Uber rides are changing in California for both drivers and passengers as the ride-hailing company works to strengthen its defenses against AB5, the new gig-work law that makes it harder for companies to claim that workers are independent contractors rather than employees.

On Wednesday morning, Uber emailed 150,000 California drivers and millions of California passengers to alert them to the overhauls.

The company is giving drivers more control over their rides and making fares more transparent — which could mean passengers find that some types of trips get rejected more frequently.

The changes seek to establish that drivers are running independent businesses because AB5 offers some exemptions for business-to-business relationships.

Uber explained the changes as “due to new state laws,” in a letter to riders that included a warning that those laws could hurt them.

“These changes may take some getting used to, but our goal is to keep Uber available to as many qualified drivers as possible, without restricting the number of drivers who can work at a given time,” the company wrote. “We want your Uber experience to be excellent, and fewer drivers on the road would mean a more expensive and less reliable service for you.”

Back to Gallery Uber makes major changes to California rides as gig-work... 8 1 of 8 Photo: Uber 2 of 8 Photo: Uber 3 of 8 Photo: Uber 4 of 8 Photo: Uber / 5 of 8 Photo: Uber 6 of 8 Photo: Gabrielle Lurie / The Chronicle 2019 7 of 8 Photo: Gabrielle Lurie / The Chronicle 2019 8 of 8 Photo: Gabrielle Lurie, The Chronicle















Uber, which loses money at a rapid clip, is intent on keeping drivers from becoming employees, which could add some $500 million a year to its labor costs, according to an estimate from Barclays. Uber says that drivers being employees would destroy the flexibility that both its business model and its drivers rely on.

The company is battling AB5 on multiple fronts. It’s collaborating with rival Lyft as well as delivery companies DoorDash, Postmates and Instacart on a $110 million initiative campaign, asking voters to keep their drivers and couriers as independent contractors entitled to some benefits and wage guarantees. Along with Postmates, it sued California last month, claiming that AB5 is “irrational and unconstitutional.”

“This is Uber’s fallback position — giving drivers more independence so they can be viewed more as separate companies in (business-to-business) relationships with Uber,” said Michele Ballard Miller of San Francisco law firm Cozen O’Connor. “The problem is that each individual driver would have to hit all the” requirements to qualify for an exemption.

AB5 author Assemblywoman Lorena Gonzalez, D-San Diego, reacting to a Washington Post article that said Uber had run a secret internal task force to devise ways to shield it from the new law, characterized the company in a tweet as flip-flopping from defiance to “‘Oh, wait, we will change our business model to try to fit AB5.’”

Uber:

-We want an exemption from AB5.

-We won’t follow AB5.

-AB5 doesn’t apply to us.

-We will exempt ourselves from AB5 by initiative.

-We will sue CA about AB5.

-Oh, wait, we will change our business model to try to fit AB5. #PickALane https://t.co/a4iTS0w9g9 — Lorena (@LorenaSGonzalez) January 6, 2020

Gonzalez introduced placeholder legislation to clarify AB5 on Monday, but she’s adamant that there will be no changes to let Uber and Lyft off the hook.

Here are the new policies for Uber rides:

Pricing: Passengers will now see an estimated price range, rather than a firm fixed price when they request a trip. Prices will still be calculated based on the existing time and distance rates.

Uber drivers will receive exactly what passengers pay, minus the company’s commission, which is now capped at 25%. In addition, the company collects a flat-rate, per-ride “marketplace fee” for connecting riders to drivers. That fee, which varies by city, is $2.80 in San Francisco. Their payments will flow directly into their accounts rather than going to Uber first.

Previously, if the fare estimate was too low or too high, Uber either ate or pocketed the difference. That resulted in situations where a passenger might pay $20 for a trip, for instance, but a driver received only $10, irking drivers who shared such examples on social media.

“A lot of drivers have complained about the split Uber takes on fares,” said Harry Campbell, an Uber/Lyft driver who runs the Rideshare Guy blog. “Simplifying that fare structure and coupling what passengers pay to what drivers receive is good for transparency.”

Upfront trip info: Drivers will now see a trip’s time, distance, destination and estimated fare ahead of time, and can reject ride requests without penalties. (They can still be penalized for accepting rides and then canceling them.)

“That’s exactly what drivers have been asking for for years,” Campbell said. “It gives you all the information to make an informed decision.”

For riders, there are potential downsides. Short hops might get rejected. “If you just have to get across town quickly at rush hour, will drivers say, ‘Forget it, I won’t make any money,’?” Miller said.

Drivers also could refuse to take trips going to certain neighborhoods, a form of discrimination against lower-income areas.

Uber, which cautioned in its blog post that drivers should not engage in discriminatory rejections of trips, said it will monitor trips to guard against these issues.

Favorite drivers: Riders can rate drivers as “favorites.” Drivers so designated will be offered the right of first refusal on prescheduled rides.

Discontinued rewards: Uber will no longer offer price protection for passengers on routes, making up the difference if a ride estimated at $10 actually costs $14, for instance. It will no longer allow flexible cancellations, in which cancellation fees get refunded if riders rebook within 15 minutes.

Surge: Pricing for surge, meaning times of high demand, will be calculated as a multiple of the trip fare rather than a dollar amount, something Campbell said drivers would prefer (it generally means drivers can make more money).

“One interesting thing for drivers is that they’re already reaping the benefits of AB5” through these changes, Campbell said.

Lyft declined to comment on whether it also plans to revamp some processes in the wake of AB5.

AB5 questions answered What is AB5? AB5, a law passed in California last year, codifies, clarifies and grants exemptions to a 2018 California Supreme Court decision called Dynamex. Both AB5 and Dynamex make it harder for companies to label workers as independent contractors. They use an “ABC” test that says workers are employees if (A) they perform tasks under a company’s control, (B) their work is integral to the company’s business and (C) they do not have independent enterprises in that trade. It took effect Jan. 1. It does not automatically make workers employees: They must challenge their status in court, or the state or some cities can sue companies over misclassified workers. How is being an employee different from being a contractor? Employees are entitled to benefits such as minimum wage, workers’ compensation, unemployment insurance, expense reimbursement, paid sick leave and paid family leave. Employers pay half of employees’ Social Security tax. All of those benefits cost companies more, which is a reason many oppose classifying workers as employees. What are ride-hailing companies doing in response? Uber and Lyft maintain that their workers still qualify as independent contractors under AB5’s stricter test. The changes Uber announced Wednesday are meant to bolster that argument, which it and Lyft will make in court and through arbitration. The companies have said they will not reclassify drivers unless a judge forces them to. Along with meal-delivery service DoorDash, the companies are also backing a ballot initiative for November that would codify a different status for ride-hail drivers and meal couriers. For more questions and answers, see http://bit.ly/ab5questions.

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The California law lays out a three-part test, saying that workers are employees unless they (A) work free from a company’s control, (B) do work outside the company’s core business, and (C) have independent enterprises in that type of work.

Tiffanny Brosnan, a Los Angeles employment lawyer, said the changes address prongs A and C of the test.

“But prong B has been dubbed the ‘killer B’ for good reason and this is where I see Uber having its biggest challenge,” she said in an email. “For Uber’s drivers to be properly classified as independent contractors under AB5, Uber will need to prove that the drivers’ work is outside of Uber’s usual course of business. So the question becomes how do you define Uber? Is it a software platform or a ride-hailing company?”

Carolyn Said is a San Francisco Chronicle staff writer. Email: csaid@sfchronicle.com Twitter: @csaid