WSJ: Uber, Lyft Have A California Problem

The state of California could soon have a new law in place that forces ride-hailing companies to reclassify drivers on their platforms from "gig workers" to employees, The Wall Street Journal reported Monday.

What Happened

California Gov. Gavin Newsom has confirmed he would sign the bill, which is expected to be voted on by the state Senate this week, WSJ said.

The legislation would directly impact Uber Technologies Inc UBER and Lyft Inc LYF.

What's known as Assembly Bill 5 passed California's State Assembly by a vote of 59-15, and the newspaper said a Senate vote could occur in the coming days.  

Uber and Lyft appear to have failed in lobbying the state government for an exemption on the grounds that the bill will be costly and pose logistical challenges.

The drivers on the ride-hailing platforms could also be negatively impacted from potential changes in job flexibility, in the view of the companies, according to WSJ. 

Why It's Important

Ride-hailing companies would potentially need to alter their business models and offer California drivers a minimum hourly wage and workers' compensation.

Lyft told WSJ it has 325,000 drivers in California, and under an altered business model, the "vast majority of job opportunities would go away."

The impact will also be felt by riders who may be forced to pay higher prices, the company also told WSJ.

What's Next

California's legislation is "being watched by the rest of the nation," Ken Jacobs, chair of the Labor Center at the University of California, Berkeley, told WSJ.

The ultimate outcome will impact what other states do and could potentially be felt at the federal level, he said. 

Lyft shares were trading down 0.41% in Tuesday's premarket session, while Uber shares were down 0.43%. 

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Photo courtesy of Lyft.