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The impact of Prop 22 on gig economy workers

John H. Chuang, Aquent CEO, joins Yahoo Finance’s Zack Guzman and Akiko Fujita to discuss the latest on the state of the gig economy: from Doordash as a third party delivery service to Prop 22.

Video Transcript

AKIKO FUJITA: The new year bringing new changes to the gig economy, particularly for those users here in California. You'll recall voters here passed Prop 22 back in November. We've already seen a number of changes go into effect. Uber, for example, say they are looking at increasing costs for every ride and delivery with a California driver benefits fee. DoorDash saying it's exploring slight percentage increases.

Let's bring in John Chuang. He is the CEO of Aquent to talk about the impact of all of this. And, John, let's start there because those who voted against Prop 22 will say, look, this is kind of a bait and switch that's happening here. The company said they're going to have to raise the prices if, in fact, this proposition passed-- or did not pass and they had to classify drivers as full-time employees. How significant of a cost increase are we talking about going into the new year?

JOHN H. CHUANG: Yeah, unfortunately the Proposition 22 will not really benefit drivers too much. So there's not going to be a lot of costs on Uber, and so you're probably not going to have a lot of price increases for consumers or a lot of benefits for consumers.

It was a lot of marketing. It is a lot-- is was a well-written proposition that seemed one thing but, you know, if you read the fine print, it was really bad.

If I had to rate the quality of the benefits that Uber is giving its workers under Proposition 22, I would give it one out of five stars. For example, the minimum-wage provision really applies to only half of the time that someone works. So it's really more like half minimum raise-- minimum wage. And the health-care provisions are really tough to get because it really only applies to half the real time that someone works. You almost have to work 50 hours in a week to get 100% of the health-care benefits. Normally in a company, you know, you'd be making a lot of money on overtime. With Proposition 22, you almost have to work overtime just to get basic, normal health benefits.

And, of course, Proposition 22 doesn't cover any benefits like Social Security or like overtime. It has very weak worker's comp provisions. So it is not a very good deal for workers or drivers.

ZACK GUZMAN: Yeah, it was interesting because we even had a few drivers come on the show talk about maybe their fears around losing their job tied to all of that here too. And it's not just California. I mean, we're seeing this pushback in other countries even when we think about maybe some of the deals getting through there to kind of deal with wage increases and also collective bargaining. It sounds like back here in the US President-elect Joe Biden's backing the idea that he could introduce collective bargaining for contractors here. What's your take on that and maybe how much that could do to change the power for some of these contractors-- independent contractors to maybe push for more?

JOHN H. CHUANG: Yeah, I think this is just the very beginning of a fight. Look, when you look back at US labor history when the Industrial Revolution happened, it took years before organized labor started. And once organized labor started, it probably took from 1880 to 1930 before we actually won the benefits and before people really got the social safety net established that we know today. That was a 50-year process, all right?

Now look at the gig economy. The gig economy is brand new. Uber just started in 2009. So this is the very first inning of the battle for workers' rights. It's really the first inning for society, consumers, government, and the companies themselves to figure out what is the right level of protection for these folks? And it's going to be a long process.

So I'm encouraged by the fact that there is this discussion, and I believe these discussions need to happen more than just in California, in all the other states. And at the end of the day, I believe if workers consistently persist and if consumers became really aware of how much a delivery person actually makes, I think there will be a lot of change.

Look, you know, it doesn't-- it costs way more than $2 to deliver that burrito to your house. And when we only pay $2 for that burrito delivery, what's really happening is that the lowest, most vulnerable workers are really paying for consumers' convenience. The person who's delivering that burrito, again, represents-- is usually in the lowest 10% of US wage earners, and so there is no money there. At the end of the day, I believe consumers have to wake up a little bit and understand that their convenience is being funded by poor workers, and we have to pay people more.

AKIKO FUJITA: What kind of headwinds do you think that's likely to create for these delivery companies? You look at a name like DoorDash, for example, that just came to market. They have kind of discussed the regulation issue among their risk factors. You've also got grocery deliveries like Instacart that have also come under fire during this pandemic, largely on the treatment and the payment of their workers. So looking to 2021, how does the regulation outlook-- how is that shaping up, especially in the food-delivery space?

JOHN H. CHUANG: Yes, I believe that there's going to be significant headwinds, not only in 2021 but onwards for many, many years after this because fundamentally it is not fair. Fundamentally, we are paying these workers very, very little amount of money. And the more consumers understand this, the more they're going to not tolerate it.

And there's a lot of politicians who are already, you know, against 22 for better policies. So what these companies need to do is stop pretending that they can just avoid the change that's inevitable. I mean, they might have won Proposition 22, but there are 49 other states. There are tons of AB5 legislations through the legislature and the other places. They are going to be faced with this.

What they really need to do is alter their business model such that they can pay people a little bit more. Look, McDonald's can pay people minimum wage and pay people as employees. So can Walmart. Tons of companies are able to do this. The gig-economy business model right now, though, is, one, unprofitable, and two, depends-- you know, will get even more profitable if they start paying people a minimum wage. So that is not sustainable.

So I believe that these companies have to fundamentally alter their business model. They have to innovate. They have to figure things out.

Now the beauty is they have a great business model for convenience for consumers. They just need to innovate on how to pay a worker fairly. Once they get those two things, you know, I think the sky's the limit for these companies, but they do have to overcome.

So that-- if I'm a shareholder, that's the big task that I want the board of directors of my gig-economy company to figure out, how to actually pay your workers who are delivering the value to consumers a minimum-- a reasonable wage, and that is not unreasonable.

ZACK GUZMAN: Yeah, that's kind of been the awkward spot that a lot of these CEOs have been caught in when you think about the long-term perhaps automation opportunities and solutions to all those questions, getting robots to replace either drivers or delivery there. But obviously a few years away there on that front.

But John Chuang, appreciate you coming on here to chat all of those things there in the delivery space. We'll talk about that.

JOHN H. CHUANG: Great.

ZACK GUZMAN: More on the show coming UP after the break. CEO of Aquent, appreciate that.