By Preetika Rana
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 20, 2020).
Uber Technologies Inc. and Lyft Inc. have said they may suspend
their ride-hailing operations in California as soon as Friday,
escalating a high-stakes battle with their home state over how
their drivers should be classified.
California sued the companies in May, alleging they were
violating a new state law that requires companies to treat workers
as employees rather than independent contractors if they are
controlled by their employer and contribute to its usual course of
business, among other things. As employees, drivers would be
eligible for sick days and other benefits, issues that have become
more pressing during the coronavirus pandemic.
Uber and Lyft, both based in San Francisco, have argued that
they are technology platforms connecting riders with drivers, not
transportation companies, so the drivers aren't part of their usual
course of business.
A state judge agreed with California last week and gave the
companies until Friday to reclassify their drivers as employees.
The companies appealed the decision and requested the judgment be
paused while it is being challenged. But unless an appeals court
decides to stay the ruling, the deadline stands.
Uber Chief Executive Dara Khosrowshahi and Lyft President John
Zimmer have said they would rather suspend operations in the state
than upend their businesses overnight. Residents of California will
be able to express their opinion through a ballot initiative in the
November election that asks voters to exempt Uber and Lyft from the
law at the heart of the continuing dispute.
Both companies argue that the reclassification will require
drivers to work prescheduled shifts, robbing them of the
flexibility they currently enjoy. The companies say they would be
forced to consolidate their fleet to fewer drivers who work more
hours a week; drastically reduce their footprint in the suburbs,
where demand is spotty; and raise prices for rides to offset the
new costs associated with recruiting, monitoring and managing
driver operations.
The stakes are high either way. Suspending ride-share in
California, which accounted for 9% of Uber's rides world-wide and
16% of Lyft's before the coronavirus pandemic, would deal another
blow to a business ravaged by the health crisis. Uber reported a
75% year-over-year drop in rides in its second quarter; Lyft's
active riders fell by more than half over the same period.
Complying with the order, though, would undermine the economics
of ride-hailing, transforming Uber and Lyft into traditional taxi
operators at a time when they are struggling to turn a profit. It
could also set a precedent for legal battles playing out elsewhere
in the U.S. and around the world. Massachusetts is suing Uber and
Lyft over alleged driver misclassification, and Uber drivers in
Europe have filed legal complaints seeking broader employment
benefits.
Uber and Lyft assert that shifting to an employment model would
force them to pick fewer drivers who conform to a 40-hour workweek,
the standard for full-time U.S. employees. Uber says fewer than 2%
of its more than 200,000 drivers in California use its app for 40
hours or more a week; Lyft says 86% of its more than 300,000
drivers in the state drive fewer than 20 hours a week.
For the reclassification to be economically viable, Uber would
be able to hire just over 50,000 drivers, or one-quarter of its
existing drivers, according to company economist Alison Stein. At
the same time, the company estimates that it would need to spend
millions of dollars to build a framework to monitor drivers,
including tracking their meals and rest breaks, and hire additional
staff to oversee day-to-day operations. Those costs, the company
said in a legal filing, would push prices for rides to increase
between 20% and 120%.
Uber added that it would need several months to build such a
framework, making such a reclassification impossible this week.
Lyft also said that it "cannot restructure its business at the flip
of a switch," pressing the court for a stay as it argues its
case.
If the appeals court gives the companies more time, the question
will be for how long. Uber and Lyft have their sights set on the
November ballot initiative, which would supersede any ongoing
litigation if it passes.
Under the ballot measure, the companies also would guarantee
certain protections to workers that currently don't exist, such as
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 those protections fall short compared with the
benefits awarded to full-time employees. For instance, the standard
Internal Revenue Service mileage rate that employers typically use
to reimburse employees is 57.5 cents a mile.
"It doesn't make any sense why these workers should have to
battle it out for each labor protection one by one when we have a
full web of protections" for employees, said Shannon Liss-Riordan,
a labor attorney who represented drivers in one of the earliest
misclassification suits against Uber and Lyft in 2013. "For the
companies to say they will need to figure everything from scratch
overnight is ridiculous. We've been in court for years and when
California stepped in with a law this year, they knew the hammer
was going to fall on them soon. Why weren't they prepared for this
before?"
Uber and Lyft said they are exploring alternatives that might
allow them to circumvent the ruling in the near term. One idea
involves licensing their brands to operators of vehicle fleets.
Under that model, drivers would earn a predetermined hourly wage.
The fleets would monitor and enforce drivers' activity, allowing
the companies to stay at arm's length.
Uber spokesman Noah Edwardsen said, however, that "we are not
sure whether a fleet model would ultimately be viable in
California."
While some drivers have expressed a desire to keep the current
model because they can pick up work when they need or want to with
no strings attached, others would welcome the protections offered
by California's so-called gig-worker law. Ultimately, many of them
say, their livelihoods are on the line.
"They're playing with people's lives threatening a shutdown. I'm
scared I'll have to find another source of income," said Jerome
Gage, who drives full-time for Lyft in Los Angeles and is an active
member of the Mobile Workers Alliance that is supporting the
reclassification of drivers as employees. "They treat us like it's
all about them and their bottom line."
Write to Preetika Rana at preetika.rana@wsj.com
(END) Dow Jones Newswires
August 20, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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