Uber, Lyft propose $21 an hour minimum wage for drivers in California, but there's a catch

Gig economy companies that were once seen as an innovative addition to the labor market have come under growing scrutiny for how they treat their workers.
Image: Lyft Uber Driver
A driver with the Lyft and Uber decals on his vehicle cruises Hollywood, California on Feb. 21, 2019.Frederic J. Brown / AFP/Getty Images

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By Cyrus Farivar

SAN FRANCISCO — Uber and Lyft have said they would support a $21-an-hour minimum wage for drivers in California, a move that would be a significant change for two of the biggest gig-economy companies.

But labor activists say it isn’t enough.

The ride-hailing leaders helped pioneer a new labor model in which people can choose to work on their own schedules, with the companies pairing active drivers with consumers through smartphones and taking a cut of each ride. But with both companies in search of profit, drivers say Uber and Lyft have been taking a bigger portion of each ride’s fee, leading to protests from drivers and action from politicians.

The new pay structure would ensure drivers make $21 an hour, but only when they have a rider in their car or are on their way to pick up a passenger.

The shift from Uber and Lyft comes as a landmark bill that would expand worker benefits in California is set for a critical vote Friday in a state Senate committee. If the bill is signed into law as written, all workers for “gig economy” firms — notably Lyft and Uber — would become employees and would be eligible for considerable benefits under state law. Those benefits include workers’ compensation, unemployment benefits and other perks that are guaranteed to full-time employees but not contractors.

“This means they are really nervous,” Veena Dubal, a labor law professor at the University of California, Hastings, said in an email. “They could have offered something like this years ago — and didn't.”

The rideshare giants have urged supporters to “fix” Assembly Bill 5, or AB5, which would enshrine a 2018 California Supreme Court ruling that classified ride-hailing drivers as employees. The bill has already passed California’s state assembly.

For now, Gov. Gavin Newsom, a Democrat, has not said whether he would sign the bill if it reaches his desk.

On Thursday afternoon, both Uber and Lyft announced that they were each putting $30 million into a fund seeking to put a proposition on the state ballot in 2020 should their efforts to drastically revise AB5 fail during this current legislative session.

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“While we continue to advocate for this progressive framework, circumstances are forcing us to plan for legislative inaction by laying the groundwork for this initiative,” the company said in a statement emailed by spokesman Davis White.

Similarly, Adrian Durbin, Lyft’s director of policy communications, said in a statement that the company is pushing it’s “first-of-its kind industry-wide sectoral bargaining.”

“We remain focused on reaching a deal, and are confident about bringing this issue to the voters if necessary,” he said.

In response, Lorena Gonzalez, a Democrat from San Diego who authored AB5, slammed the companies’ efforts.

“California has a long history of Wall Street billionaires pumping a fortune into ballot measures to further erode the middle class for their benefit,” she said in a statement. “The voters of California won’t stand for billionaires allowing their workers less rights than Wal-Mart employees.”

Gig economy companies that were once seen as an innovative addition to the labor market have come under growing scrutiny for how they treat their workers. Delivery startups Instacart and Doordash were found to have been using tips to substitute for workers’ wages, a practice that DoorDash eventually changed.

Currently, startups save millions of dollars annually by classifying drivers as contractors rather than employees. In their mandatory Securities and Exchange Commission filings, both Uber and Lyft listed the prospect of being forced to consider drivers as employees as risks to their businesses.

Uber and Lyft sent emails to drivers across California on Wednesday, urging them to protect the “flexibility” of their work.

“Lawmakers need to hear that flexible work is important to you,” the Wednesday email from Uber states, urging workers to sign a petition and go to a website to “show your support.” There, 11 videos have been posted by people who say that they are Uber drivers, want to keep “flexible hours” and generally oppose AB5.

However, many Uber drivers on one online message board appeared to support the bill.

Similarly, Lyft’s message says its revision would preserve “earnings” and “flexibility.” Lyft spokesman C.J. Macklin said that the $21 an hour would be a floor and drivers could earn more than that.

The bill does not specify whether employees would need to have fixed hours.

Many labor activists said that the new minimum wage was not enough. Gig Workers Rising, a San Jose-based labor advocacy group, argued that $21 is far too little.

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“$21 isn’t a living wage for any category of worker in the San Francisco metro area except a single adult or two adults living together,” the group wrote. “What they’re offering is the floor, while hoping to kneecap any efforts to raise wages down the line & create a real union. It’s not enough.”

While $21 an hour is higher than the state’s current $12 minimum wage, drivers must also bear the cost of gas, maintenance and car insurance, which eats into their take-home pay. Standard federal mileage reimbursement rates are currently set at $0.58 per mile. When Lyft began in California in 2012. it initially offered $18 an hour as a way to attract drivers and establish a fleet of them. However, many drivers say that their bottom line has gone down in the intervening years.

Steve Smith, a spokesman for the California Labor Federation, said in an email that this new move shows that Uber and Lyft are “becoming increasingly desperate” to undermine AB5.

“We think it’s a losing strategy,” he wrote. “If they were serious about raising standards for drivers, why wouldn’t they have done it before now? In fact, they’ve done the opposite by cutting rates. Drivers are rightly suspicious of any promises these companies make because they’ve been burned so many times before.”