Lyft and Uber win 11th-hour reprieve, hours before planned shutdown

Lyft and Uber planned on shutting down at midnight tonight following a ruling stating they had to recognize their drivers as employees.

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Lyft and Uber live to fight another sunny Californian day, for now at least. Both companies were granted an 11-hour temporary reprieve from an order requiring them to recognize their drivers as employees by tomorrow, August 21. Lyft said earlier today it was suspending its operations in California come midnight following the order under California's new gig-worker law known as AB 5. Uber had planned to do likewise. Both companies were given 10 days from August 11 to comply with the order, which they said was not long enough time to make such a drastic change to their operations.

Uber and Lyft are hoping voters in November will pass Prop 22, an amendment to AB 5 that would exempt ridesharing companies from the law. A judge ruled that the two companies are not exempt from classifying their drivers as employees because drivers are essential to the functioning of their core businesses. Uber and Lyft say existing labor laws aren't designed for the app economy where drivers can offer rides on their own schedule.

Before November's ballot initiative, the appeals court will hear oral arguments in October over whether or not the ridesharing companies can be exempt from AB 5.

Someone has to pay — The business models of Uber and Lyft are dependent on classifying drivers as independent contractors because that means they don't have to pay out benefits or guaranteed hourly wages, which could increase their costs significantly. Right now, ridesharing companies don't offer their drivers sick leave or pay when cars are idle but argue that the flexibility they offer makes up for that. Uber CEO Dara Khosrowshahi has said if his company has to abide by AB 5 in California, it will have to increase prices dramatically, hurting consumers and potentially reducing demand (and, thus, pay) for drivers.

Uber and Lyft are hoping to create a third type of employment status between contractors and employees that would offer some benefits while keeping the flexibility drivers have of taking rides whenever they want. The thinking is that drivers who take rides less than 15-20 hours per week don't need benefits because the ability to make quick cash on the side is a benefit in and of itself, but drivers who work 30-40 hours per week are effectively employees and should get benefits. Drivers and regulators have said ridesharing companies can afford to pay out benefits already but don't want to.

Either way, prices will likely go up for riders. When you're only paying a couple dollars for a ride across town, someone is losing out — maybe the investors subsidizing ridesharing companies, but more realistically it's the driver who's getting shafted. The low fares riders are used to have always been a fantasy or subsidized rides in the name of land-grabbing.

The fight isn't over yet — As Lyft notes in its blog post, many Californians today have come to rely on ridesharing services. Nobody denies that Uber and Lyft improved the ride-hailing experience tremendously over the yellow taxis of yesteryear, and public backlash could end up being intense should a shutdown occur (though coronavirus might dampen that backlash somewhat). Uber has long depended on this to survive, with its former CEO Travis Kalanick admitting the company's strategy for years was to become popular in a city and then employ its loyal users to protest legislators whenever they tried to ban or curtail the service. Perhaps the whole model needs a relook. If Uber and Lyft can't afford to look after their drivers we dare say it's the model that's broken, not the law.

Unsurprisingly, Uber and Lyft had been pushing text messages and notifications to riders alerting them to the shutdowns. Maybe it worked. They have the playbook ready if the courts rule against them again come October.