UBER Uber Technologies Inc

By Preetika Rana 

SAN FRANCISCO -- Uber Technologies Inc. is testing a new feature that allows some drivers in California to set their fares, the latest in a series of moves to give them more autonomy in response to the state's new gig-economy law.

Starting Tuesday morning, drivers who ferry passengers from airports in Santa Barbara, Palm Springs and Sacramento can charge up to five times the fare Uber sets on a ride, according to a person involved in developing the feature. Uber confirmed in an emailed statement that it is doing an "initial test" that "would give drivers more control over the rates they charge riders."

The ride-hailing giant has made many changes to the way it works in response to California's passage of Assembly Bill 5. The law requires companies to treat workers as employees -- eligible for sick days and other benefits -- rather than independent contractors if they are controlled by their employer and contribute to its usual course of business. Uber has argued that it is a technology platform that connects riders with drivers, not a transportation company, so the drivers aren't part of its usual course of business.

At least two lawsuits have been filed in federal court alleging that Uber misclassified drivers, citing the law, which took effect Jan. 1. Separately, the lawmaker who wrote AB5 has urged attorneys in some of California's biggest cities to enforce the statute.

The fare test and other recent changes are part of Uber's effort to strengthen its case that its drivers operate with some degree of independence. Earlier this month, Uber capped its commissions on rides across California. Last month, it allowed drivers in the state to see where riders were going, letting them choose the trips they wanted to take. Previously, drivers agreed to trips without knowing the destination.

Uber's latest changes will set up a bidding system that lets drivers increase fares in 10% increments, up to a maximum of five times Uber's set price, the person involved in developing the feature said. That price includes base fare, time spent and distance covered by a driver. There is no limit on how often drivers can raise prices. Once a rider pings the Uber app at the locations in the pilot program, Uber will match the rider with the driver who has set the lowest price, the person said. Drivers who have set higher fares are gradually dispatched as more riders request rides.

While the changes give drivers more autonomy, setting fares too high could lead to fewer trips and longer waits. For riders, the feature might result in higher fares and more volatility. Uber also risks losing riders to rival Lyft Inc., which hasn't announced any changes to its app in response to California's new gig-economy law.

Starting next week, Uber plans to let drivers also set fares lower than Uber's price. In addition to choosing a higher multiple, drivers will be able to charge as little as one-tenth Uber's set price, decreasing fares 10% at a time. They will also be allowed to opt out of surge pricing.

"Drivers want to make more money, but now they're competing with another driver for that money, so it's a lot more work and a lot more confusing, " said Harry Campbell, a former Uber and Lyft driver who runs a popular blog for drivers. "What happens if drivers start setting fares lower and lower just so they can get rides?"

The test program also doesn't account for quality, Mr. Campbell said, because it doesn't give drivers with better ratings the ability to charge the higher price, as would typically be the case in a free marketplace.

Lawyers say allowing drivers to choose the trips they want to take and set fares on them strengthens one of the three requirements Uber must meet to avoid reclassifying drivers as employees: that they are free from the company's control.

"It could be a game-changer for that," said Dan Handman, a partner specializing in labor and employment law at Hirschfeld Kraemer LLP's Los Angeles office. "But whether or not they can also use this to show that drivers are outside their normal course of business is questionable."

By testing the new feature in smaller cities, Uber wants to limit any potential damage to its business, said the person who worked on the feature. Uber will use feedback from the initial rollout to determine whether to broaden the measure statewide, the person said.

Lyft, DoorDash Inc. and Postmates Inc. have raised more than $110 million for a planned ballot initiative this year, asking that voters exempt them from AB5. The ballot measure also includes several guarantees to ride-hailing and delivery drivers that coalition members say don't currently exist, such as giving drivers 30 cents for each mile driven to account for gas and other vehicle costs, health-care subsidies for drivers who work 15 hours or more a week and occupational-accident insurance coverage while on the job.

Uber and Postmates also sued California to challenge the legislation. The food-delivery rivals joined two drivers in the lawsuit filed in federal court last month. The suit claims that the law violates constitutional guarantees of equal protection because of how it targets some workers and companies.

--Eliot Brown contributed to this article.

Write to Preetika Rana at preetika.rana@wsj.com

(END) Dow Jones Newswires

January 21, 2020 12:46 ET (17:46 GMT)

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