SACRAMENTO – An op-ed in the Orange County Register lays out the downfall of app-based delivery company Deliv, a “start-up praised by organized labor for its use of employees rather than independent contractors announced last week it would wind down operations this summer, laying off 669 employees–including 591 drivers.”
Experts have warned that removing drivers’ ability to work as independent contractors would eliminate 900,000 app-based jobs in California. A new independent poll shows app-based drivers resoundingly prefer to be independent contractors by a 71-17% margin.
From the op-ed by Jeff Joseph, professor in the Schar School of Policy and Government at George Mason University:
- AB5, which took effect in January, severely reduces companies’ ability to use independent contractors and instead forces them to hire employees.
- Labor unions were closely involved in crafting the bill.
- One of labor’s primary targets from AB5 was the “gig” economy–on-demand transportation and delivery companies that rely on a workforce of independent contractors to quickly connect a customer with the service they’re looking for. (Uber, Lyft, Instacart, and DoorDash are some of the large players.)
- While AB5 was being debated in 2019 … Deliv announced it would transform its independent contractor workforce in the state into employees–hiring them through a subsidiary called Deliv California.
- Deliv said the decision wouldn’t harm its finances: “Deliv’s ability to offer cost-effective same-day delivery is driven by its proprietary technology and unique business model, not the classification of workers.”
- One year later, that confidence seems misplaced: Deliv is nearly defunct, while competitor companies who rely on independent contractors report record growth.
- Deliv’s California subsidiary also faced hiring difficulties; after switching away from the independent contractor model, Quartz reported that “not all workers are happy as employees.” As employees, they had to abide by a dress code; they also were asked to choose hours one week in advance, instead of the on-demand flexibility offered by other gig companies.
- This model also puts a cap on growth: A new study from the Berkeley Research Group estimates an 80-90 percent reduction in app-based drivers if gig companies had to move to an employment-based model such as Deliv’s.
- A contractor-focused model allows gig companies to quickly scale up to meet demand, while giving contractors the freedom to work when and where they want. Deliv’s abandonment of that model, and its subsequent closure, should be a warning sign for legislators–and a cautionary tale for other states looking to follow California’s lead.