Uber and Lyft got a lifeline that saved them from shutting down in California on Thursday. The two companies have been in a legal battle with the state of California over their business model, and threatened to shut down operation in the state if last week’s ruling comes into effect.
The state of California had in May filed a lawsuit challenging the classification of Uber and Lyft drivers as non-employees. The lawsuit argued that it goes against the state’s new labor law (AB5), enacted in January. The law weighed in on a three-part standard to determine the status of an independent contractor. 1 They are free from company’s control; 2 they are doing work that isn’t central to the company’s business; and 3, they have an independent business in that industry.
The three-part standard stands in contrast with the gig economy and e-hailing companies are at the helm of it.
A San Francisco court last Monday ordered Uber and Lyft to reclassify their drivers as employees in 10 days, or by this Friday.
But in a ruling on Thursday, the court gave the companies a lifeline though their travails continue. Uber and Lyft have been pushing for a referendum in November that will exempt them from the AB-5 law. In October last year, the companies, including DoorDash, launched a $100 million campaign to fight the legislation.
With the court’s order delaying the enforcement of the previous ruling, the companies have more time to operate in California under the gig economy.
“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’s spokesman Noah Edwardsen said in a statement.
The companies said earlier before their request for delay was granted, that they would shut down operation on Thursday night.
“As of 11:59 pm today, the travel operation through our rideshare platform in California will be suspended,” Lyft said in a statement before the ruling. But the company made an update following the ruling. “Rideshare is ON. The California court has granted our request for a further stay, so our rideshare operations can continue uninterrupted, for now.”
In the new deadline issued to the companies by the court, the CEOs of the ridesharing companies are required to submit by September 4, sworn statements with “implementation plans” for complying with the law within 30 days if the court upholds the earlier injunction order and if the referendum fails.
Oral arguments are to begin October 13, and Lyft’s spokesperson Julie Wood said they will keep fighting.
“While we won’t have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers,” Wood said in a statement.
Uber and Lyft are counting on their drivers and the public to win the referendum. The companies have been known for inciting public’s empathy just to have their way with the government. They have made it clear that they can’t afford a business model that will require them to pay the minimum wage and other workers benefits, as it will mean less drivers and expensive rides.
But unlike other times when Uber had used public empathy to get away from regulators, coronavirus appears to have worked in favor of the government. Industry watchers said that suspending their services will have little impact on the government’s stand as lockdowns in many US states including California have restricted people’s movement for months, warning riders zeal to fight for cheaper transport.
Uber has been caught up in a very difficult situation in its parent state California, as it is its largest market in the US. The ridesharing company has been weighing its options ever since the AB-5 came into force in May, which includes using a franchise-like model to license its name to fleet operators in the state and avoid employing drivers directly.
The company has argued that drivers are not the core of its business; therefore, the AB-5 law doesn’t apply to them. But the court had dismissed the claim and had ruled against its gig economy that the state said it’s oppressive to drivers and goes against the law.