Rideshare companies Uber and Lyft have said they could temporarily close operations if drivers are deemed employees, rather than contractors under a recently introduced Californian law.
Earlier this week, Lyft said publicly it would be forced to suspend operations in California to comply with a new state law called AB5. This recently-introduced law takes into account employee statuses as either contractors and employees, and says that those driving for Lyft and Uber should be classified as employees taking part in the gig-economy.
Uber, Lyft and other companies that use contractors to deliver goods and services via smartphone applications have stated previously that their drivers are classified as self-employed contractors, and therefore are not entitled to the same benefits as a full or part-time employee.
A California Appeals court just yesterday extended the deadline for Uber and Lyft to meet their obligations, a few hours before Lyft said it would suspend its operations. In a statement posted online, Lyft wrote that “this is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips.”
Lyft and Uber are now required to submit written plans for their worker and contractor policies by September, with the Court hearing arguments in October.
Lyft has said in the past that four-fifths of its drivers did not want to be classified as an employee, citing the freedom and flexibility that a contractor’s status enables, and adding that the company “cannot make the changes the injunction requires at the flip of a switch.”
“While we won’t have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers,” a Lyft spokesperson said.
California is set to vote on a controversial new bill – Proposition 22 – in November, which would see the creation of a fund to pay for healthcare and overtime for workers, while maintaining the flexibility of their contractor status.
According to a report from Yahoo News, the passage of Proposition 22 “would grant Uber and Lyft an exemption from the law.”
“That’s the solution on the ballot in November,” the Lyft statement reads. “It’s the solution drivers want because it preserves their ability to earn and use the platform as they do now – whenever they want – while also getting historic new benefits. Without it, 80-90% of Californians who earn on app-based platforms will lose that opportunity.”
Uber’s CEO Dara Khosrowshahi said at an event earlier this week that “we can’t go out and hire 50,000 people overnight… all of our models, everything that we have built, is based on this platform that brings earners and people who want transportation and delivery together. You can’t flip that stuff overnight. It will take time and we’re going to figure out a way to be in California.”
“We want to be in California, but if the court case comes in then we’ll have to shut down… we’ve got the best engineers in the world figuring out how we can rebuild this thing,” Mr Khosrowshahi said.
Daniel Ives, analyst at Wedbush Securities has told Business Insider that the extension “temporarily removes a major black cloud for ridesharing names.”
“The operational challenges of turning thousands of drivers from contractual workers to full-time employees overnight are significant and have essentially forced Lyft and soon Uber to pause in its backyard of California if the courts did not reverse course,” Ives said.
According to a statement from Lyft, “we are going to keep up the fight for a benefits model that works for all drivers and our riders. We’ve spent hundreds of hours meeting with policymakers and labor leaders to craft an alternative proposal for drivers that includes a minimum earnings guarantee, mileage reimbursement, a health care subsidy, and occupational accident insurance.”
The Californian Court of Appeals extension ends in October, where a court session will resume.