By on August 21, 2020

The battle between the purveyors of ride-hailing apps and the State of California has been an interesting one. The West Coast’s gig economy looked ready to be nuked from orbit following the passing of Assembly Bill 5 (AB5), leaving a glassy crater of jobless part-timers and the corporations that were dependent upon them — even though the stated goal of the rule was to protect gig workers from being taken advantage of.

Uber and Lyft looked to be the most impacted by the new law, as their entire business structure revolves around managing fares for drivers whose status as “independent contractors” was up for debate.

Claiming that hiring drivers as full-fledged employees would make the existing business model untenable, Uber and Lyft suggested they were looking into alternative solutions while fighting legal battles that would effectively make them exempt from the new law. San Francisco Superior Court Judge Ethan P. Schulman threw cold water on that concept when he ruled against the duo, saying drivers were essential to ride-hailing operations and needed to be treated as regular employees receiving the full benefits they’re entitled to.

The corporations’ last hope was double down on threat to leave the state and hope a California appeals court would grant them an extension to stage another legal fight, or just comply with AB5… which is exactly what happened on Thursday afternoon.

This break gives Uber and Lyft until 5 p.m. (PT) on Tuesday to craft written statements agreeing to expedited procedures stated in the order and explaining in detail how and when they’ll achieve compliance. However, based on their corporate rhetoric, we don’t think that’s their ultimate goal. Both companies have brought up how a large portion of drivers oppose having set schedules and would prefer to work as part-time contractors, even if that means they’re not entitled to benefits. This is undoubtedly true for a subset of workers, as many drive as a secondary job, but there’s also been an ongoing push within the community to grant contractors benefits and better pay.

While Lyft said it would have to abandon its California operations without the extension, Uber had not announced any official decision to suspend service prior to the order — though it was heavily hinted at. Both will be staying put in California now that they’ve gotten their extension, however.

“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,” an Uber spokesperson said in response to the extension.

The extensions have several stipulations, with one of the biggest being the requirement of CEOs to submit sworn statements by September 4th confirming plans to comply with the preliminary injunction within 30 days of a ruling if the appeals court affirms the preliminary injunction and if Proposition 22 (the ballot measure that would exempt the firms from AB5 entirely) fails to pass. The ride hailing firms undoubtedly hope that it will, and have asked supporters to back Prop 22 in order to continue operations as normal.

Another possible alternative would be to simply make sure Uber/Lyft drivers can be classified as truly independent. Yet we don’t think this is feasible under the current business models. For starters, the companies would effectively have to prove drivers were supplemental to salaried and hourly employees and effectively give them total freedom in the negotiation of fare rates. Neither of those outcomes seem particularly likely, and both occurring together sounds next to impossible.

The companies seem more likely to just wait an see how things shake out with Prop 22. Assuming Uber and Lyft file the applicable documents at the proper time, California officials will have to issue a response by September 18th. From there, there will be a few weeks for everyone to prepare for their court appearances on October 13th. During this time, the firms will also be engaged with a suit from the California Labor Commissioner alleging they illegally denied wages to their workers by misidentifying them.

Their last-ditch effort to avoid compliance will likely be to lobby the U.S. Congress for favorable treatment. Considering their sizable financial backing, we’d be shocked if they weren’t already engaging in this.

However, if voters support Prop 22 and it passes then all of this goes away for the ride-hailing giants. Literally every ruling against them will simply evaporate and they can continue operations as they always have. Though it is likely that California drivers would be entitled to a handful of benefits and a minimum earnings quota tied to hour wages.

[Image: Jonathan Weiss/Shutterstock]

Get the latest TTAC e-Newsletter!

9 Comments on “California Blinks: Uber/Lyft Granted Extension on New Labor Laws...”


  • avatar
    Urlik

    If I put an ad on Craigslist saying, come cut my lawn and I’ll pay you $75, that doesn’t make the person who drives over and cuts my grass with his lawnmower my employee. Common law independent contractor tests have 7 areas and no one area like setting your own rate carries more weight than the other areas. You need to look at the all 7 in their totality to determine how much control the alleged contractor has over his position. States like California and New Jersey have been throwing the common law rules away for new ones. AB5 says if you do the work of the company, you’re an employee unless we carved out an exemption for your industry. So even if the Uber driver set their own rate, AB5 would say they are still an employee.

  • avatar
    R Henry

    Current popularity of Uber and Lyft (and grubhub, postmates, etc) is directly correllated to their low pricing. The low pricing, of course, is subsidized by irrationally exuberant investors who think these firm’s share prices will explode–that they will become the next Amazon, and investors get huge payouts.

    Once investor subsidies dry up, and service pricing becomes firmly tied to the real cost of fuel, vehicle depreciation, insurance, marketing, and labor, the prices will necessarily raise.

    Once prices of these services rise to sustainable, profitable levels, the price of those services will become too high for many of the transporation niches they currently occupy. –An office worker may be willing to pay $10 for delivery of a pizza during Friday lunchhour, but that office worker is quite unlikely to pay $25 for that service. She will get the pizza herself!

    The legal wrangling over driver employment status is a cynical distraction from the real issue here, which is, of course, that existing business models of “ride sharing” and many other gig jobs are entirely unsustainable, and that investors will receive a severe haircut as the ventures collapse.

    • 0 avatar
      tonycd

      R Henry is exactly right. Uber has never been viable as a business model, except for being propped up by gullible investors who see it as a “high tech” “next big thing.” It has hemorrhaged billions in losses every year of its existence. Naked Capitalism dotcom has run a terrific series of over 20 detailed essays on how ever aspect of the Uber/Lyft business model is simply not viable unless/until their predatory pricing makes them a monopoly or duopoly, at which time they’ll have to (and be able to) jack up their price stratospherically. Screw ’em. They’re rackets, not legitimate businesses, screwing workers by posing as “not really their employer,” and both companies deserve to die.

      • 0 avatar
        R Henry

        @tonycd

        Thanks for playing along.

        Though I don’t use the term “racket,” in my gut, that is how I feel about them too. I have never wanted to use these services, because, down deep, I knew they were “rackets” and I have never wanted to benefit from other people’s ignorance…. To me, riding an Uber is, at a certain level, exploitation. Count me out.

        • 0 avatar
          dwford

          If you think about it, every form of transportation is taking a subsidy from someone. Whether it’s ride share relying on venture capital, or Amtrak relying on the government, to highways relying on tax dollar instead of tolls or gas taxes. Everyone gets around partly on someone else’s dime.

          The problem with Uber and Lyft is that they are living that Silicon Valley start up life, thinking they have Google style profit margins, when in reality, they are utilities. They both need to get out of Silicon Valley so they can cut their operating costs in half. And quite frankly, they are chasing every ride when they should be refusing unprofitable ones, or at least charging what it costs to complete the ride.

  • avatar
    jkross22

    When it comes to AB5, it’s important to remember who authored it. Sorry, not who wrote it – that would be labor unions – but who presented it.

    That would be one Lorena Gonzalez. The same state rep from San Diego that fought against the ability for parents to send their kids to a better school district than their zip code dictated schools.

    Always follow the money. Always.

    • 0 avatar
      R Henry

      @jkross22

      Or, conversely, Leftists gonna be Leftists…. Strident support for the Unionization movement is a long-held Leftist core value.

      • 0 avatar
        PandaBear

        Funny, the righties were the ones who blame Uber and Lyft for reduced vehicle sales and all that is wrong with the automotive world, now they are blaming Uber and Lyft stranding everyone. They just like to point fingers on everyone.

  • avatar
    PandaBear

    They already IPO, the politically connected investors didn’t pay enough to the politicians to bribe them off, now the taxi unions and medallion holders are trying to fight back and bribed the politicians. You know the rest.

Read all comments

Recent Comments

  • fazalmajid: The car makers need to provide more transparency because they’ve been lobbying the Federal government to...
  • dal20402: Yep, in the ’21+ the outer seat portions are exactly the same.
  • JonBoy470: It is of course illegal to operate non-compliant vehicles on public roads, but the law, as written, also...
  • JonBoy470: These speed shops are operating without even the merest whiff of plausible deniability that parts vendors...
  • Carlson Fan: “Start saving, spring 2024 will probably be your first real opportunity.” Yep I’d say...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber