Uber have told their users in California that they may be suspending service in the state, after a judge ruled that ride-sharing companies must classify drivers in that state as employees rather than independent contractors.
An Uber user, Krista Maxwell, published a screenshot of the message on Twitter on Tuesday night, which read: ‘Ridesharing in CA may be suspended’.
She wrote: ‘Hey @Uber, you should think about classifying your drivers as employees.
‘A push notice like this makes me think of some kind of ham handed extortion attempt. Do the right thing.’
On August 10 Judge Ethan Schulman ruled that ride-sharing companies must classify their drivers as employees – a decision which Uber and Lyft fought, saying that drivers prefer the flexibility of working as freelancers.
The companies have saved millions of dollars each year with the designation, because treating workers as employees would require benefits such as minimum wage, paid sick and family leave, unemployment insurance and workers’ compensation insurance.
Labor unions and elected officials contend this deprives them of traditional benefits like health insurance and workers’ compensation.
The August 10 injunction was stayed for 10 days, however, giving Uber and Lyft an opportunity to appeal the decision – on August 13 they asked for more time to appeal, but their request was denied.
Uber and Lyft have indicated that they will both have to suspend service in California for several months beginning on August 20 if the injunction goes into effect on that date.
‘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,’ Uber CEO Dara Khosrowshahi told MSNBC on August 12.
‘We will have to shut down until November.’
Lyft co-founder and president John Zimmer issued the same warning about a probable shutdown on a call with investors.
‘We may appeal this ruling and request a further stay. If efforts here are not successful, we would be forced to suspend our operations in California,’ Zimmer said.
Xavier Becerra, the attorney general, had shrugged off the long-running threats of Uber and Lyft leaving the state in an interview with CNBC on August 11.
‘Any business model that relies on shortchanging workers in order to make it probably shouldn’t be anywhere, whether California or otherwise,’ he said.
In his August 10 ruling, Judge Schulman concluded that there is an ‘overwhelmingly likelihood’ that the Uber and Lyft are in violation of AB5, which requires companies to classify workers as employees if they controlled how workers did their jobs, or the work was part of their normal business.
Lawyers for the firms had said they are not violating the law because drivers are not fundamental to the business, arguing the companies are ‘multi-sided platforms’ whose activities encompass much more than transportation.
But Schulman rejected that argument, writing that it ‘flies in the face of economic reality and common sense’ and assailing the companies’ ‘prolonged and brazen refusal’ to comply with state law.
He also addressed the companies’ gripe that restructuring will take a long time and cost a lot of money, saying that low ridership during the pandemic means that now could be the best time for them to make changes.
Neither Uber nor Lyft is profitable, and both have suffered steep ridership declines during the coronavirus pandemic.
Shares in both firms took a hit.
Labor advocates praised Schulman’s ruling as a milestone in their fight to apply traditional worker protections to a fast-growing segment of the labor force.
‘This is a resounding victory for thousands of Uber and Lyft drivers who are working hard – and, in this pandemic, incurring risk every day – to provide for their families,’ Los Angeles City Attorney Mike Feuer said in a statement.
San Francisco District Attorney Chesa Boudin filed a lawsuit accusing DoorDash of violating AB5 in June, and on Wednesday sought an injunction against the company.
‘We are seeking an immediate end to DoorDash’s illegal behavior of failing to provide delivery workers with basic workplace protections,’ Boudin said.
‘All three branches of California’s government have already made clear that these workers are employees under California law and entitled to these important safeguards.’
A DoorDash spokesman responded to the motion by saying it was ill-timed and that the company’s internal data suggested the majority of its workers wanted to remain as contractors.
‘In the midst of one of the deepest economic recessions in our nation’s history, today’s action … threatens billions of dollars in earnings for California Dashers and revenue for restaurants that rely upon sales from delivery to keep their businesses open’, the spokesman told Reuters.
If the injunction is granted, DoorDash is expected to file an appeal.
Should they lose their respective appeals, Uber, Lyft and DoorDash will have to refocus their fight on a November ballot measure, Proposition 22, which would exempt certain gig economy companies from AB5.
Together with Instacart and Postmates, the companies are spending more than $110million to promote Proposition 22 and ensure that it passes.
Khosrowshahi, the Uber CEO, has warned that permanently restructuring its operations in California would result in ‘much smaller service [and] much higher prices’, hurting both drivers and customers.
‘That’s a reality, so it’s not a game of chicken one way or another,’ he said. ‘It’s really up to the courts and we’re going to comply with the law, and we will look to get going again.’
He said that service would have to pause for a few months, and when it resumed it would be much more limited and concentrated in cities rather than suburbs.
Khosrowshahi wrote an op-ed in the New York Times calling for states to require all gig economy companies to establish benefit funds for their workers instead of forcing them to classify workers as employees.
He called the current employment system ‘outdated and unfair’ and said 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’.
‘Uber is ready, right now, to pay more to give drivers new benefits and protections,’ Khosrowshahi wrote.
‘But America needs to change the status quo to protect all workers, not just one type of work.’