Uber, Postmates, Lyft have an uphill battle in trying to keep their business model sustainable thanks to new California worker law.

Uber and Lyft are now essentially taxi services.

Uber Technologies Inc on Wednesday informed its California customers that it would switch to providing estimates as opposed to fixed prices for its rides in response to a new law that makes it harder to qualify its drivers as contractors.

In an email sent out to riders the company said the final price would now be calculated at the end of a trip, “based on the actual time and distance traveled.”

Uber and Postmates fought against the California worker law

“Due to a new state law, we are making some changes to help ensure that Uber remains a dependable source of flexible work for California drivers,” the company said in the email.

Uber in a blog post on Wednesday said the step was the result of changes to its fare structure, with drivers still getting paid per mile and minute, but the company now taking a fixed 25% cut from drivers. That service fee previously fluctuated.

Uber discontinues rider reward benefits

Uber on Wednesday also told customers it discontinued some of its reward benefits for frequent riders.

The company hopes the changes will bolster its argument that Uber is merely a technology platform connecting riders with drivers, not a transportation company.

The California law strikes at the heart of the “gig economy” business model by making it harder for companies to qualify their workers as contractors rather than employees. The measure went into effect on Jan 1.

By classifying contractors as employees, technology companies like Uber, Lyft Inc, DoorDash and Postmates Inc would be subject to labor laws that require higher pay and other benefits, such as medical insurance.

Uber and Postmates, a courier services provider, in a lawsuit in late December asked a U.S. court to block the law.

Uber has been the leader of the tech disruption since its start in 2009 by Travis Kalanick. Once the highest valuation of any Unicorn, the company has been hit by setbacks. Lawsuits and claims of sexual harassment at a corporate level hurt the image of the company.

When Uber was led by Travis Kalanick, the company took an aggressive strategy in dealing with obstacles, including regulators. In 2014, Kalanick said “You have to have what I call principled confrontation.” Uber’s strategy was generally to commence operations in a city, then, if it faced regulatory opposition, Uber mobilized public support for its service and mounted a political campaign, supported by lobbyists, to change regulations.

Uber has a list of complaints against it

In 2017, lawyers for drivers filed a class action lawsuit that alleged that Uber did not provide drivers with the 80% of collections they were entitled to.

Uber issued an apology on January 24, 2014, after documents were leaked to Valleywag and TechCrunch saying that, earlier in the month, Uber employees in New York City deliberately ordered rides from Gett, a competitor, only to cancel them later. The purpose of the fake orders was two-fold: wasting drivers’ time to obstruct legitimate customers from securing a car, and offering drivers incentives—including cash—to join Uber

In May 2019, the Uber IPO was as hyped and disappointing as the Y2K bug. Uber has a reputation for skirting laws, deceptive practices that helped it grow against its competitors and lawsuits from passengers.

The Gig economy is dead

This is not a good thing but, in light of the many issues with hiring contractors and then not stating behind those who are creating revenue, this disruptive industry has now hit the wall.

California may be the first state to initiate these worker laws aimed at fair treatment and fair salaries for employees.

This will have a far-reaching impact over the next 2 years as companies who built their growth model and revenue model on Gig work will need to pivot to a more “fair” compensation solution.