Court ruling prevents Uber and Lyft shutdowns in California

A California court ruled Thursday that Uber and Lyft are not required to immediately reclassify their drivers as employees rather than independent contractors. The decision allows ridesharing services to continue operating in the state after threatening to withdraw.

Just hours before the decision, Lyft said it would be halting service in California on Thursday at 11:59 p.m. “This change would also require an overhaul of the entire business model – it’s not a switch that can be flipped. overnight, ”the company said of the law, which went into effect Jan. 1.

Last week a state judge ordered companies treat drivers as full employees, as required by law spent in california last year. Transport companies appealed the decision, arguing that the new law did not apply to them.

Uber had also threatened to temporarily suspend service in California if it was forced to comply with the law. “We can’t hire 50,000 people overnight,” CEO Data Khosrowshahi said in a podcast earlier this week.

The ruling allows companies to continue to treat their drivers like entrepreneurs until the case’s first hearing, scheduled for October 13.

Push costs on drivers

Both companies are reducing their labor costs by classifying drivers as contractors, who do not enjoy the same benefits and protections in the workplace as full-time employees of the companies. As independent contractors, Uber and Lyft drivers are responsible for their own expenses, including taxes, and do not receive sick days, vacation, or compensation if they are injured on the job.

Classifying drivers as employees would shift many of those costs onto Uber and Lyft. It’s a much more expensive arrangement for companies, none of which have made a profit to date.

California officials say that treating drivers like contractors also has higher costs, as companies do not contribute to the declining state unemployment insurance fund on behalf of drivers.

Playing hardball

California accounts for a significant portion of the two companies’ business, accounting for about a fifth of all rides at Lyft before the pandemic and about a tenth of those at Uber.

The threat of closure in the state represents a hardball strategy that rideshare companies previously used in Austin, Texas. In 2016, the city passed a voting measure that Uber and Lyft opposed, which required them to fingerprint their drivers for background checks.

Two days later, Lyft and Uber left town, a move that confused drivers and left many drivers without a livelihood, according to Wired. The following year, the state legislature struck down Austin’s law, and Uber and Lyft returned shortly thereafter.

Companies are using a similar approach in California, where they are investing millions in a November ballot initiative that would place drivers in a separate category of workers with certain protections, but who do not achieve full employee status.

Wedbush analyst Dan Ives said massive service disruptions would upset runners and create more public support for the voting initiative, dubbed Proposition 22.

“In this high-stakes poker game, we think it’s a smart move by Lyft with Uber, and today’s court ruling was a major victory round for both players,” he said. he told investors in a note.

In an update on its cancellation threat, Lyft thanked “the tens of thousands of drivers, cyclists and officials who have urged California to keep carpooling available.” A spokesperson for Uber said the company “will continue to advocate for the ability of drivers to work with the freedom they want.”

The Associated Press contributed reporting.