The Clash: DoorDash and California’s AB5

After ride-hailing companies, Uber and Lyft, were bound by preliminary injunctions to reclassify contractors as employees, the San Francisco district attorney requested for DoorDash to follow suit. The request comes amid California’s AB5 (2019), which has strict guidelines before legally designating an individual as an independent contractor.

The result could have significant impacts, not only to the companies, but to the contractors/employees, the California economy, and end consumers as well.

The reclassification, if required from all app-based companies, would confer additional rights of employment, including minimum wage protections, insurance, and the company covering additional out of pocket expenses. Before you start cheering, this result may not be the end celebration we expect.

The app-based companies (Uber, Lyft, DoorDash, Instacart, Postmates, etc.) could likely respond to these additional costs by cutting hours, cutting services, and increasing rates. This would then have a trickle-down effect on the drivers, the businesses that are relying on the delivery companies to deliver their food in the midst of a pandemic, and the end consumers access to food.

By cutting drivers and thereby services to the end consumer due to increased costs, the delivery companies may inadvertently (or not so inadvertently) destroy the businesses that are not the “highest bidder” for delivery. The app-based companies may only deliver certain restaurant foods, leaving some of your favorite restaurants to rely on take-out only. The reduced access to their food would likely lead to even lower profit margins or higher losses. At a certain point, some businesses may make the difficult decision to no longer do business.

All of these theories and speculation from the author may change come November. Several of the delivery companies are supporting California’s Proposition 22, which will effectively seek to classify app-based drivers as independent contractors, placing an additional exemption to AB 5.

Whether a business, employee or contractor, contact the Law Offices of Neil J. Cacali to consult on your rights and obligations.