Gig companies like Uber, Lyft, and DoorDash won big after Prop 22 passed in California.
California’s Prop 22 passed to the relief of gig companies like Uber and Lyft, which spent millions of dollars on the ballot initiative to continue classifying their drivers as independent contractors. The landmark vote, passed with 58% majority, saves the companies the heavy costs associated with making their workers employees and providing them full benefits.
But make no mistake, Prop 22 will still come at a cost to the companies. And if the companies expand the benefits to drivers outside of California—as several have already suggested they’ll do—the costs may rise even higher.
So what does that mean for Uber and Lyft’s business models and their customers?
Edward Yruma, an analyst at investment banking firm KeyBanc Capital Markets, expects a big portion of the new expenses to trickle down to customers. But those nominal increases likely won’t drive many people away from the services. Meanwhile, the companies will be able to keep much of their business models intact.
“There will be some financial burden” on the companies, Yruma said. “But I don’t believe it will terribly noteworthy.”
D.A. Davidson’s Tom White said he thinks Uber and Lyft factored the costs of the benefits into their profitability projections. “The timetables for profitability would’ve been jeopardized if Prop 22 hadn’t passed,” he said. “But the fact that the cost increases aren’t going to be severe basically keeps the profitability timelines still achievable.”
These companies now have a model to present to states beyond California that have been concerned over the lack of benefits for gig workers. “The bigger concern would be thousands of different rules from different states,” Yruma said.
White expects that the gig companies will soon start contacting states considering laws similar to California’s. But the companies likely won’t be shopping the new benefits around to all states—at least not yet, White said.
Uber, Lyft, and DoorDash have already suggested they have intentions to expand their benefits programs beyond California.
“Now is the time to push forward, focused on better, permanent, collaborative solutions for millions of workers across the country,” DoorDash CEO Tony Xu said in a blog post on Wednesday. “DoorDash is committed to leading that effort.”
In a statement following the vote, Lyft called the decision a “groundbreaking step toward the creation of a ‘third way’” of handling independent contractors in the U.S. And though Uber did not release any new statements on the matter, earlier this year CEO Dara Khosrowshahi pushed for the adoption of new laws across the nation that would require gig companies to provide more benefits while keeping their workers as independent contractors.
We could hear more from those companies in a matter of days: Uber reports its third-quarter earnings on Thursday, and Lyft will follow next week.
Danielle Abril
