Uber and Lyft threaten to shut down in California

Uber and Lyft threatened to suspend ride-hailing services throughout California on Thursday night, a defiant reaction to a judge who ordered the companies to reclassify their drivers as employees.

The ride-hailing blackout, which might begin at midnight Pacific Time, could drag on for weeks, as Uber and Lyft battle a state labor law intended to give employment benefits to gig workers. An appeals court is weighing the companies’ requests to overturn the judge’s decision, but it is not clear when the court will issue a ruling.

State officials said the companies must comply with the law, known as Assembly Bill 5, so that workers have access to sick leave, overtime and other benefits — a need that has become more dire during the coronavirus pandemic.

But Uber and Lyft have argued that employing drivers would have a catastrophic effect on their businesses, forcing them to raise fares and hire only a small fraction of the drivers who currently work for them. They would temporarily shutter the businesses rather than comply, they said.

“This is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips,” Lyft said in a blog post. “We are going to keep up the fight for a benefits model that works for all drivers and our riders.”

Uber and Lyft have long categorized drivers as independent contractors, an arrangement that the companies say allows drivers to have more control over where and when they drive. But this model imposes a financial burden on drivers, who are responsible for their own vehicle maintenance, health insurance and other expenses that employers traditionally cover.

Last year, the California Legislature passed AB 5 in an attempt to set clearer employment standards for the state and rein in gig-economy giants like Uber. Legislators argued that Uber shortchanged its drivers and exploited an unfair advantage over law-abiding businesses in the state.

Although the law went into effect in January, Uber and Lyft did not change their practices. They argued that AB 5 did not apply to them and spent tens of millions of dollars on a ballot initiative that, if passed in November, would exempt them from the law.

In May, California’s attorney general sued Uber and Lyft to force them to comply with AB 5. The standoff came to a head last week when a San Francisco Superior Court judge, Ethan Schulman, sided with the state, ordering Uber and Lyft to reclassify their drivers by Thursday.

Uber and Lyft have argued that they are technology companies and that drivers are not a core part of their business. But that “flies in the face of economic reality and common sense,” Schulman wrote in his ruling. “Were this reasoning to be accepted, 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.”

“The court has weighed in and agreed: Uber and Lyft need to put a stop to unlawful misclassification of their drivers while our litigation continues,” said the California attorney general, Xavier Becerra. “Our state and workers shouldn’t have to foot the bill when big businesses try to skip out on their responsibilities.”

Rather than hire drivers, Uber and Lyft will shut down. The decision is likely to cause the businesses, which have already struggled financially because of travel restrictions during the pandemic, to lose even more money.

San Francisco and Los Angeles are among Uber’s largest markets, and Lyft has said it draws about 16% of its business from California. Uber planned to continue operating Uber Eats, its food delivery service, which has bolstered its revenue during the pandemic, a spokesman said.

Although the potential shutdown felt drastic to drivers and riders who depend on Uber and Lyft, the move is not without precedent. The companies have terminated their services in other regions rather than complying with local laws they oppose. The shutdowns have often pressured local governments to pass laws that are more friendly to Uber and Lyft.

In 2016, Uber and Lyft shut down in Austin, Texas, to protest an ordinance that required background checks that used fingerprints for drivers. They returned the next year after Texas passed a statewide law that excludes fingerprinting from the background check requirements.

That strategy could work again for Uber and Lyft if California voters approve the ballot measure in November. If the companies lose that vote, they are considering plans to establish franchiselike operations in California, inviting third parties to hire their drivers.