Uber tweaks app for California users

New law to reclassify drivers as employees, offer more benefits faces opposition

Supporters of a measure to limit when companies can label workers as independent contractors rally near the state Capitol in Sacramento, Calif., in August. Ride-share company Uber and meal delivery service Postmates have sued to block enforcement of the law, which took effect Jan. 1.
(AP/Rich Pedroncelli)
Supporters of a measure to limit when companies can label workers as independent contractors rally near the state Capitol in Sacramento, Calif., in August. Ride-share company Uber and meal delivery service Postmates have sued to block enforcement of the law, which took effect Jan. 1. (AP/Rich Pedroncelli)

Uber Technologies Inc. has overhauled its ride-hailing app for California users, tweaking fares and features to respond to a new state law designed to reclassify drivers as employees.

While the San Francisco company announced the changes last month, a Wednesday morning email to California riders said they were now in effect.

Changes for passengers include a shift from showing upfront pricing on trips to showing an estimated price range, the ability to schedule rides with favorite drivers and adjustments to a rewards program. For drivers, the revamp includes an end to flat surge pricing and the ability to quickly see how much they will make on each ride. Critically, drivers won't get punished for rejecting trips they don't want to undertake.

Uber included a cautionary note, however, that drivers shouldn't refuse trips solely to avoid certain neighborhoods as it violates the company's policy and California law.

Changes to Uber's app in California come just days after the effective date of the state's Assembly Bill 5, which aims to reclassify their drivers and delivery workers as employees instead of contractors and which Uber and Postmates are attempting to block with a recent lawsuit against the state.

The law, which went into effect Jan. 1, could upend the business models of the companies that shaped the "gig economy," where contract workers use smartphone apps to accept odd jobs driving or delivering goods as frequently as they wish.

Uber, along with Lyft Inc. and DoorDash Inc., is also working to put an initiative on the November ballot that would roll back the law while guaranteeing minimum pay and some benefits for drivers.

While Uber has publicly downplayed the impact of the law, some analysts have said it's a concern. Prices for California rides could increase as much as 30% as a result of the new law, according to industry estimates.

Any changes that add to Uber's costs could worry investors that are already concerned about the company's sizable losses. At the same time, Uber's competitors would face similar issues under the regulations.

The law creates the nation's strictest test for determining whether a worker is considered an employee. It is designed to give workers rights such as minimum wage, mileage reimbursement, paid sick leave, medical coverage and disability pay for on-the-job injuries. It's aim is to improve working conditions at companies that rely on contract labor such as Uber and Postmates.

Right now, Uber believes its drivers are classified correctly as independent contractors, so it hasn't changed its business model to give drivers the benefits in the law. If it was forced to classify its drivers as employees and provide the benefits outlined in the new regulations, that could end up costing Uber $500 million annually in the worst-case scenario, with an additional $40 million to $50 million in legal fees, said Dan Ives, managing director of equity research at Wedbush Securities.

Ives calls the new law a "nightmare scenario" for Uber which could throw a major wrench in its business model. Under the current model, the company has been losing about $1 billion or more per quarter.

It's more likely, however, that Uber and other gig-economy companies will reach a middle ground with California lawmakers, said Tom White, senior vice president at D.A. Davidson, in a note to investors.

Uber also said it would aim to link the lawsuit to another legal challenge filed in December by groups representing freelance writers and photographers.

The lawsuit also could buy Uber time to hash out a deal with lawmakers and to sway public opinion about the potential effects of enforcing the law, White said. And while enforcement of the new law is tied up in court, the gig-economy companies are operating normally, he said.

Information for this article was contributed by Lizette Chapman of Bloomberg News and by Cathy Bussewitz of The Associated Press.

Business on 01/09/2020

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