A landmark case against Uber and Lyft is playing out in California courts that could fundamentally challenge their business model. Proposition AB5 would require companies like Lyft and Uber to reclassify their drivers from independent contractors, as they are today, to employees. As a result, both companies have threatened to pull out of California altogether as they simply cannot comply with the ruling. Their business model isn’t built for that structure. The economics of ride hailing don’t contemplate having W2 employees. If this was the case, fare’s would rise substantially across the board, and demand would likely fall. That said, they are already prepping to lose this fight and this will require a radically different approach to how their business functions moving forward. It’s been surmised that they will pivot to a franchise model whereby independent franchisees will license the ride hailing companies software as well as brand IP while making drivers now regular employees. If you think this is a step backwards, you’re right. Under this model, you’ll end up with potentially thousands of black car and taxi companies using the software. This is exactly how the model existed before the Uber’s of the world came around and, I’m afraid, won’t even address the larger issue.
At the Margins