Uber and Lyft would have to pay drivers’ expenses, minimum wage under Minnesota proposal

By: - March 7, 2023 7:53 pm

Photo courtesy of Uber.

Minnesota lawmakers are considering a sweeping set of labor standards for Uber, Lyft, DoorDash and similar companies, which would upend the laissez faire relationship between tech giants and their workforce of independent contractors.

Under a bill (SF2319) proposed by state Democrats, Uber and Lyft would have to pay drivers for fuel and car maintenance, as well as insurance for drivers’ injuries comparable to workers’ compensation. The companies would have to pay drivers a minimum rate for each fare or cancellation, which is expected to lead to higher prices for consumers.

The bill would also bar Uber, Lyft and similar firms — referred to in legislation as “transportation network companies” —  from dropping workers from their apps without reason and without an opportunity for appeal.

“Minnesota has long assured its workers a safe and fair workplace … Over the last decade, a new industry has come into our state that circumvents nearly every one of these protections: that is (transportation network companies), most prominently Uber and Lyft,” said Sen. Omar Fateh, a Democrat from Minneapolis and chief author of the bill, during the Senate’s Labor Committee hearing on Tuesday.

Uber, Lyft and other popular apps like DoorDash classify their workers as independent contractors rather than employees, which exempts the companies from having to pay a minimum wage, overtime, Social Security, unemployment insurance and workers’ compensation.

By classifying drivers as independent contractors, Uber and Lyft also shift the cost of purchasing and maintaining a vehicle, gas and insurance onto drivers. The companies say the model allows drivers to have freedom and flexibility in their work that they wouldn’t be afforded as employees.

Uber warned the rules would make Minneapolis the most expensive city for rideshare and app-based food delivery services in the country and lead demand to drop by as much as 75%.

“It stands to reason that with the steep increase in costs, demand will naturally decrease in lower-income communities, leading to decreased transportation options and food access in less dense/less well-connected areas,” the letter reads.

A 10-mile, 15-minute ride between Minneapolis and St. Paul would cost roughly $40 —  excluding the fees Uber, Lyft and other companies would collect for themselves. By contrast, a ride on a weekday evening this week would cost closer to $20.

Under the bill, app-based transportation services would have to pay drivers a minimum fee of $6.50 per ride or package delivery, plus $2.55 per mile and 65 cents per minute. Drivers would also be entitled to 85% of the revenue generated from surge pricing.

Transportation companies would have to pay drivers a smaller amount if they have to drive more than five miles to pick up a person or a package and a $10 fee for cancellations that occur after the driver has already departed for a pick-up.

“We’re not making any money,” Uber driver Fe Clardy told the Senate Labor Committee on March 7. Clardy said drivers also face danger from some passengers and having to drive in certain neighborhoods. Screenshot.

Transportation companies would also have to pay drivers 41 cents per mile to pay for fuel and maintenance expenses, which would increase when the Internal Revenue Service adjusts compensation rates for businesses.

Each trip would also be taxed 25 cents to fund a non-profit “driver resource center” that would educate drivers about their rights and help them navigate disciplinary decisions.

Fateh told the committee the minimum compensation per mile is less than Minneapolis requires cab drivers to receive. While that’s technically true, taxi cab fares could end up being cheaper because taxis only have to charge for time when the vehicle isn’t moving, and they don’t have minimum reimbursement rates for fuel and maintenance.

Minneapolis caps taxi fares as $4.70 for the first mile and $2.75 for each additional mile plus 40 cents for each minute the taxi is not moving up to $24, according to a city spokeswoman.

A similar 10-mile, 15-minute trip from Minneapolis to St. Paul could cost less than $32 in a taxi compared to $39.60 in an Uber excluding tips and additional fees.

The push for stricter regulations is being driven by a new association of Uber and Lyft drivers in Minnesota, who say they like the freedom of being gig workers but complain of a power imbalance that forces them to accept meager wages and unpredictable disciplinary decisions.

Eid Ali, president of the Minnesota Uber/Lyft Driver Association, founded the organization less than a year ago to lobby local leaders. The group organized a news conference with Democratic state lawmakers last fall and are working with city leaders in Minneapolis on new regulations.

“We want to make sure that we get some sort of protection for those hard working drivers,” Ali told the committee on Tuesday.

Drivers told the committee of having to deal with violent, unruly passengers and being disciplined for refusing to go to neighborhoods they believe are too dangerous.

Abdillahi Mahamed Abdi showed up to the committee in a shirt stained with his own blood from a passenger assaulting him with a piece of metal. Abdi said the man also destroyed his phone. He said Uber did not provide him with any financial assistance for medical costs or the time he was forced to take off work.

The bill would require the companies to provide auto insurance and insurance to cover drivers’ injuries on the job comparable to those provided by workers’ compensation.

Joel Carlson, a lobbyist for Uber, told the committee the additional insurance requirements could lead to drivers getting inferior benefits and noted the state already requires drivers for companies like Uber and Lyft to have insurance.

He also said the reimbursement requirement for fuel and gas is incompatible with the state’s current definition of independent contractors, which says they are responsible for all their work-related costs.

“These employees would no longer be independent contractors,” Carlson said.

Democrats have taken aim at the gig economy in the past, though the effort failed to gain traction.

In 2021, Rep. Emma Greenman, DFL-Minneapolis, authored a bill that would have forced Uber and Lyft to reclassify their drivers from independent contractors to employees, with all the legal protections that title confers: overtime, minimum wage, workers’ compensation insurance.

The bill would have defined independent contractors as those who perform work that is “outside the usual course” of business for the employer. Workers would also have to be “free from the control and direction” of the company that hires them and regularly engage in similar work independently.

That’s a similar approach to California, which has been mired in legal battles for years. The California Assembly passed a law in 2019 that made Uber and Lyft drivers employees, but it was reversed by voters the next year through a ballot initiative that Uber, Lyft and other companies spent $200 million supporting. That law is currently tied up in a contentious legal battle.

Fateh’s bill mirrors a middle ground approach pursued by Washington state, which grants drivers for transportation networks certain protections like minimum wages and sick leave but leaves them classified as independent contractors.

The bill passed out of the Labor Committee on Tuesday over Republican objections and was sent to the Commerce Committee.

Republicans said Democrats were moving too quickly and more time was needed to consider the possible ramifications of the bills.

Sen. Glenn Gruenhagen, R-Glencoe, proposed scrapping the entire bill to create a stakeholder committee.

*Due to incorrect information provided by the city of Minneapolis, a previous version of this story misstated that the city has a minimum fare rate for taxis. The city sets a maximum fare rate for taxis.

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Max Nesterak
Max Nesterak

Max Nesterak is the deputy editor of the Reformer and reports on labor and housing. Previously, he was an associate producer for Minnesota Public Radio after a stint at NPR. He also co-founded the Behavioral Scientist and was a Fulbright Scholar to Berlin, Germany.