Uber, Lyft Get Reprieve in California

Just hours before a looming deadline, a California appeals court judge deferred a lower court ruling, which was due to take effect Friday, that would have required Uber and Lyft—along with other ride-hailing companies and delivery firms—to treat drivers as employees rather than independent contractors under a state law that was implemented in January.

The ride-hailing giants had threatened to immediately suspend their services in California if they had lost the appeal.

Both companies are based in San Francisco and count California as their largest market. Prior to the coronavirus pandemic, the state accounted for about 16% of Lyft’s rides and 9% of Uber’s gross bookings, according to media reports.

The Fight Continues

Uber and Lyft say they shouldn’t have to comply with the so-called Gig Economy law, known as AB5, contending that they are technology platforms—connecting drivers with riders—rather than transportation service providers.

Reclassifying workers, they argue, would significantly increase costs. As employees, drivers would be eligible for healthcare and paid sick time, unemployment, minimum wage, overtime and Social Security.

The companies now have until October to argue their case. But executives will have to submit sworn testimony within two weeks, saying they have developed the infrastructure needed for such a reclassification—something Lyft and Uber claim they currently aren’t capable of—if their appeal fails.

Drive the Vote

But the decision ultimately is in the hands of voters. Uber and Lyft, along with DoorDash, were successful in getting a proposition on the Nov. 4th ballot in California that would exclude all “app-based drivers” from AB5.

If the proposition passes, Uber and Lyft promise to implement new driver-focused initiatives on their own. This includes giving drivers 30 cents a mile driven to account for gas and other vehicle costs, health-care subsidies for drivers who work 15 hours or more a week and occupational-accident insurance coverage while on the job.

Critics say such provisions fall short compared with typical employee benefits. For example, the standard Internal Revenue Service mileage rate used to reimburse employees is 57.5 cents per mile.

Why it Matters

In addition to affecting tens of thousands of gig workers in California, the future of AR5 has national ramifications.

Legislators in several other states began drafting similar bills earlier this year.

COVID-19 has intensified the scrutiny over labor practices. The pandemic caused a steep decline in demand for ride-hailing services in recent months, and lingering health concerns could continue to negatively impact the industry until a vaccine is found.