To comply with a new law affecting gig workers, Uber is testing a feature that will allow drivers in California to set their own pricing for certain rides.
California’s AB5 went into effect on Jan. 1, and changes the conditions under which a worker is assumed to be an employee. Uber, along with Lyft and other “gig economy” firms such as Postmates, will need to either adjust how they work with drivers under the new law, or provide benefits such as sick leave. Uber (UBER) - Get Report shares were up 5.28% to $36.96 on Tuesday after the company announced the sale of Uber Eats in India to rival Zomato.
The new pricing feature, which is active as of today, allows drivers shuttling passengers from airports in Santa Barbara, Palm Springs and Sacramento to charge more than the fare that Uber’s algorithm sets, according to the WSJ. The idea is to give drivers more autonomy, and in doing so reaffirm Uber’s position that their drivers are independent contractors and not employees. Drivers will be able to increase prices on those airport fares in 10% increments, and up to five times the original fare. Uber then connects riders with the driver offering the lowest fare at the time a ride is requested.
In late December, Uber and Postmates filed a lawsuit in U.S. District Court for Central California alleging that AB5 is unconstitutional, and investors anticipate a prolonged legal fight over the new employment standard. The uncertainty over the status of drivers represents “the largest risk in the ride-sharing industry” wrote Wedbush analyst Dan Ives on Dec. 30.
On Tuesday, Morgan Stanley named Uber its top U.S. internet pick for 2020, predicting a 57% rally in the stock on improving profitability and potential for further growth in ride-hailing.