SAN FRANCISCO – Uber’s decision to allow drivers to set their own rates in three California markets is triggering fears of a race to the bottom in pricing.
The test, taking place in Sacramento, Santa Barbara and Palm Springs, is one of Uber’s responses to AB5, the new California law requiring companies to make workers employees or establish clearly that they are independent contractors. That requires, among other qualifications, demonstrating the workers are free from the company’s control.
Typically, Uber sets fares by market and makes real-time adjustments based on demand. Drivers have no control in pricing and little visibility into the methodology, although it’s dictated by factors including the amount of time spent on the ride, as well as the distance driven.
In the test markets, Uber is letting drivers crank the established fare up to five times the price, so they only accept rides that will pay what they think the trip is worth. The idea is to address a tenet in AB5 requiring employers to demonstrate contractors’ independence.
But drivers at Sacramento International Airport said early experiments with the changes proved it was difficult to earn more than Uber’s base fare, and efforts to collectively raise their pay by calling for a set fare – say, two times the cost of a ride – were quashed by drivers eager to secure to a ride for less. Starting this week, drivers will also be allowed to set their price floor below Uber’s established fare, meaning drivers could provide trips for far less.
“This new option is not gonna work to our advantage,” said driver Linda Simonyan, 54, of Sacramento, who has been driving part-time for Uber and Lyft for three years. “Riders are used to bottom prices and are not willing to pay more.”
Tech companies such as Uber and Lyft, food delivery services DoorDash and Postmates and grocery delivery service Instacart have created a new economy of thousands of so-called gig workers, whom they consider independent contractors. The flexible employment model has allowed the companies to grow rapidly without guaranteeing the same wages and benefits to workers as normal employees.
Some workers have complained that as the companies grew bigger and raked in hundreds of millions in funding, they’ve been squeezed. Wages have gone down, requiring working more hours for the same pay. And work can be uneven. That prompted some California lawmakers to find that companies have saddled workers with low-paying, high-intensity jobs that don’t afford the same rights and benefits as employment.
Uber says it is giving drivers flexibility merited under the tenets of AB5. “There is no question that the product changes we’re making in California to strengthen drivers’ independence will meaningfully affect how Uber works for drivers and riders alike,” Uber spokesman Matt Wing said in a statement. He said a number of businesses have had to make decisions based on the law that have unclear consequences.
“In this case, we are starting with a very small test to make sure we minimize any negative outcomes for everyone who uses Uber, as best as we can,” he added.
The test is part of the company’s internal Project Luigi, Uber’s effort to prove its drivers are independent so they are not subject to benefits and worker protections that would be required for employees.
As part of that plan, Uber has instituted a separate app experience for California drivers in an attempt to strengthen its case that they are running independent businesses. Changes include allowing drivers to decline trips without penalty and to be designated by passengers as “favorites,” meaning the app would give them first pass at accepting trips such as rides to the airport.
And now, in the three test markets, drivers can adjust their apps to only accept trips at a preferred fare multiple – say, 2.5 times what a rider would normally pay, or anything up to five times the established price. But they’ll only receive a fare if a passenger is willing to pay. Meanwhile, they’ll be passed up by potentially dozens of other drivers along the way who are willing to accept rides for a lower price.
The Wall Street Journal first reported the new test.
In Sacramento, some drivers attempted to create a unified plan to win themselves double the fare at the airport, where government officials, lobbyists and outsiders frequently visit the capital on state business. Driver Simonyan put out a call on Facebook to urge drivers to action.
“Call to ALL Sacramento Uber drivers,” wrote Simonyan last week. “Let’s set our airport fare [multipliers] on minimum x2.0. [Passengers] will have no other choice but to take the trip. Who is with me on this?”
But even though dozens of drivers expressed interest in participating, it didn’t work. Drivers who set higher fare multipliers faced longer waits or weren’t assigned trips at all. Enough drivers weren’t participating and were willing to undercut them.
“If you raise the fare you sit without a ride,” wrote one driver on a Facebook group for Sacramento-based Uber drivers, who could not be located for comment. “Uber is giving rides to the cheapest drivers first. So unless you are last man standing you are going to be sitting a long long time.”
He continued: “I turned mine on and put in 1.7x and watched in an hour as about 20 cars that came in after me [went] before me.”
It’s unclear if the program may be expanded, and some labor experts warned that the ramifications for drivers could be serious.
“There’s really no way for workers to outsmart Uber in this particular scheme,” said Veena Dubal, an associate professor at the University of California Hastings College of the Law, who focuses on the gig economy. “I think it’s gonna actually lower driver income with the facade of choice and independence.”
Dubal said because Uber controls pricing, drivers do not have actual control over their pay, just the fare multiplier based on the company’s preestablished rates.
Moira Muntz, a spokeswoman for the Independent Drivers Guild, a New York-based machinists union group representing tens of thousands of for-hire vehicle drivers, was wary that the new system could help drivers at all.
“This sets up a system where there is a consistent set of drivers desperate for a quick payout who may make decisions based on near-term urgency that undercut their economic well-being long term and put downward pressure on pay for all drivers under the model Uber is experimenting with,” she said. “Drivers are eager to see more control but when it becomes a race to the bottom in terms of pay that’s no help at all.”
Uber declined to say how the rollout of the experiment affected average trip fares and surge pricing, the increased rates pegged to driver supply and rider demand based on factors such as traffic and weather.
Christian Perea, 31, of Berkeley, who said he has been driving for Uber for five years, welcomed the increased flexibility provided by Uber’s app changes: the ability to decline a ride and to see where trips were taking him along with estimated fares upfront. But a system that would allow drivers to lower prices beneath Uber’s set rates was a bridge too far, he said.
“That will probably incentivize a race to the bottom,” he said. “Imagining a world where we can undercut each other on price, down to half of 75-cents per mile, is really scary to me. In my mind, that means the end of driving for me.”