Uber may have to suspend business in California to reclassify drivers

13 Aug 2020

Image: © Sundry Photography/Stock.adobe.com

After a ruling against ride-hailing businesses Uber and Lyft, Uber has warned that it may need to shut down its business to implement changes ordered by the court.

Earlier this week, a judge in California ruled that ride-hailing businesses Uber and Lyft must classify their drivers in that state as employees.

The decision came after the state of California requested a preliminary injunction against the two companies, alleging that they are misclassifying drivers under the state’s new labour law, AB-5.

In response, Uber CEO Dara Khosrowshahi said that the court’s decision could result in a several-month shutdown for the company, as it adjusted to the changes ordered by the court.

Speaking to MSNBC reporter Stephanie Ruhle, Khosrowshahi said: “If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly.”

Seeking a new way to classify drivers

The preliminary injunction introduced through the recent ruling aims to ensure that gig workers in industries such as transport, beauty, construction and cleaning can access the minimum wage, benefits, health insurance, social security, paid sick days and overtime. This would be done by reclassifying these workers as employees rather than contractors.

Believing that there may be difficulties in implementing these changes in the short-term, Khosrowshahi has advocated for what he calls a “third way” to classify workers, which he believes would maintain driver independence while enabling the company to provide some protections, without the risk of being viewed as a full-time employer of drivers.

Ahead of the ruling, Khosrowshahi wrote a column in The New York Times saying that instead of offering drivers the benefits that come with traditional jobs, Uber could pay into a fund that workers could access if they needed sick pay. However, he told MSNBC that if Uber loses its appeal next week, his ‘plan B’ would be to temporarily pause service in California.

While at court defending its practices, Uber warned that a temporary shutdown of the company to implement the changes ordered by the preliminary injunction could result in drivers losing income.

The firm said: “Because Uber will almost certainly need to shut down the Rides app while it builds these departments and systems, millions of drivers who use the app to earn vital income will likely lose that opportunity the day the injunction goes into effect ­– and that source of income will be lost for months, at least.”

Appealing the decision

Both Uber and Lyft adamantly oppose the decision made by California superior court judge Ethan Schulman, and have said that they plan to appeal it during the 10-day staying period.

On Monday (10 August), after the ruling, a spokesperson from Lyft said: “Drivers do not want to be employees, full stop. We’ll immediately appeal this ruling and continue to fight for their independence.”

On Monday, Uber said: “When over 3m Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry during an economic depression.”

However, driver campaign groups, such as Gig Workers Rising (GWR) have welcomed the bill. GWR spokesperson Edan Alva said: “For years, workers have been organising and speaking out against our mistreatment by billion-dollar gig companies who have refused to obey the law. Today, the court sided with workers and not corporations.

“Thousands of misclassified gig workers will receive the wages, benefits, protections and employee status they are legally owed. It is abundantly clear that Uber and Lyft must now comply with the law.”

California attorney general Xavier Becerra has not expressed any concerns about Uber’s warnings of a potential temporary shutdown. In an interview on CNBC, Becerra said: “Any business model that relies on short-changing workers in order to make it probably shouldn’t be anywhere, whether in California or otherwise.”

Kelly Earley was a journalist with Silicon Republic