Misclassification and Low Pay: The Grim Reality of Rideshare Drivers in California

Is it acceptable for companies like Uber and Lyft to avoid regulations by classifying their drivers as independent contractors? The simple answer is a resounding no.

By Hayley Krieger

Source: Forbes/Nurphoto via Getty Images

As the "gig economy" continues to expand, workers are grappling with an ongoing debate over their legal status and rights. Though the gig economy traditionally referred to conversations centering temporary workers, a growing number of workers today and especially those on ridesharing platforms are turning to the gig economy as their primary source of income. The result has been a blurring of the lines between employees and independent contractors, sparking an intense debate in California about how to classify app-based ridesharing drivers. 

A concerning pattern is emerging as Uber and Lyft are circumventing regulations at the expense of Californians in the gig economy — potentially worsening socioeconomic inequalities by “cheating” workers out of fair pay and benefits. Regulation of the gig economy represents uncharted territory. Whatever the outcome may be in California will act as a normative yardstick, especially as similar cases emerge across the country.

App based rideshare drivers do not fit neatly into legally defined boxes. Criteria at both the federal and state levels specify the distinction between independent contractors and employees, which importantly determines the benefits workers are entitled to, such as healthcare and unemployment insurance. Yet misclassification by companies occurs regularly, either via genuine errors due to legal ambiguity or deliberately to circumvent paying for the benefits of employee status. The digitized gig economy has further blurred these lines. 

Like independent contractors, Uber and Lyft drivers have considerable autonomy. But more and more drivers are working hours similar to full-time employees, with 71 percent of rideshare drivers working over thirty hours per week. However, because drivers continue to be classified as independent contractors in California, they are excluded from employee benefits, as Uber and Lyft are neither required to pay minimum wage nor provide health insurance. 

Instead, they must pay for their own healthcare on below-minimum wage incomes: rideshare drivers in California make only $ 6.20 an hour — less than half of California’s minimum wage of $ 15.50 an hour — and drivers who pay for health insurance earn half that. This causes drivers to be less likely to seek medical care and makes them vulnerable to health concerns, all of which is further exacerbated by rampant inflation that has precipitated mounting expenses for workers. The effects of being classified as an independent contractor are lower pay, fewer benefits, and lesser autonomy, and numerous studies evince this unfortunate reality. 

A tense battle is raging in California to determine how rideshare drivers should be classified. In 2019, the state legislature passed Assembly Bill 5 that expanded the criteria for employee status, resulting in the classification of Uber and Lyft workers as employees. Workers became entitled to benefits that they had been excluded from in the past. The law was expected to impact at least one million workers, and many predicted that the precedent would reverberate nationally. 

However, the optimism did not last long, as Uber and Lyft quickly used their financial clout and market power to launch a relentless campaign to exempt themselves from the new legislation — and they succeeded. In November 2020, Proposition 22 passed with 58 percent of the vote, classifying rideshare drivers as independent contractors — intensifying the regulatory debate between labor activists and tech companies. 

A judge in Alameda County in 2021 ruled that Prop 22 was illegal and unenforceable, but rideshare companies successfully appealed, allowing them to continue to treat their drivers as independent contractors in total disregard of the contributions of these workers as the backbone of their companies. Uber and Lyft have won the battle, but union advocates are hellbent on continuing the task of fostering industry-wide labour reforms.  

This ongoing debate has important ramifications for the power of private companies to circumvent regulations and influence the livelihoods of a growing portion of today’s workforce. From the beginning, Uber and Lyft exploited the dearth of campaign funding laws in California to spend a record-breaking 200 million dollars on promoting Prop 22, inundating Californians with incessant advertisements before voting day. 

These ads were everywhere, from television commercials to pop-ups within the Lyft and Uber apps. The companies even threatened to withdraw their services from California if Prop 22 failed. When the law was deemed unconstitutional, rideshare platforms hired top lawyers to represent their interests in appeals courts. With the case expected to next move to California’s Supreme Court, these companies will undoubtedly continue to pour large sums of money into fighting any and all forms of regulation, setting a dangerous precedent for the ability for wealthy companies to “pay their way” out of being regulated. 

Moreover, the combination of low incomes and low benefits for rideshare drivers may also exacerbate already growing class inequalities. With people of color and immigrants comprising the majority of rideshare drivers, this will likely have spillover effects on racial and national inequalities as well — the impact on workers will not only deepen inequalities, but also be detrimental to California’s economy.

Companies may use potential business disruptions to justify their opposition to regulation, but this ploy is designed to distract from the real issue. This is particularly true for app-based companies, who have built their businesses on the premise of offering affordable services by hiring cheap independent contractors as cost-efficient labor. For example, TaskRabbit is a platform that allows users to hire workers for short-term tasks such as cleaning, moving, and handyman services. Regulation that mandates these workers be classified as employees could potentially increase labor costs for the company. 

Likewise, Uber has claimed there would be negative consequences for users if drivers were classified as employees: prices and wait times would surge, and service would shrink in smaller cities. Despite these claims, however, it is likely that these effects could be mitigated through better business management. If a company’s success hinges on exploiting its workers, then its overarching model should be called into question, and serious consideration must be given as to whether businesses that rely on exploitation should exist in the first place.

While some argue that regulation hinders innovation, the need for regulation is a necessary response to the rise in potential risks that inevitably accompanies innovation. The issue of regulating app-based rideshare companies presents a prime example of this dilemma. Advocates for regulation argue that low pay and a lack of employer-provided healthcare present risks to workers and society as a whole, while opponents argue that regulation would stifle the growth and innovation of these companies. 

However, this dilemma is not as new as it may seem, as employment standards have been implemented throughout history to address oppressive workplace practices in new industries. The workplace and the risks associated with it may have evolved from the farm to the factory to the office to, finally, the apps on your phone, but the need to protect workers against exploitation and injustice remains unchanged. This must be duly considered in any debate over regulation.

It may now be up to California’s Supreme Court to decide on this monumental issue, setting a precedent likely to impact the rest of the U.S. for better or worse — let’s make it better.

Hayley Krieger is a proud Californian and a cooperative Master’s candidate at McGill University’s Max Bell School of Public Policy (Masters of Public Policy) and Johns Hopkins SAIS (Masters of International Affairs). Hayley is interested in international conflict resolution, children's rights, and migration and refugee policy.