Uber and Lyft Threaten to Shut Down Operation in California… but Not just Yet

Uber and Lyft get reprieve from court, won't shut down in ...

After a new controversial law altering the classification of workers in California was signed by Governor Gavin Newsom late last year, rideshare companies have threatened to shut down operations in the state. However, a new court ruling may have halted those plans.

To get the full picture, we need to step back almost a year to September 18th, 2019, when Californians were still allowed outside, where, according to ABC7, Gov. Newsom “signed sweeping labor legislation that aims to give wage and benefit protections to rideshare drivers at companies like Uber and Lyft and to workers across other industries.”

The bill makes it harder for companies to classify employees as contractors, a designation given to drivers and deliverymen of popular ridesharing and food delivery apps such as Uber, Lyft, and Grubhub. Drivers would be entitled to California’s minimum wage, which currently sits at $13 an hour and is slated to rise to $15 in the coming years, and would have access to workers compensation.

At the time, Newsom was also pushing to unionize ride-sharers so they could collectively bargain with employers.

Nationally, gig workers were considered independent contractors; employers were not responsible for any set minimum salary or benefits. California was the first in the nation to expand the classification of what an employee is. The vast majority of Uber drivers drive part time, working an average of 3-months and averaging 17-hours per week, according to the Economic Policy Institute. The majority of drivers drive less than 10 hours per week.

According to the HuffPost, “the law applies an ‘ABC’ test under which workers can be considered independent contractors only if (A) the workers are “free from the control and direction” of the company that hired them, (B) their work falls outside the usual business of the company and (C) they are engaged in work in an independent business of the same type as the company’s.”

Though the law went into effect January 1st, 2020, Uber and Lyft refused to reclassify drivers, claiming their drivers still passed the ‘test’ of being classified as independent contractors.

After a long legal fight, the duo were set to shut down all operation within the state Thursday at midnight, leaving tens of thousands of drivers without jobs. Lyft released a statement yesterday announcing their shocking move, claiming Newsom’s new policy would be too harmful to business to provide the same level of service in the state. Lyft is pushing for an alternative to the new law which would include “a minimum earnings guarantee, mileage reimbursement, a health care subsidy, and occupational accident insurance.”

In a last minute decision, a California judge issued a stay on the rule requiring ridesharing companies reclassify contractors as employees, allowing Uber and Lyft to remain in the state. According to Business Insider, “the companies are fighting the ruling, and had threatened to shut down if their stay request wasn’t granted after a 10-day injunction that’s set to expire Thursday night.”

The stay remains in effect until a court hearing which is scheduled for October. Until then, the status quo remains.

Voters will have their chance to either fight this new law, or support it. “In November, Californians will vote on Proposition 22, which Uber and Lyft, alongside other gig-work firms, have supported as an alternative to current labor law,” Business Insider added.

In an Op-Ed, Uber CEO wrote, “our current employment system is outdated and unfair. It forces every worker to choose between being an employee with more benefits but less flexibility, or an independent contractor with more flexibility but almost no safety net.” However, he argues against classifying drivers as employees saying, “Uber would only have full-time jobs for a small fraction of our current drivers and only be able to operate in many fewer cities than today. Rides would be more expensive, which would significantly reduce the number of rides people could take and, in turn, the number of drivers needed to provide those trips. Uber would not be as widely available to riders, and drivers would lose the flexibility they have today if they became employees.”