The birthplace of on-demand services just took the first serious step towards protecting the people who work for those services – and it will mark the beginning of a seismic shift of how these companies make money.

Here’s what happened. The California Senate just approved a bill requiring contractors to be considered as employees, extending them the same rights and benefits that on-demand services like ride-hailing and restaurant delivery services had skipped over in favor of trying to tap into cheaper labor. Since the beginning of these services, they had exploited loopholes that enabled people to sign up to provide services, a process which is not equivalent to hiring people. Since they are not being hired but they are offering their services through a platform, the platform’s themselves offered commercial conditions but not employment.

Considering just how big these platforms have become, this technicality can no longer be ignored. But the platforms are crying fowl: how will they continue to make money and deliver competitive services to consumers if they have to pay for pesky things like medicare and social security?

It was all a dream

The fact is that the services we have all come to love and rely on are just illusions. Venture Capital has funded our ability to get around cheaply by letting Uber and Lyft plow through stacks of cash in order to gain market share. Drivers accepted a bad deal because it was billed as being extra work – it was never supposed to be a full time job. And it can’t be if you see how the math adds up. And it definitely can’t be when you don’t have the benefits that fulltime employees are entitled to.

So we’ve been living in a dream reality where services for consumers are cheap at the expense of everything else. The price of these services don’t reflect their real cost. Would Uber be as popular if they had to raise prices by 50% so they can cover payroll and benefit costs, contribute to government mandated social programs, and were beholden to actually make money for their investors?

Salt N Pepa & Heavy D Up in the Limosine

I for one have written about the restaurant delivery business in France and how the business model is not sustainable from a legal aspect. Riders deliver food for fractions of an order to hobble together a living while calling themselves “autoentrepreneurs” (a legal status in France that lets people bill companies for their services up to a certain yearly threshold). And if it was – like the good-intentioned leaders wanted – only college students who did a few rides for extra cash while they worked on getting their engineering degrees, then that system would be fine.

But it’s not. Like Uber the delivery services are using people fulltime. And even if the platform decides to have no control over how many hours someone works for them, their mindset and self-classification of that service should not override reality. These people are fulltime employees and should be paid and treated that way.

California’s law will set a global precedent, and consumers should be prepared. We’ve gotten used to artificially cheap services. When reality sets in Uber and other services could go into a death spiral.

Here’s how: when Uber rides go from being $15 to get home from a party to $30, people will inevitably use the service less. That decreasing demand will mean fewer rides to dole out. That in turn means fewer drivers. Fewer drivers means longer wait times. Longer wait times means less convenience, so people will look for other options. Other options means fewer rides to dole out, which means less money Uber can pay employees, which means fewer drivers are willing to work for them. Fewer drivers means longer wait times again. You get the idea.

While I will be one of the first to lament the loss of convenience, I knew it was too good to be true. The negative effects on the people that work for Uber should outweigh my ability to get where I want to get 10 minutes faster. The scale of this whole gig economy thing is just too damn big.

Bravo California!

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