Uber and Lyft Battle California’s ‘Gig Worker’ Law

Both ride-hailing companies threaten to suspend operations in the state as early as Friday.

August 20, 2020

SAN FRANCISCO—Uber and Lyft said they may suspend their ride-hailing operations in California as soon as Friday, escalating a battle with the state government over how their drivers should be classified, the Wall Street Journal reports.

In May, California sued the two companies, alleging they were violating a new state law for “gig workers” that requires companies to treat workers as employees rather than independent contractors if they are controlled by their employer and contribute to its usual course of business. As employees, drivers would be eligible for sick days and other benefits.

Uber and Lyft, both based in San Francisco, argue they are technology platforms connecting riders with drivers, not transportation companies. They claim the drivers aren’t part of their usual course of business.

A state judge agreed with California last week and gave the companies until midnight this Friday to reclassify their drivers as employees. The companies appealed and requested the judgment be paused while it is being challenged. But unless an appeals court decides to stay the ruling, the deadline stands.

Uber Chief Executive Dara Khosrowshahi and Lyft President John Zimmer have said they would rather suspend operations in California than upend their businesses overnight. California voters can express their opinion through a ballot initiative in the November election. If passed, the initiative would exempt Uber and Lyft from the law.

Under the ballot measure, the companies also would have to guarantee certain protections to workers that currently don’t exist, such as giving drivers 30 cents for each mile driven to account for gas and other costs, health-care subsidies for drivers who work 15 hours or more a week and occupational-accident insurance coverage while on the job.

The companies argue that reclassification will require drivers to work prescheduled shifts, eliminating the flexibility they now enjoy. The two ride-share entities say they would be forced to consolidate their fleet to fewer drivers working more hours a week, drastically reducing their service to the suburbs where demand is spotty. In addition, they claim they would need to raise prices for rides to offset the expenses associated with recruiting, monitoring and managing driver operations.

Uber and Lyft insist that shifting to an employment model would force them to have fewer drivers who conform to a 40-hour workweek. Uber says fewer than 2% of its more than 200,000 drivers in California use its app for 40 hours or more a week. Lyft says 86% of its 300,000-plus drivers in California drive less than 20 hours a week.

Before the pandemic, ride-hailing in California accounted for 9% of Uber’s rides worldwide and 16% of Lyft’s. Uber reported a 75% year-over-year drop in rides in its second quarter. Lyft’s active riders fell by more than half over the same period.