August 20, 2020
By Brett Wilkins
Update: A California appeals court on Thursday granted Uber and Lyft an emergency stay, meaning the injunction forcing the companies to reclassify drives will not go into effect at midnight, and the companies will be able to continue operating as they currently are. The court is reviewing the companies’ appeal, with oral court arguments scheduled for mid-October.
Original article: As of 11:59 p.m. Thursday night, Lyft will suspend service in California.
The San Francisco-based ride-hailing company cited a recent court ruling ordering it and its larger competitor, Uber, to re-classify their drivers from independent contractors to employees.
“This is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips,” the company said in a blog post. “We’re personally reaching out to riders and drivers to share more about why this is happening, what you can do about it, and to provide some transportation alternatives.”
“For multiple years, we’ve been advocating for a path to offer benefits to drivers who use the Lyft platform — including a minimum earnings guarantee and a healthcare subsidy — while maintaining the flexibility and control that independent contractors enjoy,” Lyft continued. “This is something drivers have told us over and over again that they want.”
“Instead, what Sacramento politicians are pushing is an employment model that 4 out of 5 drivers don’t support,” it added. “This change would also necessitate an overhaul of the entire business model — it’s not a switch that can be flipped overnight.”
As of time of writing, Uber has not announced a similar suspension of service, although such a move is expected.
At least two new startups are ready to step in and offer what they say is a better deal for drivers. Alto, a Texas-based ride-hailing app whose drivers are employees, said the company could be operating in California by early November.
“The reality is that having W-2 workers is actually significantly more innovative than [having] contractors in the transportation space,” Alto CEO Will Coleman told CNBC. “Fundamentally what we can control is actually the most important part of our business, which is supply. The challenge that Uber and Lyft have with independent contractors is that they have zero control over their supply.”
Arcade City, another startup, took advantage of the period when Uber and Lyft briefly suspended service in Austin, Texas to grow its business there before attempting to expand as far afield as Brazil and the Philippines. Founder Christopher David said Arcade City is planning to sign up drivers in California in the wake of Lyft’s suspension. David admitted that the company would be “doing things similar to Uber.”
“We are explicitly borrowing at least some pages from Uber’s playbook,” he told CNBC.
Wingz, which already operates in San Francisco, said it is working on converting its drivers from freelancers to employees. CEO Christof Baumbach told CNBC that “if you work in an independent contractor model, there’s just a number of things that you’re not supposed to do.”
“Really clearly directing the driver of what to do or even providing PPE [personal protective equipment] to be able to protect them is typically something you wouldn’t be doing in an independent contractor relationship,” he said.
Prior to the COVID-19 pandemic, over 300,000 California drivers were registered on Lyft’s app. That number has decreased significantly during the pandemic as both drivers and riders stay home.
Uber and Lyft both support Proposition 22, a November ballot measure that would classify ride-hailing and delivery app drivers as independent contractors who are exempt from AB-5, the successful 2019 measure that established drivers as employees. Gov. Gavin Newsom (D) signed the bill into law on September 18, 2019, and Uber and Lyft immediately vowed to ignore and fight the measure. Uber and Postmates filed a lawsuit challenging the new law.
In May, California Attorney General Xavier Becerra, along with the city attorneys of Los Angeles, San Diego and San Francisco, sued Uber and Lyft for misclassifying their drivers as independent contractors in violation AB-5. This was followed earlier this month by a lawsuit from the California Labor Commission accusing the companies of “committing wage theft by willfully misclassifying drivers” as freelancers.
Then, on August 10, San Francisco Superior Court Judge Ethan P. Schulman issued a preliminary injunction in which he wrote that it is “obvious” that “drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business.”
Schulman added that the companies’ stance “flies in the face of economic reality and common sense.”
“Uber’s argument is a classic example of circular reasoning: because it regards itself as a technology company and considers only tech workers to be its ’employees,’ anybody else is outside the ordinary course of its business, and therefore is not an employee,” Schulman wrote. “Were this reasoning to be accepted, the rapidly expanding majority of industries that rely heavily on technology could with impunity deprive legions of workers of the basic protections afforded to employees by state labor and employment laws.”
In its service suspension notice, Lyft urged Californians to vote yes on Proposition 22.
A new report by the Partnership for Working Families and the National Employment Law Project argues that Proposition 22 would “create a permanent underclass of workers.”
“These companies have created a noxious combination that serves only one purpose: protect corporate wealth and power at the expense of worker health, safety, and dignity,” the report’s authors stated.
Ride-hailing drivers have long protested declining pay and working conditions, noting that Uber and Lyft executives and investors have grown tremendously wealthy off their labor, for which they are compensated at near-poverty wages.
“Enough is enough,” Felipe Martinez, a Boston Uber driver who helped organize the local part of a worldwide protest last May, told Money. “It’s on the backs of the drivers that this company has grown, and we need to be heard.”
(Photo: Uber and Lyft drivers protest for better pay and working conditions outside Uber’s San Francisco headquarters on May 8, 2019. Photo by Brett Wilkins)