Uber and Lyft can't stop flouting the law

Ride-hailing apps Uber and Lyft have long disingenuously insisted that they are not transportation companies. This is a legal strategy that, so far, has allowed them to label their legions of drivers contract workers, depriving them of company-backed benefits like health care, paid leave and severance pay.

But as of Thursday, at least in California, Uber and Lyft may finally be able to state honestly they are not in the business of arranging rides. That’s because they say they have no choice but to shutter operations in one of their largest markets after a state judge ordered them to comply with a new California law requiring them to reclassify contract drivers and grant them the benefits and protections afforded to regular employees.

The companies argue that they don’t have the ability to comply with the law by the deadline. Uber said it would need a year or more to rejigger its operations to comply. Unless a stay of the judge’s order is granted, “we would have no choice but to shut down ride-sharing in California, while we work to implement a dramatically different service than what hundreds of thousands of drivers have grown accustomed to or tell us that they want,” said Noah Edwardsen, an Uber spokesman.

While Uber is complaining that it hasn’t had enough time, the writing was on the wall for Uber and Lyft in California more than two years ago, when the state’s highest court created a new standard for classifying workers that strongly implicated gig companies. The new law effectively codifies that court ruling.

Last fall, Uber made changes to its app to give the appearance of more independence for drivers in anticipation of the state law’s taking effect in January.

Lyft and Uber spent millions lobbying against the law while simultaneously arguing that it doesn’t apply to them because they are nothing more than digital marketplaces for connecting drivers with riders.

In May, the state sued Uber and Lyft over their defiance of the law. This has not gone well for the companies. “To state the obvious, drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business,” wrote Judge Ethan Schulman of California Superior Court, who last week gave the companies until Thursday to comply.

If the companies’ argument that they are just digital “matchmakers” were to stick, Schulman wrote, “the rapidly expanding majority of industries that rely heavily on technology could with impunity deprive legions of workers of the basic protections afforded to employees by state labor and employment laws.”

This is not the first time Uber and Lyft have threatened to pull out of a market over legislation they oppose. Maryland legislators backed off a proposal to bolster background checks for gig workers with fingerprinting after Uber warned it would leave the state. And after a multimillion-dollar campaign led by Uber and Lyft against fingerprint background checks for drivers failed to sway voters in Austin, Texas, the companies left for a year until a state law was passed in their favor.

This time, however, Uber and Lyft are fighting with diminished leverage as the coronavirus pandemic and shelter-in-place orders have made ride-share volume nose-dive. At one point in the fight against the California law, Uber’s chief attorney unleashed a corker, arguing that “drivers’ work is outside the usual course of Uber’s business.”

Central to the ride-hailing companies’ argument against the state law is that drivers would lose the flexibility they cherish — the ability to log into the app when they choose to see if there is a desirable fare. But labor experts say Uber and Lyft could classify drivers as employees while still providing them flexible work schedules.

“There are countless companies that offer part-time work and a range of benefits based on how much you work,” said William B. Gould IV, a Stanford University law professor and former National Labor Relations Board chairman. “What these companies have created isn’t innovation, it’s exploitation.”

Uber and Lyft note that in surveys, the majority of drivers say they prefer the contractor model. But this elides the fact that most drivers log just a few hours per week or per month, while a smaller group of full-time drivers account for the vast majority of rides and hours logged on the app. Those full-time workers are effectively employees without any of the benefits of being employees.

The more compelling argument against the California law may be that the higher costs of paying for guaranteed wages and benefits will have to be passed along to passengers. But the truth is that these companies have trained customers to expect artificially low fares, and it’s time riders dug deeper into their wallets to reflect the real cost of taking an Uber or a Lyft.

This could be beneficial for the companies as well: By subsidizing the rides, Uber and Lyft have racked up billions in losses. They appear to be biding their time until ubiquitous self-driving cars mean they can eliminate drivers once and for all.

And even under the contract worker model, there is little evidence that Uber and Lyft have a sustainable business model. Together, they lost a staggering $11.1 billion last year and another $3.3 billion in this year’s first quarter before the full force of the pandemic took hold. It’s likely they would have to raise fares soon anyway.

In a New York Times op-ed essay this month, Dara Khosrowshahi, chief executive of Uber, argued that “gig workers deserve better.” Indeed. But time and again, Uber’s drivers have borne the brunt of the company’s whims.

For example, Uber doesn’t pay into state unemployment funds for drivers, meaning the workers were reliant on federal assistance when the pandemic struck. And drivers have complained that the companies can cut off access to the app suddenly and without recourse, change fare structures and dictate precisely what routes to take. When drivers considered forming a union in Seattle, Uber bombarded them with anti-union messaging in the app.

Now the two companies are weighing adopting a franchise model in California that would make them reliant on fleet operators to handle rides. Doing so would likely cut off thousands of drivers, The Times reported.

Khosrowshahi says a third model of employment is necessary, in which the companies could pay into a fund that drivers can use for health care or sick leave while remaining contractors. The notion, floated since California’s law went into effect, will be considered by voters in a ballot measure in November. The measure appears to be a rollback of protections and benefits that drivers should be getting under the state law.

The ride-hailing companies have been flouting that law since January, hoping for a bailout from the courts or from voters this fall.

“Saying this doesn’t apply to them has no basis in law, and that’s been backed up by the court,” said Catherine Fisk, a law professor at the University of California, Berkeley. “If they cannot provide a business that complies with the law, they need to get out of that business.”