June 8, 2022

Uber and Lyft say they could shut down in California if forced to classify drivers as employees

Uber Technologies Inc. and Lyft Inc. warned Wednesday of plans to potentially shut down their California operations if they are forced to recognize drivers as employees in the state.

Both companies are appealing a judge’s decision decision requiring drivers to be classified as employees rather than contractors. The judge gave Uber and Lyft 10 days to appeal before his order takes effect.

Uber UBER CEO Dara Khosrowshahi warned in an interview on MSNBC on Wednesday that the company’s ride-sharing service could be closed in California until November. Khosrowshahi said it would be “unfortunate” but what the injunction granted on Monday would require would be difficult for Uber to get out of it quickly.

“If the court doesn’t reconsider, then in California, it’s hard to believe that we can quickly transition from our model to full-time employment,” he said. “We can’t go out and hire tens of thousands of people directly overnight.”

After announcing its results on Wednesday afternoon, Lyft Chairman John Zimmer said on a conference call that losing a call “would force us to suspend our operations in California.”

The key to appealing this week’s decision is whether the injunction granted by the judge is mandatory, as the company argues, or prohibitive. If it is the first case, an appeal would automatically trigger a stay; if it is the latter, they can continue his appeal but will have to comply with the restraining order in the meantime.

DA Davidson analyst Tom White said in an interview on Wednesday that “investors should be prepared for the likelihood of both companies going out of business in California.” California accounts for 16% of Lyft’s ridesharing business and 9% of Uber’s gross ride and delivery bookings.

Uber’s CEO stressed that the company doesn’t think it’s likely to lose the appeal. If so, he said Uber would have to shut down until November. That’s when California voters are ready to consider Proposition 22, which would exempt Uber, Lyft Inc. LYFT,
and other gig-economy companies Assembly Bill 5, a California law that would require them to classify their drivers and delivery people as employees but promises them certain concessions. AB 5, passed in May 2019, is based on a California Supreme Court ruling over two years ago that changed employee classification standards in the state.

The companies are challenging AB 5, which went into effect earlier this year, but it could be several months before the United States Court of Appeals for the Ninth Circuit in San Francisco hears it. ‘call. In the meantime, California Attorney General Xavier Becerra and city prosecutors in San Francisco, Los Angeles and San Diego have sought an immediate injunction to force Uber and Lyft to comply with AB 5, which the Superior Court Judge in San Francisco’s Ethan Schulman granted on Monday.

When reached for comment on Wednesday, an Uber spokesperson said Khosrowshahi’s comments were consistent with a stay motion the company filed in court on Tuesday, in which it said a shutdown “would irreparably harm Uber and all those who rely on its Rides app to generate income for them and their families – especially in the midst of a pandemic.

Mostafa Maklad, an Uber driver in San Francisco and head of Gig Worker Rising, on Wednesday called Khosrowshahi’s remarks a threat “that won’t work.”

“It will be their downfall because San Francisco and Los Angeles are their biggest markets,” he said in an interview. A possible shutdown “will not be an easy transition for workers, but we will get through it together,” he added.

In an email Wednesday, Khosrowshahi urged drivers to vote for Proposition 22, which Rideshare Drivers United organizer Erica Mighetto said “makes a demand of drivers that will harm them beyond repair.”

Uber said in its filing that “it would take millions of dollars and months of effort to restructure Uber Rides’ business model,” and outlined the necessary steps, including transforming the Rides app from of a platform that “drivers can choose to use or deactivate”. as they please” to “a taxi-style employment system” and building a human resources system to onboard employees and track driver hours and wages.

Opinion: Uber and Lyft’s “judgment day” is finally here

During the injunction audience Last week, Matthew Goldberg, assistant city attorney for the San Francisco City Attorney’s Office, argued that Uber and Lyft already have large white-collar workforces and human resources departments.

“The defendants greatly exaggerated what would be required” to upgrade their drivers to employee status, he said. “These companies are already doing a lot of the things that legal employers do.”

Uber shares fell 1.2% on Wednesday, while Lyft shares were down 0.4%. Lyft shares initially rose in after-hours trading on Wednesday after the company reported lower-than-expected quarterly losses, but turned lower on the conference call.

In a note to customers on Monday after the judge’s ruling, Deutsche Bank analysts said they don’t believe a possible short-term shutdown in California would be a big financial hit for Uber as demand continues. to be weak in the state during the COVID-19 pandemic. .

Still, they said “this is obviously not the company’s ideal outcome.”