A California appeals court granted an emergency stay to Uber Technologies Inc. and Lyft Inc. Thursday, pausing a lower-court ruling that required the ride-hailing companies to reclassify their drivers as employees by Friday.
The reprieve means both companies can continue operating while they fight a high-stakes legal battle with their shared home state. Both companies had said they would be forced to suspend operations in California as soon as Friday if the lower-court judgment weren’t paused.
Lyft said earlier Thursday it would halt its business there as of midnight, anticipating that it wouldn’t get a stay. The company confirmed it no longer plans to halt ride-hailing service in the state.
Last week, a state judge gave Uber and Lyft until Friday to reclassify their drivers as employees, after California sued the companies in May alleging they were violating a new state law on gig workers that took effect Jan 1.
The law requires companies to treat workers as employees rather than independent contractors if they are controlled by their employer and contribute to its usual course of business, among other things. As employees, drivers would be eligible for sick days and other benefits, issues that have become more pressing during the coronavirus pandemic.
Uber and Lyft, both based in San Francisco, have argued they are technology platforms that connect riders with drivers, not transportation companies, so the drivers aren’t part of their usual course of business.
California’s Department of Justice, which is suing the companies, said in a statement Thursday, “We’re confident in the facts of our case and we look forward to continuing our fight to defend the rights of workers across the state.”
After the lower court ruling, Uber and Lyft bargained for more time in legal filings to the appeals court that subsequently granted Thursday’s stay. Uber said, for instance, that it would take several months to build a framework to reclassify drivers, including a system to monitor their meals and rest breaks, and would need additional staff to oversee day-to-day operations. Lyft, too, said it lacked the infrastructure necessary to change its business “at the flip of a switch.”
The companies have their sights on a November ballot initiative they spearheaded with a coalition of other ride-hailing and on-demand services, which asks California voters to decide whether to exempt them from the state law at the heart of the dispute. The verdict would supersede any pending litigation.
The court gave Uber and Lyft’s chief executives until Sept. 4 to submit sworn testimony saying they had developed the infrastructure needed for such a reclassification should their ballot measure and appeal fail.
Uber and Lyft have said reclassifying drivers would require them to work prescheduled shifts, robbing them of flexibility. For the reclassification to be economically viable, the companies say they would be forced to consolidate their fleet to fewer drivers who work more hours a week; drastically reduce their footprint in cities where demand is spotty; and raise prices for rides to offset the new costs associated with managing driver operations.
Uber, for instance, said it would be able to hire just a quarter of its more than 200,000 drivers in California and raise prices for rides as much as 120% to account for the millions of dollars it would need to invest to manage drivers as employees.
While Thursday’s stay opens the door for Uber and Lyft to continue operating in a key market—California accounted for 16% of Lyft’s rides in this year’s second quarter and 9% of Uber’s gross bookings before the pandemic—the prospect of reclassifying drivers in the future would undermine the economics of ride-hailing at a time the companies are already struggling to turn a profit.
Write to Preetika Rana at [email protected]
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