Why Uber and Lyft Were on the Brink of Shutting Down in California — and What Happens Next

L.A. residents and other Californians followed the real-time plot twists Thursday of the status of the two major ride-sharing services — Uber and Lyft — which had threatened to suspend service in the state.

The issue: Uber and Lyft were set to be subject to a recently-enacted California labor law, Assembly Bill 5 (aka AB5), which requires “gig economy” companies to reclassify workers as actual employees (instead of contractors). The intent of AB5, which went into effect Jan. 1, was to provide protections for gig workers, so they would be eligible to receive legally mandated employer benefits like a minimum wage, overtime pay, paid leave and health care coverage.

For many in the entertainment industry, ride-sharing services have become a primary way to navigate L.A. and its environs — and now represent an even more critical resource during the coronavirus pandemic. And both before and after COVID virtually brought Hollywood productions to a standstill, some industry workers worked as Uber or Lyft drivers to make ends meet.

Here’s a summary of the situation with Uber and Lyft in California and what the next steps in the dispute are.

Why were Uber and Lyft saying they would suspend operations in the state?

In May, California Attorney General Xavier Becerra, joined by city attorneys from L.A., San Francisco and San Diego, sued Uber and Lyft, alleging they violated AB5 by misclassifying drivers as contractors.

The ride-sharing companies have fought back. After losing an earlier ruling, they appealed the decision. On Thursday, a California appeals court granted Uber and Lyft an emergency stay from complying with the law. They have claimed they need additional time to rework their business operations in order to be able to hire their current drivers as employees.

Why are Uber and Lyft trying to avoid complying with the law?

The companies argue that complying with AB5 will force them to raise prices — in some cases doubling its rates — as well as reduce the number of drivers they can employ. (Uber has claimed it would be able to hire only one-fourth of its 200,000-plus drivers in California.) Uber and Lyft also complain the law would restrict the flexibility their drivers currently have in setting their own work schedules.

Fundamentally, their position is that they are tech platforms that facilitate transactions between riders and drivers (and therefore that the companies don’t have an employer-employee relationship with those workers). Lawmakers in California and elsewhere have found that unconvincing.

Uber and Lyft have another strategy to avoid having to fully classify drivers as employees: They have each spent $30 million (along with DoorDash) to get a ballot proposition in front of California voters in the November 2020 election. If the measure, called Proposition 22, is passed the companies would be required to meet certain guarantees, like providing health-care subsidies to drivers who work at least 15 hours per week and paying drivers an additional 30 cents per mile driven for gas and other vehicle expenses.

What will happen next?

For now, Uber and Lyft are continuing to operate as they have before in the state. In the ruling Thursday, the appeals court gave the companies a deadline of Aug. 25 at 5 p.m. PT to file written statements agreeing to expedited procedures stated in the order. They must then certify by Sept. 4 that they have a plan to comply with AB5 in the event that both their appeal and the Prop 22 ballot measure fail. Arguments before the court in the case are scheduled to commence Oct. 13.

What has been the reaction of California politicians?

Lawmakers have accused the companies of engaging in legal stonewalling and preying on consumers’ fears, all in trying to avoid paying their fair share.

“Uber & Lyft can quit crying now & work on reclassifying their drivers as employees,” California Assemblywoman Lorena Gonzalez, who is the author of AB5, tweeted Thursday. The Democratic state lawmaker, who represents southern San Diego, added, “They have been on notice for 2 years, but now they have another month to figure it out without hurting their workers. Shame on them with their scare tactics!”

Becerra, California’s attorney general, says the objections raised by Uber and Lyft to AB5 are disingenuous. “Companies can both classify their workers as employees and continue fostering the innovation that we deeply value as a state,” he tweeted Thursday. “For any company to suggest otherwise is a false choice.” Becerra has previously accused Uber and Lyft of trying to “skip out on their responsibilities.”

What do the drivers who work for the ride-sharing companies think?

A group of about 100 Uber and Lyft drivers held a rally on Thursday at Los Angeles International Airport to call attention to the issue, calling on the companies to comply with the law. “We are showing… that we are serious about it and they need to reconsider,” Jose Cabrera, a driver with Uber and Lyft, told KNBC.

What has been other fallout from AB5?

Workers who are exempt from AB5 include a variety of creative professionals — including musicians — and others such as marketing freelancers, doctors, insurance agents, lawyers, real estate agents and hairstylists.

However, freelance writers, editors and photographers currently are subject to the law, which specifies that California-based media outlets may publish no more than 35 “content submissions” per year from individual freelancers before they must be classified as employees. But that has resulted in some publications in cutting back on the work they give freelancers, prompting an outcry. A pending bill proposed by Assemblywoman Gonzalez would amend AB5 to remove that cap.

Source: Read Full Article