Uber and Lyft threaten to temporarily shut down in California over labor disputes

• Both Uber and Lyft said they could temporarily shut down in California if forced to consider their drivers employees.
• On Monday, a court ruled in favor of labor activists in ordering Uber and other gig-work firms to pay workers as employees, not contractors. The companies requested a 10-day stay on the ruling.
• A group of companies that rely on independent contractors has proposed a third way of classifying workers, which includes a benefits pool that can follow workers across apps and platforms while maintaining flexibility.

Uber and Lyft could temporarily shut down in California if a court ruling saying their workers must be classified as employees, not contractors, holds.

Uber CEO Dara Khosrowshahi told MSNBC Wednesday morning that "it's hard to believe we'll be able to switch our model to full-time employment quickly" after a state judge ruled Monday that Uber, Lyft, and other gig-work companies must reclassify drivers and couriers as employees.

Lyft made its threat on a conference call Wednesday afternoon, based on the same ruling. Executives said the shutdown could occur as soon as August 20. The state makes up about 16% of Lyft's total rides, the company said.

Complimentary Tech Event

Transform talent with learning that works

Capability development is critical for businesses who want to push the envelope of innovation.Discover how business leaders are strategizing around building talent capabilities and empowering employee transformation.Know More

Uber's Khosrowshahi said the shutdown could last until the company's stay on the court ruling, which it requested in filings Tuesday night, is granted. Otherwise, it could continue until California voters decide on Proposition 22 in November, which would allow the company to classify drivers as contractors.

The reclassification as employees would give workers access to benefits and other perks of full-time employment that activist groups have been fighting for over the years. It would also create massive overhead expenses for the companies, whose business models largely rely on independent contractors and lower labor costs.

In fighting the new rules, which were made law by California legislators last year, Uber and others have said workers will lose the flexibility many love about working on the platforms. Instead, a consortium of firms has proposed a third way of classifying employees and wants to pay into a floating benefits fund that will follow workers across ride-hailing and delivery platforms to pay for healthcare and other expenses.

Uber previously accused labor groups of being driven by politics in their fight for driver rights.

"We've got terrific supporters [of Proposition 22] in the community as well who actually care about drivers, versus labor unions and politics. They actually are taking into account the wants and needs of drivers," Khosrowshahi told investors last week.

Advocacy groups say the pandemic makes clear the need for driver healthcare benefits. Monday's ruling "means Uber and Lyft must put an end to their lawless actions that deny benefits and protections to drivers who urgently need them," Uber driver Mekela Edwards, a member of driver advocacy group We Drive Progress, told Business Insider at the time.

A complete shutdown in California would be the first time Uber exited a US market over legal disputes but not the first time it's adapted to changing regulatory environments. Since 2019, the company has not allowed new drivers in New York to sign up on the app, citing new rules about minimum pay in the city.

California's attorney general likely won't be sad to see Uber leave, if it makes good on its threat.

"Any business model that relies on short-changing workers in order to make it probably shouldn't be anywhere, whether California or otherwise," California Attorney General Xavier Becerra told CNBC earlier this week.

Uber and Lyft have about a week to appeal, CNBC reported. If that doesn't work out, voters will decide on the consortium's proposal, which has more than $90 million in supportive funding from the companies, in November.

When he was pressed on if his threat was serious, Khosrowshahi said "hopefully, the courts will reconsider. By no means do we want this to happen."

This post has been updated to reflect Lyft's similar threat, Uber's requested stay on the ruling Tuesday night, and to clarify that the shutdown would only occur if the 10-day stay was not granted.