Uber and Lyft considering franchise-like model to help solve California woes

18 Aug 2020

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Facing pressure from legislators over the status of their drivers, Uber and Lyft are considering implementing a franchise-like model for their technology.

A plan reportedly being considered by ride-hailing apps Uber and Lyft could add further legal distance between themselves and the drivers who are signed up to their services. According to The New York Times, these companies could franchise out their technology to smaller organisations operating vehicle fleets, so that these businesses will be responsible for the drivers.

The move is being considered as Uber and Lyft face increasing pressure from lawmakers in California to classify drivers as full-time employees covered under state employment law. One source said that Lyft has presented the idea to its board of directors, while Uber is already working with fleet operators in Germany and Spain.

An Uber spokesperson confirmed that the plan was “exploratory”, but that the company said it was “not sure whether a fleet model would ultimately be viable in California”.

Meanwhile, a Lyft spokesperson said it still favoured a model where drivers “remain independent and can work whenever they want while also receiving additional healthcare benefits and an earnings guarantee”.

Tensions rise

Both companies have already publicly clashed with the state of California following the passing of the AB-5 law, which came into effect on 1 January. AB-5 gives employment benefits to those working the so-called gig economy if it’s found they are essential to a company’s core business.

In the past month, both Uber and Lyft have warned that they may pull their operations out of California entirely. They said that this would happen as soon as this week if an order from the San Francisco superior court demanding the companies employ their drivers was not reversed.

In his ruling, judge Ethan Schulman said that it is “obvious” that drivers are “central, not tangential, to Uber and Lyft’s entire ride-hailing business”.

“There can be no question that in order for [the] defendants to comply with AB-5, they will have to change the nature of their business practices in significant ways, such as by hiring human resources staff to hire and manage their driver workforces,” he said.

If both companies were to follow the franchise model, they would invite businesses to establish ride-hailing fleets using their platforms. This could help bolster their argument that they are only providing the technology and not the transportation.

Colm Gorey was a senior journalist with Silicon Republic