Ride-hailing's system of hiring independent contractors as drivers could be under threat in the wake of potential national regulations, as Congress may look to reclassify them as employees.

Lawmakers may also look to institute a national minimum wage for ride-hailing drivers, building on some of the work that has already been done on the local level. It would represent a major Congressional foray into the gig economy and could upend how companies have operated, but lawmakers said any changes would aim to improve the treatment of drivers and give them greater protections.

"I'm hoping that the U.S. politicians would be willing to work with our industry, our partners to get to progressive new models that are win-win that frankly they're already being established in Europe," Uber CEO Dara Khosrowshahi said on his company’s Q3 earnings call in early November. "But if not, we'll continue to aggressively defend our drivers' rights to flexibility."

Employee status

One regulatory area that appeared to grab lawmakers' attention in an October hearing in Congress is limiting ride-hailing companies' ability to classify drivers as independent contractors rather than employees.

Some members of the House Transportation and Infrastructure Committee's Subcommittee on Highways and Transit took cues from California's AB5 legislation, which passed recently to limit that classification of drivers as independent contractors, and by allowing employee protections to help them unionize or unlock benefits.

With passage secured, Rep. John Garamendi, D-CA, argued the bill could be a good model for national legislation to ensure more labor protections for drivers.

"It really comes down to who controls the time and the job itself," he said. "In the case of Uber and Lyft, it's been determined in California very clearly by the Supreme Court and in court cases, that it is the companies, Uber and Lyft, that controls the timing, availability and access of the work."

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"The vast majority of our drivers are not full-time drivers. And we think that not only do they value that flexibility, but we should actively make sure that we defend that flexibility."

Dara Khosrowshahi

CEO, Uber

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But ride-hailing companies are opposed to classifying their drivers as employees, arguing that independent contractors retain the flexibility to work the hours they want.

That view was bolstered by an April opinion letter from the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD), which said that service providers working for an unnamed virtual marketplace company (VMC) are independent contractors, not employees.

According to data provided to Smart Cities Dive, Lyft said 91% of its drivers drive less than 20 hours a week for the platform, while 76% drive less than 10 hours per week. The company also said that 96% of its drivers say a flexible schedule is "very or extremely important to them." And while those figures do not take into account those who drive for both companies simultaneously, Khosrowshahi said it is an effective model for Uber, too.

"It's always the number one reason why our drivers value our platform," he said on the earnings call. "The vast majority of our drivers are not full-time drivers. And we think that not only do they value that flexibility, but we should actively make sure that we defend that flexibility. And we would look to provide private benefits where we can to improve their lives as well."

Within days of Gov. Gavin Newsom, D, signing AB5, Uber, Lyft, DoorDash and Instacart announced they would support a California ballot initiative to abate AB5, having previously pledged to spend tens of millions of dollars on a campaign to repeal the law. These efforts could be an indication of how such companies intend to oppose similar measures on a federal level.

"We're not afraid of these conversations and at the same time, we're not afraid to defend our model, if those conversations turn out to be unsuccessful," Khosrowshahi said.

Questions of equity

For some local elected leaders, the idea of ride-hailing companies being forced to give drivers more protections is appealing, especially as they say the companies have stepped on city regulations in a bid for more income.

"The multi-millionaire owners of those companies have had essentially free reign in Chicago," Chicago Mayor Lori Lightfoot said in a recent speech. "And if they cared as much about equity as they say, they would cut their drivers in on a bigger share of profits, improve their working conditions and not pass their costs on to them."

That argument in favor of greater equity is also made in a report from the Transportation Trades Department, AFL-CIO (TTD), a coalition of 33 unions. The group found that drivers make less than the minimum wage of the cities where they operate and have no recourse to improve their earnings.

During testimony on Capitol Hill, TTD President Larry Willis said it is part of a pattern where ride-hailing companies "sidestep any oversight or regulation that would provide accountability and ensure the wellbeing of drivers and passengers."

"If they ever hope to eke out a profit, they believe their only chance to do so is by suppressing their workers' rights and driving wages to rock bottom," Willis said in written testimony. "We see it time and again with these companies. They lure drivers with the promise of high earnings, but slash them to the bone once they establish a strong foothold in the market."

But the argument around retaining flexibility may be more persuasive for many drivers, especially if Lyft and Uber’s statistics around work hours are correct. Harry Campbell, founder of blog The Rideshare Guy and author of The Rideshare Guide, said a reclassification of drivers as employees rather than independent contractors could only benefit the small sub-set who work for the companies for full-time hours.

"They may only be 10%-20% of the workforce out there, but you can imagine they're doing a lot of rides for the company even though they're not in the majority numbers, for them this is their full-time gig," Campbell told Smart Cities Dive. "I completely understand why a lot of them are pushing to become employees, because they're basically working like employees but without any of the benefits right now. I think they definitely could potentially benefit, but the ones who are more part-time, they might be the losers of this situation."

The need for drivers to retain that flexibility was a convincing one for some lawmakers too, who argued it could decimate ride-hailing service if drivers are not independent contractors as they are now.

"Most of the drivers in my district only drive part-time to earn extra money on top of their full-time job, and I worry that reclassifying contractors can take away the flexibility drivers rely on to drive... and will drastically increase the time riders will need to wait for a ride, and in turn could also result in a return to pre-ride-sharing levels of accidents of people [driving under the influence] since ride-sharing will be less convenient and available," Rep. Carol Miller, R-WV, said during the October hearing.

Matt Curtis, founder of the Smart City Policy Group, which advises cities and businesses on the sharing economy, told Smart Cities Dive it may be an attractive proposition for big-city representatives to afford drivers employee protections, but it may not make sense for everyone. It will then be incumbent on drivers to make it work for themselves, too.

"I think they want to see the drivers treated as employees and be able to be given some of the advantages of being treated as an employee, but at the same time I think it's important for employees to recognize what they need to have in place to protect themselves," Curtis told Smart Cities Dive.

Minimum wage

Lawmakers may benefit from instituting a federal minimum wage for ride-hail drivers that could then be bolstered by action at the state or city level, though there is still some skepticism about whether it could be effective. Minimum wages for ride-hail drivers have already been approved in New York City and Seattle, with other cities including Los Angeles considering similar plans.

Both Uber and Lyft defended their driver income practices in written responses to the committee, saying that drivers already bring in strong incomes, with average reported wages of around $20 an hour.

"Earnings vary significantly by region and are generally correlated with driver’s business choices, local wages, and the cost of living," Justin Kintz, Uber's VP for global public policy, wrote in response to a committee question on wages. "When comparing ridesharing earnings to alternative work options or minimum wages, it is more appropriate to look at average hourly earnings in a specific city."

Meanwhile, on the company's Q3 earnings call in October, Lyft Co-founder and President John Zimmer said they are using new initiatives to help drivers "earn more and reduce expenses so that they can increase their take home earnings and Lyft preference." Those include rewards programs for drivers in certain cities, as well as ways for them to get paid instantly through Lyft Direct.

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"If they ever hope to eke out a profit, they believe their only chance to do so is by suppressing their workers' rights and driving wages to rock bottom."

Larry Willis

President, Transportation Trades Department, AFL-CIO

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Some who testified in the hearing did not buy that argument.

"It is clear why companies like Uber, Lyft, and Via object to giving their drivers the right to organize," Willis said. "Many drivers make less than the minimum wage of the city they are operating in, and worse still, there have been reports of workers making as little as $3.75 an hour after expenses."

While the federal government could set a base level for a minimum wage, as it does with the $7.25-an-hour minimum standard for salaried employees, local leaders said that should be left up to states and cities as they know the costs of living better for their constituents.

"It's very complicated, because each one of those [gig economy] sectors has a very different economic reality, and [it's] hard to deal with at the national level," Seattle Mayor Jenny Durkan told Smart Cities Dive in a recent interview. "And the ride-share experiences are hyper-local: how people use them, when they use them. I actually think that local governments are in a better place to regulate them, but I do think it helps if it's consistent from town to town, city to city, as much as possible."

Curtis said Uber and Lyft could have even more challenges if they must go from city to city to discuss new local regulations that may pop up.

"When America's mayors start to work together, that's going to become an even greater challenge for Uber and Lyft," he said. "With Congress acting, at least there can be just a national platform created that could set the tone for this discussion. It certainly is not the kind of fight that Uber and Lyft is going to want to go into city-by-city."

Campbell said stronger minimum wage provisions will have knock-on effects for both riders and drivers, if what is happening already in New York is anything to go by. This means there will have to be trade-offs, he said, if further legislation proceeds.

"What we're seeing Uber and Lyft have now is come and counter that minimum wage by saying drivers can't log in any more in areas that aren't busy," he said. "So if you try and go online out in the boroughs of NYC where there aren't many ride requests on a Tuesday afternoon, in the past you used to be able to do that. Now, you can't do that anymore because Uber and Lyft don't want to have to pay you a minimum wage if you're not getting any trips."