Uber and Lyft May Temporarily End Service in California Due to Court Ruling

Uber CEO Dara Khosrowshahi says the San Francisco-based company will be forced to temporarily end service in California if it has to classify its drivers as full-time employees.

John Zimmer, president of Lyft, made similar remarks on Lyft’s second-quarter earnings call.

This announcement comes after Ethan Schulman, San Francisco Superior Court Judge, ruled Monday that Uber and Lyft must classify drivers as employees instead of independent contractors, based on state law AB5, which took effect on January 1st. This shift would guarantee benefits like overtime, sick leave, and expense reimbursement for workers who make up much of the freewheeling gig economy. Schulman issued a 10-day stay of the ruling to give Uber and Lyft time to appeal.

“If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly,” Khosrowshahi said.

In an interview with MSNBC, Khosrowshahi said, “Uber has made significant changes to its model in California to give drivers more control. Khosrowshahi pointed out that drivers can set their own prices and they have the flexibility to decide if they want to take a ride or not.”

“We think we comply by the laws, but if the court finds that we’re not and they don’t give us a stay to get to November, then we’ll have to essentially shut down Uber until November when the voters decide,” Khosrowshahi said.

Uber and Lyft are backing Proposition 22, which will appear on the November ballot in California. If enacted, gig companies would be exempt from abiding by AB5, meaning that drivers would not be treated as employees.

“Uber and Lyft have each put up $30 million to push Prop. 22, with another $50 million coming from DoorDash, Instacart and Postmates,” reported the SF Chronicle.

David McCuan, a political science professor at Sonoma State University said pausing or threatening to pause service, may be to pass Prop.22.

“They are using aggressive bullying tactics to get people to do what they want…Forcing voters into a corner causes voters to feel pressure and often they backlash against that…They want to be asked to dance, not bullied into it.” said McCauan, who studies California ballot measures.

“Uber and Lyft have seen a massive drop in demand over the past six months, with businesses shuttered and consumers staying home during the coronavirus pandemic. Ride bookings revenue fell 73% to $3 billion in the second quarter compared to the previous year, Uber said last week. The company lost $1.8 billion during that time. Lyft said Wednesday that its second-quarter revenues plunged 61% compared to the same time last year. It lost $437 million on revenues of $339 million from April to June,” reported the SF Chronicle.

California, the first market and home for both Uber and Lyft, is a crucial market to them. Observers said the companies would be hurting themselves with any halt to operations here.

But, they have pulled out of cities before; Uber and Lyft pulled out of Austin in May 2016 in protest of a city rule requiring the companies to fingerprint their drivers. Both companies returned to Austin a year later after lobbying for a statewide ride-hauling law they found more favorable.

“Uber’s threat to heap even more hardship on tens of thousands of employees rather than comply with the law is stunning,” said Art Pulaski, executive secretary treasurer of the California Labor Federation.

The Uber CEO said he is hoping for a “best of both worlds” outcome.

Read Uber’s full-court filling here. A hearing is scheduled for August 13th in San Francisco Superior Court.


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