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- On Friday, California lawmakers passed a bill that could force companies like Uber and Lyft to reclassify independent contractors as full-time employees.
- Assembly Bill 5 could be detrimental to companies that are struggling to become profitable while relying on gig-economy labor for low prices meant to attract new customers.
- While the focus has remained on the two major ride-hailing companies, other gig-economy experts think food-delivery startups like DoorDash will be the most affected if the bill becomes law.
- According to reports, Uber, Lyft, and DoorDash have already committed to a $90 million ballot initiative in which voters could reverse the decision in 2020.
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Uber and Lyft have been at the center of a debate surrounding California's landmark bill that could force companies to reclassify independent contractors as full-time employees. But industry experts say the biggest loser may actually be food delivery.
The bill passed in California's State Senate and Assembly last week and is headed to Gov. Gavin Newsom's desk for his signature. Though the bill was created in part to go after Lyft and Uber, both of which have seen driver protests for higher wages and better benefits, the law could have unintended consequences for more than just ride-hailing services, many gig-economy experts say.
"I do think there will be some companies where this will result in their demise," Micah Rowland, the chief operating officer of the gig-economy recruiting tool Fountain, told Business Insider. "Companies that are totally reliant on gig labor are going to find it more difficult to make the argument that Uber is trying to make that gig workers are not essential, so they will have to make the transition."
Rowland said industries with low margins, like food delivery, were particularly vulnerable to changes like those in the bill. Customers are unlikely to support increased delivery fees, so companies would have to pass any increased labor costs on to restaurants they partner with, which also operate on razor-thin margins. Rowland said from there the industry could easily fold into itself.
"The response pathways will break down by company size," Rowland said. "I would normally say to break it down by profitability, but none of them are profitable. It will come down to who can and will expend resources to reverse this decision."
Many companies are planning to do just that. According to previous reports, Uber, Lyft, and the food-delivery startup DoorDash are planning to commit to a $90 million ballot initiative in which voters could reverse the decision in 2020. DoorDash did not respond to Business Insider's request for comment.
Another unforeseen casualty could be more traditional industries that have relied on contract workers, such as construction or landscaping. Shawn Cadeau, the chief revenue officer at the home-services job board Jobber, said it's best for small, independently run businesses when contractors were able to accept the jobs that worked best for them. If the bill is signed into law, he said, it might force small businesses to create only jobs that could financially support full-time employees.
"These types of entrepreneurial initiatives truly help to bolster the economy and drive middle-class growth," Cadeau said.
But Cadeau and Rowland agree that these companies are officially on notice, and other states are waiting to see how the law plays out.
"When companies make the change from contractors to employees, other states will be watching closely to see what the law's impact is to make sure it works as intended," Rowland said.
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