Uber’s latest woes: California’s AB-5 and hundreds of lay-offs

11 Sep 2019195 Views

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An Uber taxi parked on a street in Moscow. Image: Vicdemi/Depositphotos

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Uber lays off 435 members of its product and engineering teams, as California gets one step closer to implementing a bill that would ensure drivers are recognised as employees.

It has been another difficult week for Uber.

At the beginning of August, the company reported losses of $5bn in a single quarter, and by the end of that month, the company was back in the headlines for its attempts to resist Californian Assembly Bill 5 (AB-5).

Uber opposed AB-5, which would force the company to classify its drivers as employees, rather than contractors. These workers would be entitled to better wages, benefits, health insurance, social security, paid sick days and overtime.

Uber and Lyft joined forces to pledge $60m to a ballot initiative that would exempt them from the proposed law, and were later joined by DoorDash, which offered a further $30m contribution to the fund.

Despite efforts from Uber, Lyft and DoorDash to block the move, Californian legislators approved the landmark bill on Tuesday (10 September) in a 29-to-11 vote. The bill still needs to go through the State Assembly, in what is seen as a formality, but it is expected to come into effect on 1 January 2020.

According to The New York Times, the legislation will affect at least 1m Californian workers who have been pushed into contractor working status.

‘There is nothing innovative about underpaying someone for their labour’
–  CALIFORNIA SENATOR MARIA ELENA DURAZO

The bill goes beyond ride-hailing and food-delivery couriers, also offering protections to janitors, nail salon workers, construction workers and franchise owners, who could all be reclassified as employees.

California state senator Maria Elena Durazo said: “Today, the so-called gig companies present themselves as the innovative future of tomorrow, a future where companies don’t pay social security or Medicare.

“Let’s be clear: there is nothing innovative about underpaying someone for their labour. Today we are determining the future of the California economy.”

Uber did not comment on the passing of the bill. A spokesperson for Lyft said that the company was “disappointed”.

Another round of lay-offs

Uber may not have immediately commented on the passing of AB-5, but the company did announce plans to lay off 8pc of the workforce that it does formally recognise as employees.

TechCrunch was first to publish the news, which detailed 435 lay-offs across the company’s engineering and product teams. It was reported that 170 people will be cut from the product team, while 265 employees from the engineering team will be laid off.

In a statement to TechCrunch, Uber said: “We’re making some changes to get us back on track, which include reducing the size of some teams to ensure we are staffed appropriately against our top priorities.

“These were incredibly difficult calls as it means some of our employees no longer have a role.”

Of these cuts, 85pc of the staff laid off were based in the US, 10pc were based in the Asia-Pacific region and 5pc were in Europe.

In July, Uber laid off 400 employees from its marketing team, which had a workforce of 1,200.

Following these announcements, Uber was trading at $33.14 per share yesterday evening, which was below its recent IPO pricing of $45 per share.

Trucking business

Although the company is laying off employees to cut costs, Uber remains hopeful that investing in its freight business could be a way to dig itself out of the hole that it has found itself in.

Over the next three years, the company plans to hire up to 2,000 new employees for Uber Freight. On Monday, prior to the lay-off announcement and the news of AB-5’s passing, the company said it would invest $200m annually in its two-year-old trucking venture.

Uber Freight was set up to pair truck drivers with shippers, in a manner similar to its other ventures such as ride-hailing and Uber Eats.

Lior Ron, head of Uber Freight, recently said that it is the fastest growing arm of Uber’s business. However, the company has yet to reveal revenue figures for Freight.

An Uber taxi parked on a street in Moscow. Image: Vicdemi/Depositphotos

Kelly Earley is a journalist with Siliconrepublic.com

editorial@siliconrepublic.com