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By Jackie Davalos | Bloomberg
California consumers may be forced to pay more expensive rideshare and food deliveries after state judge overturned voter approved ballot to let gig economy giants like Uber Technologies and Lyft continue to classify app-based drivers as independent contractors.
DoorDash, Instacart, Lyft and Uber funded a $ 200 million campaign last year that promised California voters they would save money if Proposition 22 passed, exempting businesses from a state work requiring them to hire workers as employees and provide them with benefits.
The judge found the ballot on Friday, which Californians approved with 58% of the votes in November, violated the state constitution. A coalition of concert companies supporting the initiative said it would appeal the decision. Uber shares were down about 5% at the start of trading in New York on Monday. Lyft was down 4.6% and DoorDash was down 3%.
If the ruling is upheld, companies could see costs rise by 10 to 20 percent, according to Gad Allon, a professor at the Wharton School of Business at the University of Pennsylvania who studies odd-job economics.
“If the appeal fails, the new balance will be more expensive and consumers will pay the price,” Allon said. “A challenge to the status quo was inevitable, it took years. It will be absolutely destructive in the short term and customers will be the first to lose. “
Prices have already gone up as a shortage of drivers coincided with increased demand as concerns over COVID-19 eased and people began to venture outside. Fees for Uber trips jumped 53% more in June than in January, according to research firm Rakuten Intelligence.
Meanwhile, DoorDash has added additional consumer charges to delivery orders to offset the impact of price controls in some markets during the pandemic. Several cities have capped the commissions food delivery companies could charge restaurants to help struggling businesses keep a larger share of their profits during the pandemic.
The gig giants already had a reputation for jacking up prices due to excessive pricing policies and additional fees. Uber, for example, implemented a “California driver benefit fee” while Instacart increased its service fee to 8% from 5% in California.
The increases came into effect after the adoption of prop. 22 with the aim of covering concessions made by companies, in particular by offering health insurance to drivers who work 15 hours or more per week and by extending the reimbursement of mileage.
At the heart of the business case for classifying their drivers and couriers as independent contractors is the promise of flexibility. But what started as a sideline has increasingly grown into a full-time job for a growing number of workers based on apps that carry people, meals or groceries, amplifying the need for expanded work protections.
The court ruling is a small victory for worker-led advocacy groups such as Gig Workers Collective and Rideshare Drivers United, which have called for minimum wages, paid sick leave and workers’ compensation benefits.
“This gig economy model has never been sustainable,” said Allon of Wharton. “Companies have had the opportunity to create a new framework that takes the benefits to workers into account in their cost structures. This decision shows that they lost this opportunity. They no longer dictate the conditions.
A protracted legal battle will create more uncertainty around the labor economics of gig economy companies, according to Mandeep Singh, analyst at Bloomberg Intelligence.
Uber spokesman Noah Edwardsen said the move “ignores the will” of California voters and “defies both logic and the law,” while DoorDash said it was “a ‘a direct attack on the independence of the Dashers “. Instacart did not immediately respond to requests for comment.
In Friday’s ruling, the California judge found that Proposition 22 limited the ability of the legislature to allow workers to bargain collectively in concerted labor, violating the state’s constitution.
But the challengers of the poll are still far from an outright victory. The next fight will be whether prop. 22 will remain in place or the business exemption will be revoked while the appeal process unfolds, said Catherine Fisk, a professor at UC Berkeley School of Law.
“It’s always very unpredictable,” she said, adding that the legal battle could take at least a year or more and eventually end up in the California Supreme Court.
While California was widely seen as a model for other states grappling with classifying concert workers, the ruling adds new uncertainty, made worse by each state’s unique labor laws, according to Fisk. More recently, concert companies have asked to put a similar measure on the ballot in Massachusetts and have had talks in New York to forge a compromise.
“There’s a chance the federal government will step in. The Biden administration has already said this is a priority,” she said. “Otherwise there is a strong incentive for concert companies to misclassify, because it cuts their labor costs and gives them the ticket to say ‘this is somebody else’s problem.’ ”
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