California’s Endless War on Ridesharing

SACRAMENTO, Calif. — During my recent travels, I did something I haven’t done in a while and grabbed a cab rather than an Uber at the airport. It was enlightening. When ridesharing apps burst onto the scene, the state of cab riding was mostly dismal — dirty vehicles, credit card readers from another era, and exorbitant prices. Lo and behold, this cab featured a decent car, improved payment system, and better pricing. It’s amazing what some competition can do.

When people discuss ridesharing, they generally focus on some specific aspect of this ridesharing service that they like or dislike. They often forget the broader point — the degree to which this app-based technology has transformed the entire taxi/limo/shuttle industry. Nothing works better to force companies to improve and better serve consumers than the risk of losing business to a competitor.

Generally, taxicab companies operate within a regulatory system whereby localities hand out a limited number of medallions. The prices of those permits are often sky-high because of the limited number of cabs that cities allow on their streets. If, say, a city permits 1,000 cabs and there are 2,000 people who want one, well the price of the permit to operate one goes to the highest bidder.

When Uber and Lyft created this innovative process of calling for a ride from a private driver via one’s phone app, it upended everything and seemed to pose an existential threat to taxis. But taxis haven’t gone away. Instead, they’ve gotten cleaner, newer, comfier, and cheaper. In other words, Uber forced cab companies to up their game.

Ridesharing also caused a widespread decrease in the value of those medallions, which were artificial costs imposed on drivers and ultimately borne by consumers. Instead of paying, say, $100,000 for the right to own a cab, drivers just started driving for a ridesharing firm, which had no such artificial limits. Some mostly large cab companies lost out — but such “creative destruction” became a boon for virtually everyone else, including drivers who now mostly earn better pay.

Uber began operations in 2009, but it really took off in the last eight to 10 years. But, of course, California’s state government can’t just allow a groundbreaking technology to grow and prosper, improve entire industries, provide decent jobs, and make everyone’s lives a little bit better. It had to step in and try to crush that industry on behalf of unions, ideologues, and others who use the government to protect their turf.

As ridesharing expanded its reach throughout California, the state Supreme Court issued a 2018 ruling in a case known as Dynamex Operations West v. Superior Court that threatened — and indeed still threatens — to obliterate this business model. The case involved a delivery service that switched its workforce from permanent employees to independent contractors. Some drivers claimed the change violated the state’s labor rules.

The court concocted something called an “ABC Test” that essentially forbade companies from using contractors or freelancers except for some limited tasks. Unions of course celebrated, as they always seem to want the government to put a thumb on the scale. The union-dominated Legislature responded to the ruling by codifying its far-reaching provisions. As an aside, the Biden administration has been trying to impose similar rules via federal regulatory edict.

As I’ve written before for The American Spectator, the legislation, Assembly Bill 5, targeted most freelance workers, and the legislation caused immense blowback as people working in myriad professions suddenly found themselves without work. Companies began laying off California-based contractors rather than hiring them full time (big surprise). The Legislature ended up exempting more than 100 industries from AB 5’s draconian rules.

Voters then approved Proposition 22 in 2020, which exempted rideshare drivers from AB 5 and promised them a number of fringe benefits. But instead of finally recognizing that they overreached, California’s Democratic officials have continued to double down on their efforts to potentially shutter the ridesharing business.

In May, the California Supreme Court — the same court that created this mess with its Dynamex ruling — heard oral arguments regarding the constitutionality of Proposition 22. The initiative was ruled unconstitutional by a superior court but upheld on appeal. CalMatters concluded that, “Based on their line of questioning, California Supreme Court justices seemed to be reaching for a compromise” on the matter. We’ll see.

A three-judge panel of the Ninth Circuit Court of Appeal had found that lawmakers specifically targeted these ridesharing companies, but last month an 11-judge panel on the same court found AB 5 constitutional and ruled that, “There are plausible reasons for treating transportation and delivery referral companies differently from other types of referral companies, particularly when the Legislature perceived [them] as the most significant perpetrators of the problem it sought to address — worker classification.”

Meanwhile, Courthouse News reported that the U.S. Supreme Court “passed up on an appeal from Uber … forcing the rideshare giant to face a California lawsuit that claims the company misclassified drivers as independent contractors.” This whole misclassification notion is absurd, given that these drivers generally prefer to work this way rather than as 9-5 employees, but the whole matter continues to be tied up in costly and endless litigation. The industry continues operating as usual as the yearslong matter plays out.

Over the same time period that Uber, Lyft, and other app-based companies have transformed and improved the transportation and delivery business, this state has been trying to shut — or at least hobble — this industry. What does this say to entrepreneurs who have other ideas to improve our lives and bust up encrusted, bureaucratic industries? And does anyone — even California lawmakers — want to go back to the bad old days of crummy taxis?

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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