Prop 22

These are all my views and not that of Lyft just to be clear. I’m not also going to give real numbers but approximations for everything since information is confidential. I’ve had a few people ask me about my thoughts on this and I figured I’d just write it out instead. This is not a post trying to convince you of any position or the other just my thoughts on the matter. If you want, feel free to respond.

Background on AB5

So Prop 22 is a proposition that exempts Ride share drivers (food delivery / instacart shoppers too) from AB5. AB5 was the legislation that enshrined a California SCOTUS decision called the Dynamex decision.

The decision of employee vs contractor requires the following ABC test. Unless all three of these are true you cannot classify people working for you as contractors:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of his or her work, both contractually and in fact; and (B) that the worker performs work outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Unfortunately, AB5 also applied to TONS of industries. So exemptions were written into the law. In the first pass they were doctors, lawyers, and etc. There was an additional pass (AB2257) that added writers, translators, journalists, artists, musicians, coaches, and insurance inspectors (and countless more). The exemption list is very long. Prop 22 is obviously trying to add their own exemption through the proposition system.

There’s a good article that goes into the decision more here but really #2 is the hard one to avoid. Let’s take something like a local blog like The Bold Italic or BrokeAssStuart. Neither of them could easily get an exception for #2 so they would have to hire all their writers as employees. But they tend to do pier diem freelance writing per articles. Thus you have a conflict (and exceptions).

So let’s give some background information that is some industry knowledge.

Background at Lyft

Drivers

I’ve worked at Lyft for more than 4 years. I also did a lot of my research on this topic when AB5 hadn’t passed. The first thing I wanna talk about is that drivers are not a uniform group. A term I might use is “driver-hours” which means how many hours drivers are spending giving rides on the platform. These numbers change depending on market and state and area. Like a smaller city might have substantially less full time drivers and more part-time, etc.

There are three unofficial classifications of drivers:

• Intermittent drivers (they drive a few hours depending on the week). They were usually supplementing income to get extra cash or make something work. We heard some stories about people who did it on their commute with destination mode so they could get a ride on their way to work or heading home. They make up a small % of drivers & driver hours.
• Part time drivers. These are the vast majority of drivers. They work part-time between 10-30 hours a week and they make up maybe 20-60% of driver hours depending on the market (for some markets it can be higher depending on demand). All the Prop 22 ads talk about how drivers prefer to remain independent contractors, this is this primary group they are probably referring to. These drivers don’t always drive for ride share companies and might be doing between jobs or filling in gaps. Or they might be retired or parents. It might also be supplemental income on top of their existing work as well.
• Full time drivers. They work >= 40 hours but are a smaller group. Between 5-25% of drivers are full time but they usually have greater percentage of driver hours. If you want to hear drivers who are the biggest advocates for AB5 here’s your group. A lot of these drivers also work on both platforms, I think it’s anywhere from 1/3 -> 2/3 of drivers are on both platforms (it changes from region to region). So just because you’re on line on Lyft doesn’t mean you’re not giving a ride for Uber. There has been very few studies that go into the groups that somehow manage both.

A lot of Prop 22 adds talk about how driver prefer to remain contractors and the studies that have come out been validated by that. A few independent surveys and the Rideshare guy have done surveys though they all might have some biases here. It’s unclear to me why the unions opposing Prop 22 haven’t released their own. I’ve been following drivers UX surveys and polling on drivers for more than 4 years. And for the entire 4 years and the reason they work for Lyft is “independence”. Flexibility falls up there too. So when I see ads that say the majority of drivers want to remain IC then yes I believe it but remember that the majority of drivers are also part-time. I haven’t seen any survey break this down by category so I’m not sure if that line is clear but that’s just my guess and instinct from 4 years of working here and talking to drivers and seeing the results of countless internal surveys.

How drivers get paid

The other information here is that there are three types of times at Lyft. P1, P2, and P3 times.

P1 – Time drivers spend online and waiting for a ride
P2 – Time drivers spend going to a pickup location
P3 – Time drivers spend in a ride (some people call this “engaged” time)

As of right now, no drivers are paid for P1. Lyft has toyed with the idea of paying drivers for P2 but it’s an odd balancing act where some drivers would make more and some drivers would make less. P3 is what most rate cards and other stuff apply to.

This is also the hours that Prop 22 applies to. So the minimum wage and other applications apply to P1 time only. That’s why the minimum wage guarantee is 120% and not just a 100%. It will depend on the utilization of a driver to determine how close to minimum wage they will get and honestly it will probably not make it up to be the minimum wage depending on the market. Under utilized markets will probably not hit the minimum wage per hour equivalent to a real minimum wage. It does create a floor for rate cards that ride share companies can’t go under

The rate card is only one part of the wage though. The difficult part of the marketplace where all your drivers can drive at anytime is creating incentives to drive at peak hours. So many drivers are eligible to get bonuses depending on fulfilling certain things. So this is the carrot that says “please drive x hours at y time” in exchange for a bonus. So many drivers are eligible depending on their schedules but that’s just a way to balance the fact that ride share companies can’t control drive hours. These incentives have changed over the years from average hourly guarantees to power driver bonuses for hitting certain targets. These target both part-time and full time drivers so it’s a mix and match of both. These are also tied to acceptance rates to keep rides up and discrimination down. But obviously not all drivers make these bonuses and sometimes individual schedule conflicts with them.

In AB5, driver would get paid for ALL time. P1, P2, and P3. Which means as long as they’re online they make X dollars per hour. But most likely the bonuses would go away since the ridershare companies no longer need an incentive system to get people to drive X hours and accept all rides. They would also get paid the federal dollar per mile rate for every mile they drive vs the reduced one that Prop 22 provides.

The consequences of AB5

A caveat here is I don’t actually know how Lyft will respond to AB5. I’m not involved in any meetings and leadership is not letting anyone know unless you’re working on it. So this is my best guess. Let’s say Prop 22 doesn’t pass here’s what is going to happen or at least the potential to happen.

• First of all, ride share companies will probably not pull out of California. They will pull out of rural regions and other low density places. So SF and Oakland will be fine, San Luis Obispo maybe not. In very sparse regions (maybe something like my hometown of Yucca Valley). Lyft only offers schedule rides: a ride scheduled in advance and dispatched and agreed to by a driver. But there’s nowhere near enough demand to sustain having a driver there full time or even part-time. So most likely rural regions or small demand regions will be pulled out of. For the urban centers of California, prices will go up and wait times will go up. Because prices go up, demand goes down.

• Many drivers will self select out, if a ride share company is required to pay for P1, P2, and P3 time that they will want to make drivers maximize their time. After all, rideshare companies earn no money when a driver is in P1. Which means most likely shifts. They could be flexible shifts you choose or mandatory shifts, I don’t know. Many people mention that “rideshare companies don’t have to take away flexibility” and they’re technically right. AB5 does not have any requirements on shift or hours worked. But that’s a naive argument, the economics don’t work. Imagine if you ran a company where you paid minimum wage but you could sign on and off anytime you wanted? Like do you practically think that makes sense? You could enact supply controls (which is what Lyft/Uber do in NYC) but then it becomes frustration for the driver. I want to work and I sign on but I’m told I can’t for the day? It’s a huge pain. That might be better than shifts but unclear if that would work out for the rider share companies.

• Of course, this means that drivers get a lot of protections. They’ll get paid for mileage at the federal standard wage (vs the slightly lower standard in Prop 22 and for P1/P2/P3 time most likely). They’ll make money for sitting around waiting for a ride when they didn’t before, unemployment benefits, overtime benefits, and possibly health care (depending on the hours and how employees are hired).

• It will also be substantially easier to unionize if drivers want to because instead of trying to deal with anyone who can drive, they’re will be a smaller subset of workers.

• Less cars on the road. Because the rideshare companies need to optimize for P3 times, they will have less cars on the road which means less congestion and traffic from rideshare which has had an impact in city traffic. This could end up having more people owning cars overall but I imagine it will be a net win for that.

• Drivers would get better grounds for termination and other suits if they are offboarded and etc as employees.

To be transparent, I highly doubt that the ride share companies will hire the drivers directly as employees. Like 95% sure on this. They will probably subcontract it out like almost all major companies have been doing with many of their jobs. The subsidiary companies will hire driver and work with Lyft to get drivers and working on what shifts. I imagine they might even avoid having to offer health care if they keep these companies to < 50 employees. Or let drivers form their own companies and then become their own employee. A WSJ article that I can’t find talked about how FedEx does this.

Just to be clear. Every law has a trade offs, there’s rarely win-wins. You make trade offs and it depends on what you value in both terms of society and the people involved.

Why not let drivers choose and get best of both worlds?

Unfortunately that’s not how employment law works in the United States. One of the major reasons why the rideshare companies have always been cautious of forcing drivers to do anything is because of this IC classification. If you move toward employee status for any portion of a driver base suddenly you’re on shaky legal ground. Uber actually tried to circumvent AB5 by letting drivers set their own rates but a court struck that down as not enough to classify them as ICs. It makes sense why you shouldn’t treat the same job in different classifications in a legal sense because you could easily use this to discriminate. So let’s avoid debating about creating some type of mixed employment system as a non-starter.

Framing the classification as risk

Increased costs of wages and etc could always be passed down to the rider. It will reduce demand but if you’re profitable on each ride you’re still profitable on each ride. Volume would go down but maybe something else could work out. The biggest cost of paying drivers P1 time is the RISK. Non-utilization (being in P1) is entirely on the driver in a pre-AB5 world. They don’t get paid for that time and thus they risk earning nothing. Sometimes they’re are no rides, sometimes it’s super busy but it’s on them to schedule their time and take on that risk. The rideshare companies can offer incentives (surge/primetime) to get drivers out but the control is entirely up to the driver. It’s called a 2 sided marketplace and it keeps the rider share companies in check because if you can’t incentive drivers to go out there then nothing will work. But there’s also always more drivers, it’s an easy industry to get into.

Rider share companies have would have a hell of a time developing a scheduling system that you have to balance between hours, demands, benefits and etc. But these companies already have most of the models on scheduling demand so it wouldn’t be starting from scratch. It’s just going to mean that ride share companies are gonna have to push drivers to work certain hours in weird gaps.

This has been a pattern in corporate America for a while now and has applied to employees too. A corporate employee example is the move away from pensions to 401ks (ie moving from guaranteed income to investment income. If the market dives the employee is now at risk not the employer). But there’s been other small changes over time where the risk and benefits of employment have shifted. KQED did a 5 part series that’s a very basic introduction to this concept and how we’ve moved toward where we are now if you wanna take a listen

Potential benefits of employees

There some other small benefits that could unlock some additional changes if drivers became employees. Car seat mode and women to women matching. Both of these features have a strong imbalance right now because not every driver can have a car seat and there are less women on the platform. A ride requires drivers to drive additional P2 time (driving to your ride) because there’s less drivers who can satisfy the request incentives those drivers. If everyone is an employee, then there is no need to risk it. Because of the increased P2 time their would still have to be some type of premium on the features but unsure of the economics of it.

The thing about 7/8 requirement to change.

So here’s the fun thing about propositions. If you create a proposition, the only thing that can change it is ANOTHER proposition. But propositions can add their own legislative requirements that are optional. By default, propositions are unchangeable by the legislature. There’s some exceptions to that rule but I don’t quite understand the legalese on that.

So 7/8 requires 87.5% of the group to work together. But if you consider the Democrats control 76% (61/80 seats) of the California State Assembly and 72% (29/40 seats) of the State Senate it’s not that far off. I mean a super majority would 100% not be reasonable since Democrats would just over turn it. 7/8 is still a HUGE thing to overcome and honestly pretty ridiculous. It’s more than high enough for the Democrats not to change legislation without requiring some Republicans to sign on even if the senate flipped every republican seat in 2020 (the assembly goes every election cycle like the house so no idea how many would flip there). So it’s still a huge burden to flip. But at least it’s changeable by legislation I guess. This is honestly a dick move by the Prop 22 group.

Conclusions

Most of the years I’ve worked at Lyft my focus has primarily been about drivers. I follow the driver teams and check out the weekly stands up, read the planning docs and see what people are doing for drivers and what things are happening. This is mainly because I think they’re the ones trying to make things work for themselves.

If you asked me on principles on how I feel that Lyft should treat their drivers it should be employees. I don’t think drivers pass the ABC test legally and offering great protections for drivers would be a huge win.

But I recognize that employment and this independence that many drivers want with their ride share job are mutually exclusive. You can provide some flexibility but in the end it’s more like a retail job where you have to be at work for a certain amount of hours. Sure you can get breaks, sure there’s downtime, but you are physically present. There might be some kind of supply control system where drivers can try to sign online but that sounds worse.

You can’t pay for P1 time and get all the employee benefits at least not economically. There’s always a risk trade off and many drivers say “I’m happy to take that risk in exchange for less protections”. Do they want more pay? Who the fuck doesn’t? Do they want unemployment? Fuck yeah they do. Do I wish that Prop 22 included UI benefits, yes but I imagine the legal ground for putting money into a state sponsored system for employees puts the rider share companies on shaky legal ground on what is already shaky legal ground. But the thing is drivers choose to work for Lyft and choose with their feet all the time and just stop driving. Sometimes driving in an area leads to a shitty wage per hour because utilization isn’t available. That’s why that risk sucks (and I personally think should be on the employer). But at some point I want to respect for what they’ve asked and AB5 seems like cutting a hangnail with hedge clippers. Creating targeted legislation toward the gig companies to negotiate rate cards or offer other tangible benefits would have worked so much better instead of just pushing everything into employment law but it’s too late for all of that now.

I think another friend suggested. Why not ask for a addendum to AB5 like AB2257 (the one that added writers to the AB5 exception list)? Do you honestly think the California government would ever allow a exception for ride share drivers that are employed by tech companies?

I’m voting no for the following reasons:

• I vote no on all props that could be done through legislation. The only props I’ll vote yes on are the ones that turn over other props. Because the problem is generally they’re less flexible to change in the future. It’s unfortunate and a PITA because directly polling the population should be possible sometimes (imagine if we could override the Republican opposition to universal background checks by popular vote). And the consequences of propositions are usually complicated and hard to adjust later.
• I’m super iffy about corporations (even the one I work for) use propositions to override legislation or carve out exemptions for themselves. It sets a bad precedent (or continues a bad one if there have been others).
• The ones that at greatest risk or financial security are the full time drivers and making it a full time employee job is probably the best compromise here. That does mean that 80% of drivers who did drive for the ride share companies will probably no longer work for ride share companies.

But I recognize my no vote is that I’m ignoring the preference of most Lyft drivers here. This is me saying “Overall I think it’s better for society to ignore your preference”. I think it’s easy to get into the whole “corporate evil company” stuff and just ignore the fact that these drivers wanted this flexibility and are choosing to work for Lyft and take on the risk of that job in exchange for the independence of hours. Maybe there’s some ignorance here when they realize taxes are more complicated or that they don’t make as much as money as they thought but many still continue to drive.