Report: California A.B. 5 Labor Law Will Mean Huge Costs for Rideshare Companies, Drivers, Consumers

A Competitive Enterprise Institute report crunches numbers on California’s new law imposing massive costs and impediments for rideshare companies like Uber and Lyft, along with their drivers and customers. Though the CEI report focuses on rideshare companies, the law, which takes effect on January 1, impacts numerous industries and businesses by redefining when a worker is considered an employee for purposes of state law.

“California’s new law will mean greater costs for rideshare companies like Uber and Lyft, reduced pay for many drivers, reduced flexibility for all drivers, and higher fares for consumers—as much as 50 percent higher in some cases,” said Ryan Radia, author of California Ride Share Contracting Legislation Is a Solution in Search of a Problem.

Rideshare drivers currently work as independent contractors, but under A.B. 5 that could change. The report explores the costs associated with classifying those contractors as employees, including: minimum wage requirements, overtime pay, health, unemployment, and disability insurance, sick leave, and other government mandates. Some drivers may benefit, but many will not.

The report estimates that a driver who now costs Uber $31,776 annually as an independent contractor would cost the company $53,088 annually in exchange for driving the same number of hours. And the price of a typical Uber/Lyft ride will increase substantially, perhaps by 30 to 50 percent.

Many drivers do not want to become employees because they will likely have less flexibility in when they work, where they drive, and what car they operate and how they maintain it.

View the report, California Ride Share Contracting Legislation Is a Solution in Search of a Problem by Ryan Radia