Uber and Lyft Get Reprieve After Threatening to Shut Down

OAKLAND, Calif. — Uber and Lyft threatened to suspend ride-hailing services throughout California on Thursday night, a defiant reaction to a judge who ordered the companies to reclassify their drivers as employees.

But hours before the ride-hailing blackout was set to begin, an appeals court granted Uber and Lyft a temporary reprieve, allowing them to continue operating while the court weighs their appeal. Oral arguments in the case are set for mid-October.

“We are glad that the court of appeal recognized the important questions raised in this case, and that access to these critical services won’t be cut off while we continue to advocate for drivers’ ability to work with the freedom they want,” said Matt Kallman, a spokesman for Uber.

The fight could drag on for months, as Uber and Lyft battle a state labor law intended to give employment benefits to gig workers. An appeals court is weighing the companies’ requests to overturn a judge’s order to employ drivers, but it is not clear when the court will issue a ruling. The court has ordered Uber and Lyft to submit plans for hiring employees by early September, in case the court does not decide in their favor.

“These companies may have bought themselves a little more time, but the price is that they have to demonstrate — under oath — that they have an implementation plan that complies with the law,” said John Cote, a spokesman for the San Francisco city attorney, one of the officials suing Uber and Lyft. “The court of appeal is calling Uber and Lyft’s bluff.”

If Uber and Lyft are forced to reclassify drivers, they are considering plans to establish franchise-like operations in California, inviting third parties to hire their drivers rather than becoming employers themselves.

State officials said the companies must comply with the a new law, known as Assembly Bill 5, so that workers have access to sick leave, overtime and other benefits — a need that has become more dire during the coronavirus pandemic.

But Uber and Lyft have argued that employing drivers would have a catastrophic impact on their businesses, forcing them to raise fares and hire only a small fraction of the drivers who currently work for them. They would temporarily shutter the businesses rather than comply, they said.

“While we won’t have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers,” said Julie Wood, a Lyft spokeswoman.

Uber and Lyft have long categorized drivers as independent contractors, an arrangement that the companies say allows drivers to have more control over where and when they drive. But this model imposes a financial burden on drivers, who are responsible for their own vehicle maintenance, health insurance and other expenses that employers traditionally cover.

Last year, the California Legislature passed A.B. 5 in an attempt to set clearer employment standards for the state and rein in gig-economy giants like Uber. Legislators argued that Uber shortchanged its drivers and exploited an unfair advantage over law-abiding businesses in the state.

Although the law went into effect in January, Uber and Lyft did not change their practices. They argued that A.B. 5 did not apply to them and spent tens of millions of dollars on a ballot initiative that, if passed in November, would exempt them from the law.

In May, California’s attorney general sued Uber and Lyft to force them to comply with A.B. 5. The standoff came to a head last week when a San Francisco Superior Court judge, Ethan Schulman, sided with the state, ordering Uber and Lyft to reclassify their drivers by Thursday.

Uber and Lyft have argued that they are technology companies and that drivers are not a core part of their business. But that “flies in the face of economic reality and common sense,” Judge Schulman wrote in his ruling. “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.”

“Our state and workers shouldn’t have to foot the bill when big businesses try to skip out on their responsibilities,” said the California attorney general, Xavier Becerra.

Rather than hire drivers, Uber and Lyft threatened to shut down. The decision could have caused the businesses, which have already struggled financially because of travel restrictions during the pandemic, to lose even more money.

San Francisco and Los Angeles are among Uber’s largest markets, and Lyft has said it draws about 16 percent of its business from California. Uber planned to continue operating Uber Eats, its food delivery service, which has bolstered its revenue during the pandemic, a spokesman said.

Although the potential shutdown felt drastic to drivers and riders who depend on Uber and Lyft, the move was not without precedent. The companies have terminated their services in other regions rather than complying with local laws they oppose. The shutdowns have often pressured local governments to pass laws that are more friendly to Uber and Lyft.

In 2016, Uber and Lyft shut down in Austin, Texas, to protest an ordinance that required background checks that used fingerprints for drivers. They returned the next year after Texas passed a statewide law that excludes fingerprinting from the background check requirements.

That strategy could work again for Uber and Lyft if California voters approve the ballot measure in November. If the companies lose that vote, they would be required to employ drivers and may put in place plans to establish franchise-like operations in California.