Uber, Lyft Win Delay on Converting Drivers to Employees (3)

Hours before Lyft Inc. and Uber Technologies Inc. were planning to suspend services in their home state of California, a state court gave them a reprieve.

On Thursday, a state appeals court ruled that the companies can keep operating as normal while challenging a judge’s order to comply with a state labor law. The law, in effect since January, mandates that the companies treat their workers in California as employees—a requirement that would upend the companies’ business models.

The decision Thursday comes just in time for the ride-hailing companies, which said they would stop doing business in the state rather than hastily work to comply with state law. Earlier in the day, Lyft had said it was planning to suspend California service starting at midnight on Thursday, which was when a court ruling requiring the companies to comply with the law was set to take effect. Uber also threatened to stop service on Thursday night.

Lyft shares closed the New York trading day up 5.76% on the news of the appeals court ruling. Uber’s stock gained 6.78%.

“We are glad that the court of appeals 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,” Uber said in a statement.

A spokesperson for Lyft emphasized that the company’s fight isn’t over, writing in a statement: “While we won’t have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers.”

Although Uber and Lyft won some relief, it wasn’t without strings attached. The appeals court paused the case on condition that both companies prepare to lose: the order requires a detailed plan for how they’ll convert drivers to employees if the appeals court decides against them.

The demand may reflect the court’s frustration that the companies appeared to be unprepared to make the conversion despite the fact that the state labor law has been in effect for months, said Charlotte Garden, a professor at Seattle University School of Law. The court may also have been concerned that drivers, rather than Uber and Lyft, would bear the brunt of the foot-dragging by the companies, she said.

The court’s demand was likely made to “avoid disruption to drivers and riders, while also telling the companies that they can’t keep burying their heads in the sand,” Garden said.

The delay buys time for the Uber and Lyft as they campaign for a ballot measure set for a statewide vote in November that would free app-based transportation and delivery companies from the sweeping requirements of the law known as Assembly Bill 5.

Proposition 22 exempts the companies from paying for full benefits that employees currently get under California law, such as unemployment insurance and complete workers compensation, while requiring them to pay 120% of minimum wage, health care contributions and medical and disability coverage, among others.

San Francisco Superior Court Judge Ethan Schulman had refused on Aug. 13 to indefinitely pause the injunction he issued earlier in the week. California Attorney General Xavier Becerra had urged the appeals court Wednesday to ignore the companies’ pleas to let them continue operating without making changes.

The appeals court scheduled arguments for Oct. 13.

Read More: Uber’s Legal Strategy on Driver Fight: Delay, Appeal to Public

(Updates with additional context starting in the first paragraph.)

To contact the reporters on this story:
Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net;
Lizette Chapman in San Francisco at lchapman19@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Peter Blumberg, Anne VanderMey

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