Uber and Lyft shutdown in California seems inevitable – unless voters bail them out

No Uber and Lyft rides in California? After a judge rejected companies’ efforts to delay an order to classify drivers among employees, it seems inevitable. Uber and Lyft have until August 20 to comply with the order. But companies have said they will need to get dark in the Golden State in order to revamp their business.

The judges may not have the last word. Uber and Lyft are counting on notoriously mercurial voters in California to help them bypass AB5, which went into effect in January and makes it harder for businesses to hire independent contractors. Uber and Lyft have built their respective businesses on the concept of using independent drivers who are not eligible for traditional benefits like health insurance and paid time off.

Earlier this year, the companies, along with DoorDash, raised nearly $ 100 million to ask a question about the November poll. They succeeded, and this fall voters will be asked to permanently classify ride-sharing drivers as independent contractors. The measure, called Proposition 22, also forces companies to adopt certain labor and wage policies that do not correspond to traditional employment.

To achieve their political goals, ridesharing companies look to their customers. Lyft has emailed its customers urging them to vote yes on Prop 22 and added pro-Prop-22 messages to its application. Uber has yet to do the same, but the company has shown a flair for using dramatic tricks to turn customers into political allies. In 2015, the company added a pop-up feature in its app to troll the New York mayor and encourage the company’s clients to pressure him to drop a bill that could seriously hamper growth efforts. Uber in the city. It worked and Mayor Bill de Blasio relented.

It was a short-lived victory. Eventually, de Blasio and the New York City Council rallied to cap the number of new Uber and Lyft vehicles and set a minimum wage for drivers. New York State is currently considering legislation similar to AB5 that would require companies to classify drivers as employees.

Photo by ROBYN BECK / AFP via Getty Images

Shutting down operations in California would be a much bigger, much more dramatic, and certainly much riskier move than adding a new widget to its app. But it would also be an extremely visceral way of showing voters what things might look like if Prop 22 fails.

Uber and Lyft drivers have long complained about poor pay, lack of protection and an inability to unionize to bargain collectively with companies. There have been stories of drivers sleeping in their cars because they cannot afford to live in the cities where they work, struggle to make ends meet and feel totally at the mercy of an algorithm. without a face that dictates when and where they drive and for how long.

Uber and Lyft have said they realize they need to adapt to changing attitudes toward work in California and have presented Prop 22 as proof of that. The voting measure promises to increase compensation for drivers and delivery people by forcing companies to pay them above minimum wage, plus 30 cents per mile, according to the companies. It would also require health care coverage for drivers who work at least 15 hours a week and provide insurance for workers’ accidents.

California voters are not just urged to let Uber and Lyft continue to classify drivers as independent contractors; they are also being asked to endorse an unprofitable business model that denies workers overtime payment, expense reimbursement, workers’ compensation and paid time off, pro-AB5 groups say.

California is an obvious place for the line to be drawn in the sand. This is where Uber and Lyft were founded and where they raised billions of dollars from investors before eventually going public. But no business has ever been profitable. They both set records for the amount of money lost as their respective IPOs approached. And since going public, they have continued to bleed money.

“Prop 22 doesn’t just guarantee an AB 5 exclusion for gig businesses,” said Carlos Ramos, a 39-year-old Lyft pilot based in San Diego and a member of the pro-AB5 group Gig Workers Rising. “It is also designed by companies in concert to ensure that these companies are exempt from the obligation to observe basic labor protections for workers for generations to come.”

Uber and Lyft have said they realize they need to adapt to changing attitudes toward work in California and have presented Prop 22 as proof of that. The voting measure promises to increase compensation for drivers and delivery people by forcing companies to pay them above minimum wage, plus 30 cents per mile, according to the companies. It would also require health care coverage for drivers who work at least 15 hours a week and provide insurance for workers’ accidents.

AB5 has prompted Uber to make several major changes to its app: it now displays prices differently, allows customers to select preferred drivers, and ends some perks associated with its driver rewards program. Uber CEO Dara Khosrowshahi recently argued for a “third way” for construction workers that offers more protections while retaining the flexibility to set your own hours.

Khosrowshahi doesn’t need to shut down Uber in California to make this point. Along with Lyft and DoorDash, her company has more than $ 110 million in cash that it can spend to influence voters on Prop 22, according to CalMatters. In comparison, pro-AB5 task forces only have $ 866,000. That could be enough to get a victory.

A majority of California voters have said they plan to vote on the ballot measure, according to polling firm Redfield and Wilton. But they’re divided over how they’ll vote: The poll found that 41 percent of voters say they will vote yes for Proposition 22, and 26 percent say they will vote no. In addition, 34% of them say they do not yet know how they will vote.

Photo by Mario Tama / Getty Images

It is not clear how groups like Gig Workers Rising plan to make their case to voters. So far, they’ve staged protests at Uber and Lyft headquarters in hopes of getting media attention. But they haven’t yet defined an advertising strategy.

In contrast, Uber and Lyft have money to spend on advertising, a direct line of communication with their customers, and a willingness to waste tens of millions of dollars more to make their point. Darkening in one of its biggest markets in the country to really get the message across about what’s at stake could be a gamble worth taking. Uber lost more than $ 16 billion in the three years leading up to its IPO. Since its IPO, it has lost an additional $ 13 billion. By comparison, Lyft lost $ 2.6 billion in 2019, but its business is entirely based in North America, while Uber is global.

Whatever money the two companies will lose by closing their store in California, it could be a pocket change from rewriting labor laws in the state.