Just as business showed signs of picking up for drivers in California with ride-share, it could disappear completely by Friday – with a recent attempt by Uber and Lyft hampered to set a deadline for a court to reclassify its workers as employees in place of contractors.
A Superior Court judge has given the companies until the end of Thursday to make the switch, paving the way for drivers to receive health care, sick pay and other benefits in accordance with state AB5 law. Uber and Lyft say such a move would be impossible, insisting that their business models cannot be changed on the “flick of a switch” and arguing that they have no alternative but to close by Friday.
In an attempt to buy some time, both Uber and Lyft are now seeking a higher appeal to issue an emergency stay that would delay the deadline while their appeal is heard. A decision on that should come in the coming days.
For now, however, the two are facing one of their biggest existential crises to date, with their operations hanging in the balance, their drivers on the brink of months without work, and the risk that the political tide could turn if it’s a ‘gig economy’ business model. What is emerging in California – the home state of Uber and Lyft – could also have far-reaching effects on gambling economy legislation elsewhere.
“The consequences for drivers and the public of the imposing shutdown will be catastrophic,” Uber warned in the wake, saying “hundreds of thousands” of workers in California were in danger. “Uber can not hire and board the hundreds of thousands of drivers who have signed up to use the app. . . it will take at least several months to make the necessary changes. ”
The high stakes will be a factor likely to weigh on the court’s decision, suggested Beth Ross, a lawyer and leading specialist in employment law.
“The damage that would result from shutting down operations would not hurt the companies, but would be inflicted on workers,” she told the FT. “And that’s something that justice officials, like people, will stop and think about.”
‘Not the right model’
Converting drivers to employees is not an easy process. New systems would be mandatory for recruitment and training – costing the companies they would pass on to riders, and increasing prices by 20 to 120 percent.
The introduction only deals with drivers of Uber and Lyft with ride share, which means that the food company Uber, Eats, can continue to operate. Uber said the drivers’ direction was that of the company, which has been a major source of revenue since the pandemic. Lyft does not have a food delivery company.
For both companies, California – although one of the slowest areas in the country to see signs of recovery from Covid-19 – is still a very important market. In a recent petition, Lyft said the state represented 16 percent of its total revenue.
“The big question is, how long do they last?” said Ygal Arounian, research analyst with Wedbush. “Uber and Lyft both have the same end goal, they want that approach on the middle ground. They do not want to classify all their drivers as employees because I think they really believe this is not the right model. ”
Uber and Lyft have a record of abandoned brands due to political and legal pressure, and previous field battles have ultimately allowed the companies to get their way.
In May 2016, for example, companies from Austin, Texas, opposed a request to obtain fingerprint data on drivers – a year later returned to the city after successfully backing a state-level law that the one they had objected to made in Austin.
But concerns about workers’ rights probably do not seem to go away so easily, with political momentum behind efforts to force gig-economy companies to provide greater support to workers.
Last week in Seattle, the city’s mayor announced a plan to maintain a minimum hourly wage for drivers, what Lyft called “unworkable.” In the UK, Uber last month appealed to the Supreme Court to argue that its 60,000 drivers in the country are contractors, not employees.
Against the California state attorney, backed by city attorneys from San Francisco, San Diego and Los Angeles, Uber and Lyft look heavy on the back foot. In shocking written remarks shared last week, Judge Ethan Schulman wrote that there was an “overwhelming chance” that prosecutors would take precedence, and dismissed core arguments in the defense of Uber and Lyft as “nonsense” that “flies in” the face of economic reality and common sense “.
The next battle
Yet while their services in the state could be seen as a disaster for Uber and Lyft, the move could actually give them a chance to win a bigger prize: stronger public support for a new law for gig economics in California , to vote on this November.
Proposition 22 would constitute an exception of AB5 for app-based workers, and anything that might happen in this present case, which might not be closed to the vote. It would entitle drivers who are classified as contractors to some benefits – such as a “minimum wage guarantee” that exceeds the minimum wage – although not all those are currently claimed by the state.
“This could give companies with shares more tangible data and examples to use in their lobbying efforts to drive voters to the ballot box and in their direction to Prop 22 on November 3,” read an investor note from Morgan Stanley. “In our minds, a successful Prop 22 vote is critical to the future of profitability in the ride-sharing industry.”
Consumers would “remember what life was like for Uber and Lyft,” Mr Arounian of Wedbush said. ‘I think that gives her a little more power. I think that will be an easier marketing campaign. ”
Several gig economy companies – not just Uber and Lyft – have given more than $ 110 million in backing Prop 22. Among them is DoorDash, the market-leading company for in-app delivery, even for the prospect of a preliminary injunction, in a separate case led by San Francisco District Attorney Chesa Boudin.
The public relations strategy to sell Prop 22 is well under way. In recent days, Lyft has emailed its customers in California urging them to “please stand by us and drivers” in support of the measure, citing research that says drivers are preferred want them to remain independent contractors – a sentiment of AB5 supporters, claiming that Uber and Lyft have mischaracterized the realities of what it would mean to be an employee.
Meanwhile, Uber CEO Dara Khosrowshahi – who last week wrote an op-ed in the New York Times to talk about the new law – lobbied drivers. He appeared on The Rideshare Guy, a popular podcast aimed at gig workers. The episode was immediately promoted to drivers via the Uber app.
Those drivers, who are already suffering from deserved earnings due to the pandemic, are worried that they are caught between political ambition and business interests.
“They have to figure it out,” said one driver, a Jordanian immigrant who was driving in San Francisco over the weekend, who asked not to be named. ‘There are just so many jobs. So many jobs. ”
