App Shrugged: Will Uber Go Galt in California?

The rideshare company Uber is threatening to end its operations in California entirely if the Golden State forces the company to classify all its drivers as employees rather than contractors, a move more likely in the wake of an August 10 court decision.

“If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly,” CEO Dara Khosrowshahi told CNBC on August 12.

It’s not exactly the plot of Ayn Rand’s famous Atlas Shrugged novel, but it’s pretty darn close. A powerful government entity has told a prominent company, “To do business here, you must obey,” and the business is saying, “Okay, then, we’re leaving.”

Possibly. At this point, it’s still a game of chicken between the state and the company. Uber doesn’t want to have to stop doing business in California, and the state doesn’t want to lose a popular rideshare company operating there. So, who calls whose bluff first?

Perhaps both sides digging in and fighting to the end would actually be a good thing. It would reveal who’s actually right on the underlying issue: Is the contractor-based business model used by Uber and Lyft actually essential to their service?

Uber and other ride-sharing companies insist that’s the case. They note that the majority of their drivers drive for them only ten or fewer hours a week. Only about 17 percent are full-time, according to a National Bureau of Economic Research working paper. Most drivers specifically want the flexibility to work when and for as many hours as they want. The companies realize that that is the way they attract the drivers they need. Tellingly, Uber has been working with its main competitor, Lyft, to preserve this business model against California’s challenge.

California legislators say that’s simply a dodge to get around having to pay the full benefits for overtime, health insurance, unemployment, and other legal obligations, since those rules don’t apply to contract work. The state’s lawmakers have attempted to force these companies to provide those benefits by passing the AB5 law, which strictly limits the type and amount of contract work that can be done. The law has proven to be a major headache for freelance workers, limiting the ability of people such as translators, photographers, musicians, and yoga instructors, among others, to earn a living. California has nevertheless stuck to its guns, arguing that the law is important as a way to protect those workers.

Read the full article at National Review.