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Uber, Lyft threaten California shutdown over driver status

California represents a substantial chunk of both companies’ businesses.
Uber driver
Barring a last-minute reprieve from the appeals court, the shutdown would be a major blow to Uber and Lyft.Russell Hart / Alamy
/ Source: AP (Associated Press)

Ride-hailing giants Uber and Lyft are saying they will shut down their California operations if a new law goes into effect overnight that would force both companies to classify their drivers as employees.

Lyft told riders and drivers Thursday that it plans to discontinue providing rides in California just before midnight tonight, unless a court grants a stay in a pending case.

Barring a last-minute reprieve from the appeals court, the shutdown would be a major blow to two companies that still haven't proven they can make money, even as they have held down their expenses by treating drivers as independent contractors who don't receive the same benefits as their full-time employees.

California represents a substantial chunk of both companies’ businesses. It accounted for 9% of Uber's worldwide rides before the pandemic caused people to avoid traveling. The state is even more important to Lyft, which doesn't operate outside of the U.S. besides Canada. California accounted for 21% of Lyft's rides before the pandemic.

At issue is a decision that could re-shape the so-called gig economy as drivers, delivery workers and others who work for popular apps on an as-needed basis seek improved working conditions and benefits that many in the workforce enjoy.

Both companies are hoping for a stay of an earlier court decision that ruled they must start treating their drivers as employees, not independent contractors, by Friday morning. Both appealed and sought a stay on the decision until the case makes its way through the court, and they're waiting to see if that's granted.

The San Francisco-based companies said it would be impossible to convert hundreds of thousands of drivers from independent contractors into full-fledged employees overnight.

Earlier this month, San Francisco Superior Court Judge Ethan P. Schulman ordered Uber and Lyft to make the employment classification change for their California drivers, which would guarantee benefits like overtime, sick leave and expense reimbursement. That ruling doesn’t affect Uber’s growing Eats business, so regardless of what happens with the case, Uber will continue delivering food.

Schulman's decision followed a new California law aimed at companies that employ so-called gig workers. It says companies can only classify workers as contractors if they perform work outside the usual scope of their business. California Attorney General Xavier Becerra and several city attorneys sued Uber and Lyft, saying they were violating that law.

The ride-hailing companies have argued that they’re technology companies, not transportation companies, so drivers are not a core part of their business. They also vowed to spend more than a hundred million dollars to support a November ballot measure seeking to exempt them from the law.

California officials say treating drivers as contractors harms more than just drivers, since the companies don’t contribute to the state’s dwindling unemployment insurance fund on the drivers’ behalf.