Market Overview

Uber Introduces Changes To Avoid California's New Gig Economy Law

Uber Introduces Changes To Avoid California's New Gig Economy Law

As California's new labor law threatens the "gig economy" model, Uber Technologies Inc. (NYSE: UBER) is out to prove that it's just a "technology platform."

What Happened

The San Fransisco-based ridesharing company is bringing changes to the fare structure on its platform, including the service fee it charges the drivers, it announced in a blog post on Wednesday.

Uber has capped the service fee charged to drivers at 25% for UberX rides in California. The service fee for more expensive UberXL, Comfort, SUV, and Lux trips have been capped at 28%, the company said.

The drivers will now also see estimated earnings they can make from each trip, instead of a fixed amount they were shown until now. This only applies to trips other than carpooling, Uber said, and the final earning will be calculated based on the time and distance tracked at the end of the trip.

Uber also announced that the drivers in California will now receive discounts on service fees instead of various promotions offers.

The way surge pricing is calculated on the platform has also been changed, Uber said. Similar changes have also been announced for the company's food delivery business, Uber Eats.

Why It Matters

California's new AB 5 law restricts which workers can be classified as independent contractors and aims to bring gig economy workers the same benefits as regular employees, including higher pay and medical insurance.

Uber and rival ridesharing company Lyft Inc. (NASDAQ: LYFT) are fighting to excuse themselves from the bill, citing that they only provide a technology service to the drivers and their customers, and are not in the transportation business themselves.

The two companies together provided about $60 million in funding to a workers' consortium opposing the bill. In a last-ditch effort, Uber also joined courier company Postmates in a lawsuit against the law in December.

The AB 5 law came into effect on January 1, signed by Governor Gavin Newsom in September last year.

Price Action

Uber's shares closed 3.41% higher at $33.93 on Wednesday.


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