Lyft And Uber Win A Delay In California Court After Threatening To Suspend Service Over Labor Law

Lyft And Uber Win A Delay In California Court After Threatening To Suspend Service Over Labor Law

labor law
Lyft and Uber have won a delay in court after threatening to suspend service in California due to a labor law that requires the ride-hailing services to count drivers as employees. Image: Flickr / Stock Catalog / Creative Commons License

Uber and Lyft have won a reprieve that allows them to buy more time after a judge gave them until Friday to change the status of their California drivers from contractors to employees.

Top executives of the ride-hailing services warned last week they would likely have to suspend service temporarily in California to comply with the order, which would involve restructuring their business models and operations and rehiring their workers.

They have insisted that they are not transportation companies but tech companies — a legal strategy that, so far, allowed Uber and Lyft to label their drivers as contract workers. This means they don’t have to pay drivers benefits such as health insurance, paid leave, unemployment benefits and severance pay.

However, a state judge gave them no choice but to shut down or comply with a California labor law requiring them to reclassify contract drivers and give them the benefits and protections of regular employees.

Now a state appeals court has granted an 11th-hour reprieve, agreeing that Uber and Lyft can keep their business models in place while challenging the judge’s order to comply with a state labor law, Bloomberg reported.

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Uber CEO Dara Khosrowshahi rejected the idea that his company is capable of employing all its drivers in California, The Verge reported.

“We can’t go out and hire 50,000 people overnight,” Khosrowshahi said on the Pivot School podcast hosted by Kara Swisher and Scott Galloway. “Everything that we have built is based on this platform that … brings people who want transportation or delivery together. You can’t flip that overnight.”

The appeals court scheduled arguments for Oct. 13.

Lyft’s stock fell 8.5 percent at one point Thursday but rose as much as 8.6 percent on the news. Uber’s shares fell 3.2 percent before gaining 7.75 percent.

Uber and Lyft have known for more than two years that they could be running out of time. The state’s highest court created a new standard in 2018 for classifying workers, especially in gig companies. The new labor law effectively codifies that court ruling, Greg Bensinger wrote in a New York Times opinion piece titled “Uber and Lyft Just Can’t Stop Flouting the Law.”

Both have spent millions lobbying against the law while simultaneously arguing that it doesn’t apply to them because they are nothing more than digital marketplaces for connecting drivers with riders, Bensinger wrote.

“It’s nice to be billion dollar company. The hair salons don’t have it this good. They have to make their contractors employees,” Kyle T tweeted

In 2016, Uber and Lyft suspended service in Austin over a new background check law they said would prolong their process of signing up drivers. They regained much of their customer base when they returned after the state reversed the law, MSNBC reported.

Now they have time to campaign for a California ballot measure set for a statewide vote in November that would free app-based transportation and delivery companies from the broad requirements of the law known as Assembly Bill 5.

California Superior Court Judge Ethan Schulman ordered Uber and Lyft to comply with Assembly Bill 5. In his ruling, Schulman dismissed Uber’s argument that it was a tech platform and that drivers were not core to its business.

“To state the obvious, drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business,” Schulman wrote.

Khosrowshahi confirmed reports that Uber was looking into other business models such as a franchise-style system where the company would license its brand to fleet operators in California.

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The current business model has been unsustainable so far, Andrew J. Hawkins wrote for The Verge. “Uber has never been profitable, routinely losing billions of dollars every quarter. And the company has long been accused of exacerbating income inequality in the country by helping popularize a system in which it uses independent contractors who aren’t eligible for traditional employee benefits.”

Uber drivers are not employees, Khosrowshahi argued during the podcast. “They can decide when to work … This idea that, oh you can have flexibility with employment at the same time, it’s just false on the face of it.”

As of Oct. 1, Lyft said it had about 305,000 drivers in California who completed trips within the past year, CNBC reported. The coronavirus pandemic has likely reduced that number.

Uber said in a recent blog post that it has 209,000 active drivers in California.

Read more: Hedge Fund Manager And Biden Advisor Is Shorting Uber On Coming Regulatory Pressures