Uber's suit against California could delay blow from new law

NEW YORK (AP) — Ride-hailing giant Uber, along with delivery company Postmates, sued California over a new law that aims to reclassify their drivers and delivery workers as employees instead of contractors. The law, which went into effect last week, could upend the business models of the companies that shaped the so-called “gig economy," where contract workers use smartphone apps to accept odd jobs driving or delivering goods as frequently as they wish.

Any changes that add to Uber’s costs could worry investors already concerned about the company’s sizeable losses. As of Monday, Uber's shares were down about 28% since the company's May 2019 initial public offering, though they gained 6% in the first three trading days of 2020.

WHAT DOES THE NEW CALIFORNIA LAW REQUIRE OF UBER AND OTHER COMPANIES?

California's new law, AB5, creates the nation's strictest test for determining whether a worker is considered an employee. The law aims to give workers rights such as minimum wage, mileage reimbursement, paid sick leave, medical coverage and disability pay for on-the-job injuries. It was designed to improve working conditions at companies that rely on contract labor such as Uber and Postmates.

HOW MUCH COULD THE NEW LAW COST UBER?

Right now, Uber believes its drivers are classified correctly as independent contractors, so it hasn't changed its business model to give drivers the benefits outlined above. If it was forced to classify its drivers as employees and provide the benefits outlined in the new law, that could end up costing Uber $500 million annually in the worst-case scenario, with an additional $40 million to $50 million in legal fees, said Dan Ives, managing director of equity research at Wedbush Securities.

WHAT MIGHT HAPPEN TO UBER'S BUSINESS IF THE NEW LAW...