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California Voters Exempt Uber, Lyft, DoorDash From Reclassifying Drivers

Proposition 22 preserves the gig worker-driven business models of companies like Uber and Lyft.
(OpturaDesign)
(OpturaDesign)
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Uber, Lyft, Doordash, Postmates and Instacart won a “pivotal vote in California that exempts them from reclassifying their drivers as employees,” WSJ reports.

The Associated Press projected that Proposition 22, a measure that exempts these companies from providing their drivers with employee-like protections, would pass based on more than 60% of the reported ballots.

The Backdrop: Last year, California lawmakers passed a law seeking to “force ride-share and food-delivery companies to reclassify their drivers as employees, eligible for benefits such as minimum wage, paid sick leave and unemployment assistance.”

  • Using independent contractors, or gig workers, is crucial for these companies to keep labor costs low, and they argued it was “unrealistic to extend employee-like benefits to many drivers who worked for them just a few hours a week.”

When the law went into effect on Jan. 1, none of the companies reclassified workers. Instead, they dedicated all efforts, and a collective $200 million, to support the ballot measure. California sued in May, but the election supersedes the outcome.

Here’s The Good News: To drum up support, the companies guaranteed new protections such as health insurance for drivers who work 15 hours or more a week, occupational-accident insurance coverage, 30 cents for every mile drive and more.

  • “Opponents of the measure said those benefits fall short of those awarded to full-time employees.”

The Takeaway: The California victory helps companies like Uber and Lyft survive in one of their biggest markets. But with Massachusetts filing a reclassification dispute in July and other states threatening similar action, regulatory challenges remain.

Justin Oh:

This is a huge win for Uber ($UBER) and Lyft ($LYFT), and they’re up big today on the news. Long-term, my view hasn’t changed from Morning Cents August 21, 2020

$LYFT and $UBER are expected to grow 30%+ per year over the next couple of years, snapping back when we emerge from quarantine and continuing after that. In that lens, $LYFT looks interesting at 3.6x forward sales (I would prefer to own $LYFT than pay up for $UBER at 5.7x forward sales). 

The real threat to these businesses is that they will most likely get substantially weakened when autonomous driving comes to market, which I assume will be over the next decade. My view is that Uber and Lyft will continue to grow strongly for the next 5-10 years, but they’ll need to pivot when driverless networks come. If you also believe autonomous driving is coming in 5-10 years, I would pass on these stocks. But if you think there’s no way it comes in the next decade, then $LYFT might provide fantastic growth at a great price.

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