Uber, Lyft threaten to suspend service in state over driver reclassification.
Both Uber and Lyft would press pause on their California service if they’re forced to reclassify drivers as employees, the companies said Wednesday.
Uber CEO Dara Khosrowshahi said in an interview on MSNBC that the ridehailing service likely would temporarily halt California operations until at least November if it’s forced to reclassify drivers as employees.
Lyft President John Zimmer made similar remarks on Lyft’s secondquarter earnings call.
San Francisco Superior Court Judge Ethan Schulman on Monday granted California’s request for a preliminary injunction saying that Uber and rival Lyft must make drivers employees rather than independent contractors. Schulman stayed that order for 10 days, giving the companies time to appeal, as both said they will.
Uber and Lyft hope an appellate court will
stay the injunction while they battle California and three city attorneys in court over the classification issue related to AB5, the 2019 state bill that made it harder for companies to claim that workers are independent contractors. The state and cities sued Uber and Lyft in May, and had sought the injunction even before a trial in the case.
Khosrowshahi said that if the injunction stands, Uber likely would cease California service until November when voters weigh in on Proposition 22, a ballot initiative that would keep drivers as freelancers entitled to some benefits and earnings guarantees.
“If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to fulltime employment quickly,” Khosrowshahi said in an interview on MSNBC.
Zimmer directly linked the suspension to the election.
“If our efforts here are not successful, it would force us to suspend operations in California,” Zimmer said, referring to Lyft’s appeal seeking a stay of the injunction. “Fortunately California voters can make their voices heard by voting Yes on Prop. 22 in November.”
Pausing service — or raising the prospect of doing so — could be playing hardball to try to pass Prop. 22, said David McCuan, a political science professor at Sonoma State University.
“They are using aggressive bullying tactics to get people to do what they want,” he said.
But such tactics can be counterproductive, said McCuan, who studies California ballot measures.
“Forcing voters into a corner causes voters to feel pressure, and often they backlash against that,” he said. “They want to be asked to dance, not bullied into it.”
Uber and Lyft have each put up $30 million to push Prop. 22, with $50 million more coming from DoorDash, Instacart and Postmates.
“Any business model that relies on shortchanging workers in order to make it probably shouldn’t be anywhere, whether California or otherwise,” California Attorney General Xavier Becerra told CNBC on Tuesday.
Pausing service now is not as drastic as it sounds, since both companies are operating at partial capacity.
Uber and Lyft have seen a massive drop in demand over the past six months, with businesses shuttered and consumers staying home during the coronavirus pandemic. Ride bookings revenue fell 73% to $3 billion in the second quarter compared to the previous year, Uber said last week. The company lost $1.8 billion during that time.
Lyft said Wednesday that its secondquarter revenues plunged 61% compared to the same time last year. It lost $437 million on revenues of $339 million from April to June. One potential harbinger of some recovery: Rides were up 78% in July compared to April’s low.
California, the most populous state, and the first market and home for both Uber and Lyft, is a crucial market to them.
Lyft said, however, that the West Coast has been the slowest area to rebound. California now makes up about 16% of total rides, Lyft said. So far in August, the state’s share of the company’s rides is down 5 full percentage points from a year ago, it said. In the most recent week, both San Francisco and San Jose were down 77% compared with the same period last year.
The companies have moved out elsewhere over regulatory issues. Uber and Lyft pulled out of Austin, Texas, in May 2016 to protest a city rule requiring them to fingerprint their drivers. They returned a year later after successfully lobbying for a statewide ridehailing law that they found more favorable.
If Uber did pause in California, it would focus on cities after restoring service, Khosrowshahi said, meaning that suburbs and rural areas might have fewer rides available.
Similarly, Zimmer said that entire regions would lose access to Uber and Lyft services if drivers became employees.
“Lyft cannot comply with the injunction at the flip of a switch,” Zimmer said. Reclassifying tens of thousands of drivers would be difficult at normal times; during a pandemic, “it’s nearly impossible,” he said.
Uber likewise had already said that it could not possibly rehire all its California drivers as employees within a matter of days. It has more than 100,000 drivers in the state, but has also said that it likely would jettison 80% to 90% of them with an employment model, keeping those who put in fulltime hours.
Khosrowshahi acknowledged that any disruption to operations would mean an earnings loss for drivers. The laborbacked No on Prop. 22 campaign was quick to seize on that.
“Uber’s threat to heap even more hardship on tens of thousands of employees rather than comply with the law is stunning,” said Art Pulaski, executive secretary treasurer of the California Labor Federation.