OAKLAND, California – Uber and Lyft, who are facing mixed pressure to classify their freelance drivers as full-time employees in California, are looking for another way.
One option that both companies are seriously considering is licensing their brands to car fleet operators in California, according to three people with knowledge of the plans. The change would resemble an independently operated franchise, allowing Uber and Lyft to maintain an arms-long association with drivers so companies do not have to use them and pay for their benefits.
The idea would effectively be a return to the days of how groups of black cars were run. Lyft has presented the plan to its board, one person said. Uber, which already works with fleet operators in Germany and Spain, is also familiar with the business model.
The companies have not put themselves on the franchise-like plans, said the people with knowledge of the conversations, who asked to remain anonymous because the details are confidential. Uber and Lyft are waiting to see how California’s legal situation around drivers, who are treated as self-employed, plays out first, they said.
Matt Kallman, an Uber spokesman, said the work on setting up fleets was “exploratory” and that the company was “not sure if a fleet model would eventually be viable in California.”
A spokeswoman for the Lift, Julie Wood, said the company had seen alternative models, but proposed an approach where drivers “remain independent and can work whenever they want, while also receiving additional health care benefits and a guarantee”. for merit. “
The giants of the rides are considering how they can reorganize their businesses as they wrestle with a new law in California, Assembly Bill 5, that could increase their services. The law, designed to provide employment benefits to gig workers, could force Uber and Lyft to categorize drivers as employees if it was shown that the drivers ‘jobs were part of the companies’ core business, among other criteria.
Although the law went into effect in January, Uber and Lyft have not complied with them, claiming that they are just tech platforms and not transportation companies. In May, California sued Uber and Lyft to enforce the new law.
Their clash with the state is set to come to a head this week. This month, a judge in San Francisco Superior Court ordered the companies to use their drivers through Thursday. Managers at Uber and Lyft, who have claimed they cannot meet that deadline, have appealed the decision and warned that they would be forced to close their services on Friday if the order was not reversed.
“If our efforts here are not successful, it would force us to stop operations in California,” John Zimmer, president of Lyft, said last week in a call for a win. California earns about 16 percent of Lyft’s business, he said.
Dara Khosrowshahi, Uber’s chief executive, also said in an MSNBC interview last week that the company’s ride-hailing services in California would, at least temporarily, stop if the order was not changed.
“It’s a fork-in-the-road situation,” said Dan Ives, a managing director at Wedbush Securities who feels the driving sector. “These are some of the difficult decisions they have to make to save their business model.”
Uber and Lyft, based in San Francisco, have long considered their drivers contractors. This means that drivers are responsible for their own car and maintenance costs and that Uber and Lyft do not pay for overtime, unemployment insurance or other expenses.
The companies have argued that this freelance model allows drivers to drive only when they want to. But critics have said it places unforgivable financial burdens on drivers and gives Uber and Lyft unfair advantages over companies that follow employment laws.
Uber and Lyft have strongly objected to AB 5 and have been fighting for their reach. The companies have poured tens of millions of dollars into a voting measure that would exempt them from state law. Uber has also made changes to its product, such as introducing drivers’ tariffs and allowing driving without penalty penalties, to strengthen its status as self-employed contractors.
But behind the scenes, officials at Uber and Lyft also began discussing just-in-case options for their California businesses last year, said people with knowledge of the plans.
At Uber, many of the proposed ideas were code-named with the names of characters from the Mario Bros. video game, such as Luigi, the people said. The Washington Post previously reported on Project Luigi, which included the changes to Uber’s app that give drivers more control over rates.
Another option that drove policy teams at both companies was the franchise-like model, said the people with knowledge of the plans.
Under the proposal, Uber and Lyft would invite other companies to establish ride-healing fleets with their platforms. This could support the claims of the companies that they were just tech companies that built soberly shipped services and that the supply of transport lay outside their core business, and they protected against the requirements of AB 5.
At Uber, the effort drew inspiration from the company’s operations in Germany and Spain, where transportation rules have already forced it to work with fleets, Mr Kallman said.
Lyft based its plan on FedEx, which franchises some of its delivery routes to local operators, said current and former employees.
Uber and Lyft employees said the companies did not collaborate or share information about their plans with each other.
A franchise-like business can be challenging. Working with a fleet operator could increase costs because it introduces a third-party payroll that could potentially force Uber and Lyft to increase rates or reduce their service delivery, said current and former employees. The companies would probably also have to hand over some control over driver behavior, leaving them more vulnerable to reputational damage if a driver harassed a passenger when a car was dirty.
Another obstacle is that few fleet operators in California are large enough to take over the affairs of Uber and Lyft, in part because Uber and Lyft have previously disrupted taxis, black cars and similar operations.
For now, the companies have put their primary hope on the voting measure that would release them from AB 5, said employees and financial analysts. The initiative, Proposition 22, proposes standards for minimum wages and limited health benefits for drivers. It will appear on the California vote in November.
Whatever changes Uber and Lyft make to their companies to comply with AB 5 will ultimately be costly, said Mr Ives of Wedbush Securities. He estimated that it would cost Uber $ 500 million a year and Lyft $ 200 million a year. Both companies are already useless and have lost much of their ridership during the coronavirus pandemic.
“This legislation could really be a breakthrough,” Mr Ives said.
