A driver wears his face mask as Uber and Lyft drivers with Rideshare Drivers United and the Transport Workers Union of America carry out a ‘caravan protest’ outside the California Department of Labor’s office amid the April 16 coronavirus pandemic 2020 in Los Angeles, California. (Photo by Mario Tama / Getty Images)
Mario Tama
Lyft will suspend service in California at 11:59 a.m. Pacific Time Thursday after a court last week upheld a privilege asking it to classify drivers as employees, the company said in a blog post. The order was kept for ten days while the companies appealed, but is set to go into effect Friday.
Top executives at Uber and Lyft warned last week that they would likely have to suspend service to comply with the court order, which could lead to them restructuring their operations and re-hiring workers.
Uber has not yet made a formal announcement about service delivery in California, but it is expected to do so.
Lyft’s stock was 8% after the news on Thursday. Uber shares were down 3%.
The information was part of a lawsuit filed by California Attorney General and three city attorneys who argued that Uber and Lyft had expenses for workers by falsely classifying them as contractors rather than as employees. A judge denied the state’s request for a conviction, saying he was not convinced the companies met one of the key standards of the new state labor law, Assembly Bill 5 (AB5), which states that contractors must do work outside the normal course of the rental business.
Uber had plans to continue its food delivery service in California, even during the suspension period, an Uber executive Eater said last week. The promotion is intended for speeding drivers, but control over food delivery services has already gone up under AB5, with the San Francisco District Attorney submitting the app-based delivery service DoorDash for statement of workers.
Uber and Lyft have a chance to prevent further legal action under AB5 with a voting measure they support in November. If voters support Proposition 22, Uber, Lyft and other app-based ride-hail and food delivery services will be exempt from AB5. The measure also provides additional benefits for gig workers at such services.
While a suspension could support support for the voting measure if riders miss the services, it will also present the opportunity for competitors to sneak in. Two start-ups, Alto and Arcade City, have accelerated plans to enter California amid the legal battle. Even existing services and taxi drivers could take the opportunity to regain market share. Ridership over the entire stock, however, is already low, as travel has been halted during the coronavirus pandemic.
However, a similar situation played out in Austin in 2016 when Uber and Lyft stopped services there over a new background check law, which they said would extend their driver registration process. While several new services took hold, the two giants regained much of their customer base when they returned after the state overturned the law.
In its blog post, Lyft encouraged voters to support Proposition 22 in November. It also said California residents could still use the Lyft app for bike, scooter and car rentals.
This story unfolds. Check back for updates.
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