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On Monday, a California judge ordered Uber and Lyft to classify drivers as employees. Aquent CEO John Chuang joins Yahoo Finance’s On The Move to discuss.
JULIE HYMAN: Uber and Lyft might have some issues in the state of California. A judge has granted an injunction related to a lawsuit from the state that's urging those two companies to comply with a new law there, where contractors are going to be classified-- reclassified more as full-time employees. Dara Khosrowshahi, the CEO of Uber, just reportedly saying that the company might have to shut down in California in the interim, as this injunction goes into effect.
Joining us now is John Chuang. He is CEO of Aquent, which is a market-- sort of a staffing marketplace for creatives. He's spoken to us before about contractors. John, it's good to see you again.
JOHN CHUANG: Great, nice seeing you.
JULIE HYMAN: How are you approaching this argument? Because Khosrowshahi also wrote an op-ed in "The New York Times" where he said, our current employment system is outdated and unfair. He sort of talked about the false choice between flexibility and benefits. Do you think he's right here?
JOHN CHUANG: Well, no, he's clearly just trying to protect the market cap of Uber. First of all, in terms of the decision that was made by the judge, that is definitely a victory for the rule of law. The judge came by and basically said there was overwhelming likelihood that these folks are employees and not independent contractors. So I think that's really good news, in terms of the law being set straight. And then the lawsuits by all these-- by the Massachusetts and California attorney generals and multiple cities I think will much-- have a much higher chance of success.
Now, given-- now, let's take a look at Uber. I believe they're trying to protect their subsidy. Right now, they get a huge financial advantage by avoiding payroll taxes. Every single company in the United States-- there are five million companies in the United States-- have to pay payroll tax, except the gig economy companies.
For some reason, they self-exempt themselves from these payroll taxes, and they decide not to pay for them. So I think it's really good for the people, and it's good for the rule of law that the governments are coming down, the courts or coming down against Uber, and will-- they should be forced to pay taxes like every other company.
Now, he says that it's bad for Uber, and we're going to be forced to shut down, et cetera. I don't believe that. That is crying wolf. There are plenty of companies all over the United States and some who offer very low value-- I mean, very low-cost services but high value, such as McDonald's, such as Walmart, and they are able to pay people as employees.
ADAM SHAPIRO: John--
JOHN CHUANG: Uber can do the same with their drivers.
ADAM SHAPIRO: I want to back up, though, to what you said, that you expect similar lawsuits to succeed in other places. Because this lawsuit-- if I'm wrong, correct me-- this isn't the final. They're going to appeal this. This is just this moment in time in California, but the appeals are coming.
JOHN CHUANG: Yes, sure. The appeals are coming, but I think they will lose these appeals. Remember, these laws were created specifically for-- to bring in the gig economy companies under the law. And likewise, the judge ruled that they do, indeed, a block.
So the only hope for Uber is really overturning the laws, and that's what they're trying to do in California. They are spending over $110 million to overturn AB5, which is the law that's-- they're concerned about. But if they do not do that, the writing is on the wall. They need to comply with these laws. And increasingly, attorneys generals are-- and the public really is going to be fed up with this and are going to force them to comply.
RICK NEWMAN: Hey John, just go back to this whole question that Uber may have to shut down in California. You-- I think you just said you don't think that's the case. You think that's BS?
JOHN CHUANG: Yes, I think that-- I think that's BS. Again, he's just trying to predict-- protect his tax subsidy, which is massive, right? Every company might pay, oh, 12%, 15% in payroll taxes, and Uber does not have to do that. So that's a massive cost savings that he gets that's worth millions of dollars. And as taxpayers, we have to ask ourselves, why should we let them have this tax advantage when no other company in the United States has this tax advantage? And so it's totally not fair.
And even if they do have to shut down, maybe they should. If they cannot survive by paying fair wages to the people and following the rules, like all other 5 million US companies, then they shouldn't exist. But I suspect that they could figure out a way to exist. The benefits costs aren't that much, and people should pay more for an Uber ride because it actually costs more.
But right now, the federal government and all the states are giving a subsidy for ridesharing, and why should we have to do that? That makes no sense. If you eliminate the subsidy, prices might go up a little bit, but we'll still have ridesharing. Uber will still be worth billions of dollars. But now, their employees will get benefits, and they will be treated like every other company in the United States.
JULIA LA ROCHE: John, it's Julia La Roche, and thank you so much for joining us. If we could broaden the conversation though, I want to reference something that you just debuted this week, and that was a new index. Aquent really has a pulse as to what's going on in the broader business community. What are you seeing right now, and how much of it is really predicated on the stimulus, as it relates to kind of the fallout that we've seen from COVID-19?
JOHN CHUANG: Yeah, yeah, thank you for asking. Yeah, we're debuting a new index called the RoboHead 10000. And what's really great about this economic index is that it's an index of work. It's not unemployment. It's not GNP. It's a leading indicator, right? You need an increase in work and activities before you get employment and before you get GNP activity.
So what this index is saying is quite interesting. First of all, it's saying that we do not have a V-shaped recovery. Our-- this index fell off a cliff when coronavirus hit, and it is not coming up fast. The actual work that people are doing are coming up slowly. It's like we're taking a safety ramp, a slow rise back to the top, but it is definitely not V-shaped.
The second thing it's showing is how different states are approaching their recovery plans, and I find it really fascinating. You look at two states that are doing really well, in terms of work activities, and that's Texas and New York. And if you look at one state that's way below average, in terms of work activities and economic indicators of work, and that's California.
But if you could see what's happening is that companies that-- states that controlled the curve, they flattened the curve like New York, they can reopen, and you see their economic activities going up. You have states like Texas, who had one of the shortest lockdown periods of any state, they have economic activity going up, even though they have a rise in cases. But they just make a firm commitment to say, hey, we want to reopen, and they have good economic activity.
But then you have a company-- a state like California, where they did not flatten the curve. They have rising cases. In fact, they have a double-humped curve because it went down and it's going back up again. And-- so they're not controlling the health, and they have continual lockdown. With California, you definitely have them below average, and they are definitely not doing well. And they're are dragging, frankly, the US down because California is a big part of our economy. So you can really see how different states' approach affects economic activity.
And lastly, there's a big question of whether or not the economy is backsliding. If you look at the unemployment numbers, you see that, you know, they're getting better, but are they slowing down? And we have now evidence of that when we look at this data, and we are a little bit worried.
If you look at the weekly activity of economic activity from the index, you see that it's been going up for around eight weeks in a row, which is great. Except this week and last week, it paused, and it dipped a little bit. So I'm worried that the economy is backsliding a little bit and that the recovery is going to be longer--
JULIE HYMAN: Yeah.
JOHN CHUANG: --and flatter than we might hope.
JULIE HYMAN: Yes, that is a concern. We'll have to check back in with you soon. John Chuang of Aquent, thank you so much for your time, appreciate it, John. Good to see you again.