Ride-hailing firms weigh options

Uber, Lyft look at brand-license model to skirt California law

OAKLAND, Calif. — Uber and Lyft, which are facing mounting pressure to classify their freelance drivers as full-time employees in California, are looking for another way.

One option both companies are seriously considering is licensing their brands to operators of vehicle fleets in California, according to three people with knowledge of the plans.

The change would resemble an independently operated franchise, allowing Uber and Lyft to keep an arms-length association with drivers so the companies would not need to employ them and pay their benefits.

Lyft has presented the plan to its board of directors, one person said. Uber, which already works with fleet operators in Germany and Spain, is also familiar with the business model.

The companies have not committed to the franchiselike plans, said the people with knowledge of the discussions, who asked to remain anonymous because the details are confidential. Uber and Lyft are waiting to see how California’s legal situation around drivers, who have been treated as independent contractors, plays out first, they said.

Matt Kallman, an Uber spokesman, said the work on establishing fleets was “exploratory” and that the company was “not sure whether a fleet model would ultimately be viable in California.”

A Lyft spokeswoman, Julie Wood, said the company had looked at alternative models but favored an approach in which drivers “remain independent and can work whenever they want while also receiving additional health care benefits and an earnings guarantee.”

The ride-hailing giants are considering how to retool their businesses as they grapple with a new California law that could upend their services. The law, which was designed to grant employment benefits to gig workers, could force Uber and Lyft to categorize drivers as employees if it were shown that the drivers’ jobs were part of the companies’ core business, among other criteria.

Although the law went into effect in January, Uber and Lyft have not complied with it, arguing that they are simply tech platforms and are not transportation businesses. In May, California sued Uber and Lyft to enforce the law.

Their clash with the state is set to come to a head this week. This month, a San Francisco superior court judge ordered the companies to employ their drivers by Thursday. Executives at Uber and Lyft, who have argued they cannot meet that deadline, have appealed the decision and warned that they will be forced to shut down their services as soon as Friday if the order is not reversed.

“If our efforts here are not successful, it would force us to suspend operations in California,” John Zimmer, Lyft’s president, said in an earnings call last week.

California accounts for about 16% of Lyft’s business, he said.

Dara Khosrowshahi, Uber’s chief executive, said last week in an MSNBC interview that the company’s ride-hailing services in California will stop, at least temporarily, if the order is not changed.

“It’s a fork-in-the-road situation,” said Dan Ives, a managing director at Wedbush

Securities who tracks the ride-hailing industry. “These are some of the tough decisions they need to make to save their business model.”

Uber and Lyft, which are based in San Francisco, have long considered their drivers to be contractors. That means the drivers are responsible for their own vehicle and maintenance costs and that Uber and Lyft do not pay for overtime, unemployment insurance or other expenses.

The companies have argued that this freelance model allows drivers to work only when they want to. But critics have said it places unreasonable financial burdens on drivers and gives Uber and Lyft unfair advantages over businesses that follow employment laws.

Uber and Lyft have poured tens of millions of dollars into a ballot measure that would exempt them from the California law. Uber has also made changes to its product, such as showing fares to drivers upfront and allowing them to decline rides without facing penalties, to reinforce their status as independent contractors.