
Both businesses were hammered by the Covid pandemic, which made both drivers and passengers use car services much less often. Each company lost more than half of its value in 2020, recovered to new highs by last year, and has seen shares pounded anew in 2022.
And that pain has been passed along to drivers, who have seen their pay cut since before the pandemic, said Nicole Moore, president of Rideshare Drivers United in Los Angeles and a rideshare driver herself.
“They obtained America hooked on low cost rides, and drivers hooked on what they obtained paid,” Moore said. “Now passengers are paying extra, and drivers are getting paid much less.”
Uber believes the Department of Labor is focused less on ridesharing and more on industries such as construction that also use gig workers, pointing out that the proposed rule doesn’t single out rideshare drivers.
“The Department of Labor listened to drivers, who constantly and overwhelmingly state that they like the distinctive flexibility that comes with being an impartial contractor,” Uber head of federal affairs CR Wooters said in a statement. “Today’s proposed rule takes a measured method, basically returning us to the Obama period, throughout which our trade grew exponentially.”
The company also disputes Moore’s claims. It says driver pay has risen, reaching $37 per what Uber calls a utilized hour. The company’s 10-Q filing doesn’t disclose an average utilization rate – or percentage of hours a car is carrying passengers while a driver is on the clock – but Sergio Avedian, senior contributor at industry blog The Rideshare Guy, said it’s about 60%. Uber drivers also supply their own cars and gasoline, though the company in March added a per-trip fuel surcharge that goes directly to drivers.
Uber and Amazon Flex drivers protest the fuel price serge and demand more money outside an Amazon warehouse in Redondo Beach, California, March 16, 2022.
Mike Blake | Reuters
The risk of change in the legal environment is pushing the companies toward a new kind of business model, similar to what has happened in Washington State already under a new law, said Avedian, who is a driver for both Uber and Lyft himself.
In Washington, drivers are still considered contractors, but Seattle drivers are guaranteed $1.65 a mile, which he said is more than double the prevailing rate in California, effective next Jan. 1. (Rates will be lower elsewhere in Washington). They also will get worker’s compensation insurance, paid time off and a right to appeal if they are effectively terminated by the companies.
“The solely cause to be concerned within the gig financial system is the flexibleness,” Avedian said, referring to policies that let rideshare drivers set their own hours. “Uber’s not going to do this and provide you with employment rights. If you set [health insurance, Social Security taxes and other benefits] in, Uber will go to zero.”
New Jersey, New York and Massachusetts are working with the companies on deals similar to the one reached in Washington, Nowak said. Uber and Lyft have coped with new requirements in Washington with little impact and would be able to weather any hit to profits as the model spreads, he wrote.
“Reaching an settlement in these states was essential 24 hours in the past (earlier than this announcement), and it nonetheless is at this time,” Nowak said in relation to the DoL rule proposal.
Both companies said they are willing to work on such deals with state regulators, exchanging better pay for continuing the flexibility that independent contracting allows the companies. “It’s incumbent on us to make it interesting to drivers, as a result of they’ve numerous choices,” said Uber spokeswoman Alix Anfang, referencing the tight labor market.
Surveys by The Rideshare Guy also show that most drivers prefer to be independent contractors.
Any increase in expenses from classifying drivers as employees, or otherwise raising their pay, is likely to be recovered in the form of higher prices because the companies have already cut their fixed expenses hard, said CFRA Research analyst Angelo Zino. How much costs may rise isn’t known, but the range of possibilities runs from 10 percent to 30 percent, he said. Uber is also pursuing advertising revenue, which may produce as much as 20 percent of the company’s profit before interest, taxes and non-cash expenses within three years, he said.
The need to prevent drivers from claiming full employment benefits, if regulators ever do classify them as employees, is likely to mean the companies pressure drivers to work less than full time, Moore said. Companies like Amazon that also use quasi-independent drivers may face some of the same issues as Uber and Lyft, Nowak said.
All of this would matter less if the companies were closer to implementing self-driving vehicles on a large scale, which would have let them reduce the cost of drivers. Uber’s federal disclosures ahead of its 2019 IPO predicted the company would become a hybrid of automated and human-driven transportation, and Lyft’s filings said self-driving cars would “be a vital a part of the way forward for transportation.”
Last week, Lyft president John Zimmer, who had previously predicted majority self-driving by 2021, said he got it wrong, but he added, “I actually assume within the subsequent two to 3 years that form of precise no driver, driverless car will probably be one thing you may order fairly simply on the Lyft platform.”
Gig workers are likely to remain on the scene, and their business models will change, Avedian said. The question is whether they will change fast enough for drivers and regulators.
“If it is enforced, we could have standing, advantages and pay that’s assured to workers below the regulation,” Moore mentioned. “99 percent of drivers want to be independent — but we’re not.”
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Source: www.cnbc.com”