Now Uber (UBER) en Lift (LIFT) bet again on a version of this playbook, as they face a heated legal battle in their home state over a new law that affects how much of the economy on demand classifies its workers.
The two companies have said they can stop their operations in California as soon as this week, while simultaneously pushing for a referendum in November to get them out of the law, known as AB-5. But industry regulators say the shutdown may not have the same impact on residents now that it once did in previous battles because of its steep drip into the pandemic’s driver.
“If a tree falls in the forest and there is no one to hear it, has it really happened?” said Bradley Tusk, a venture capitalist, political strategist and former regulatory adviser to Uber. “If voters did not know Uber or Lyft when they wanted it, that is one thing. But ridership is so drastically down. If this indicates a political scare, it will come from the drivers, not from the riders.”
Uber and Lyft’s threats to stop their businesses came after a California court ordered them last Monday to classify their drivers in the state as employees in 10 days. This reorganization would represent a radical shift for the two companies. They built up massive fleets of drivers by treating them as self-employed contractors. In this way, they were not entitled to benefits such as minimum wage, overtime pay, workers’ compensation, unemployment insurance and paid sick leave.
Uber CEO Dara Khosrowshahi said
last week that it would be “really, really sorry,” but the company would “essentially shut down Uber until November when voters decide” if it could not delay the order until the referendum vote. Not long after, Lyft-co-founder John Zimmer said at the company’s profit quarter that it would also be “forced to stop rideshare operations in California.”
“Lyft cannot follow the assessment at a flip of the switch,” Zimmer added.
At a time when Uber and Lyft are likely to have the least tax with riders, the stakes are the highest for companies to mobilize support for a more favorable solution. Both companies are struggling with sharp pandemic turnover reductions and have stories of steep losses. Now they risk losing access to a state whose economy is larger than most countries – or else overseeing their business models.
Moreover, if they lose the battle in their home state, it can only add momentum for other states to rethink legislation for the gig economy.
Under AB-5, which went into effect on January 1, companies must prove that workers are free from company control and perform work outside the normal course of business to classify workers as self-employed rather than as employees . Last week’s ruling is part of an ongoing lawsuit brought in May by California Attorney General Xavier Becerra and a coalition of city attorneys.
In their ideal world, Uber and Lyft would delay enforcement until California residents vote on the referendum, known as Prop 22, which the companies have each supported with tens of millions of dollars. If passed, it would exempt Uber, Lyft, Instacart, DoorDash and Uber-owned Postmates from the law, while giving drivers some additional benefits. (The other companies are not part of the ongoing legal behavior, so do not have the same deadline.)
But her first attempt at a profession proved unsuccessful. On Thursday, a judge in California denied her. Uber said it intends to revoke the order; Lyft filed a higher appeal Friday in an appellate court in California.
In the absence of a legal victory, closing is one way for Uber and Lyft to try to harness the power of their apps to move public opinion. And there is certainly a president for that. The companies have threatened to leave or leave a number of cities, including Chicago, Houston and Austin. In 2015, the company in New York posted a tab on its app to show New York riders what it would be like to wait 25 minutes for a car if the mayor’s proposed regulations went through.
But several sector watchers note that Uber and Lyft may be in a weaker position this time around. Uber’s revenue for driving after the second quarter of this year has decreased 67% from the same period a year earlier. Lyft’s business shrank steadily in the second quarter ending June, with its turnover falling 61% and ridership by almost the same amount.
A sharp drop in the driving force of the public health crisis can only be one part of their problem in this fight. Bruce Schaller, a transportation consultant and former transportation officer in New York City, said the public “is much more sympathetic to labor rights issues now related to these companies than they were five or six years ago,” with the recession and called pandemics, have increased concern for the plight of essential workers.
California is hardly the only legal challenge facing Uber and Lyft. Massachusetts has a law similar to AB-5 and the attorney general about it has recently sued the companies over employee declaration. Decisions in Pennsylvania and New York on unemployment insurance also go against the attitude of companies over employment. Last year, the New Jersey Labor Commissioner ruled that Uber owes $ 649 million in unintended unemployment insurance contributions as a result of drivers’ statements.
Terri Gerstein of the Harvard Labor and Worklife Program and Institute for Economic Policy asked the question of whether companies should also eventually withdraw from other markets where their business model is similar in limbo: “What is the long-term plan?”
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