How Will AB5 Change Service Platforms’ Service Models

Tolga Dizdarer, Operations, Information and Decisions, The Wharton School

Abstract: In September 2019, the State of California passed Assembly Bill 5, a bill that re-defines many categories of work that previously fell under contractor status. Among all industries that will be affected by this bill, service platforms make the top of the list. The platforms such as Uber or Lyft have historically identified their service providers as contractors, and AB5 will require these platforms to either adapt to new standards or re-classify the service providers as employees. For an industry whose primary value proposition for service providers is working flexibility, such a change will inevitably impact both the service model and the users. Existing researches have looked into the advantages of platform controls for service platforms and the value of flexibility for service providers. However, no paper has explored how recent legal changes will affect these platforms’ business models. Our aim with the paper is to fill this gap by analyzing how service platforms would adapt to this set of changing rules and what the implications would be for the business model, platform, and the users.