The Uber and Lyft California shutdown

For services like Uber and Lyft, California is reportedly their largest market. Drivers for both services are regular drivers that are hoping to secure the same health and unemployment benefits afforded by other companies to other workers in the state. But Uber has said the labor law threatens to shut down the entire gig economy by substantially raising companies’ expenses.  

So, California’s attorney general and three city attorneys brought the lawsuit against the companies under the state’s new law, Assembly Bill 5, which aims to provide benefits to gig workers core to a company’s business by classifying them as employees. In his decision granting the preliminary injunction, the judge rejected the notion that drivers should be considered outside the course of the company’s businesses.

Just recently on Wednesday, Aug 12, 2020, Dara Khosrowshahi, CEO Uber Technologies Inc., threatened to temporarily shut down service in California if it loses a drawn-out fight over a state law seeking to reclassify contractors as employees. 

“If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly,” Khosrowshahi said.

Before then, Uber will continue a lengthy political and legal battle it has been waging since before the law was enacted this year. The company stated that it will appeal a court ruling Monday saying it must reclassify drivers as employees, and then it will ask voters in November to overturn the law.

According to a filing in San Francisco court, Uber has also asked the judge who issued the injunction to hold a hearing on Thursday for Uber to request that Monday’s order be put on hold for the duration of the appeals process.

In line with all this, Uber’s CEO, Khosrowshahi has advocated for what he calls a “third way” rather than classify drivers as employees. His way would maintain drivers’ independence while allowing companies to provide some protections without risking being viewed as full-time employers. He also added in a New York Times op-ed ahead of the court ruling that gig companies such as Uber could pay into a fund that workers could dip into for paid time off or health-care benefits based on the number of hours they work.

Uber, Lyft threaten to stop service in CA

He has also given out a detailed statement about what the service could look like if it’s forced to switch its employment model. He said, “It would take a significant amount of time to switch over. We have teams thinking about it, working on it. We don’t think it’s the likely outcome, by the way, and we would look to get back on the road as quickly as possible. You would just get a much smaller service, much higher prices, and probably a service that’s focused in the center of cities versus a bunch of the smaller cities or suburbs we operate in now.”

If Uber can’t win on appeal, Khosrowshahi said on Wednesday that his Plan B will take action – which is to ask the voters. They will be banking on voters to determine its fate. He added that if that’s the case, the service would more likely shut down in California until November when voters in the state decide on Preposition 22, which would exempt drivers for app-based transportation and delivery companies from being considered employees. 

Khosrowshahi emphasized that pausing service in the state would leave thousands of drivers without the income they would typically earn from Uber. Still, ridership has been down during the pandemic, which the judge said made the injunction come at what is perhaps “the least worst time” for Uber and Lyft to adjust their business models.

California’s Attorney General Xavier Becerra said in an interview on CNBC on Tuesday that, “Any business model that relies on shortchanging workers in order to make it, probably shouldn’t be anywhere, whether California or otherwise.”