Uber and Lyft are quitting California after order on driver pay. What happens next?

Update: California’s 1st District Court of Appeal on Thursday granted Uber and Lyft more time to comply with the state’s new labor law on employment benefits. The companies no longer plan to suspend their California services. You can read an update to the story here.

Ride-hailing giants Lyft and Uber said they will shut down services Thursday at 11:59 p.m. unless a court intervenes to block an order that they say would force them to overhaul their business model by reclassifying gig drivers as employees in compliance with state law.

The business blackout is the latest development in California’s legal battle to force app-based companies to fall in line with Assembly Bill 5, the state’s landmark labor law Gov. Gavin Newsom signed last year to require most businesses treat workers as employees.

A San Francisco Superior Court judge last week gave Uber and Lyft an Aug. 20 deadline to comply with AB 5, saying it was “high time that they face up to their responsibilities to their workers and to the public.” Judge Ethan P. Schulman wrote in his Aug. 10 order that now, while ridesharing usage was low during the coronavirus pandemic, would be the “least worst time” to reclassify the workers.

The companies instead appealed the decision, arguing they can’t reconstruct their business strategies that quickly. As of Thursday morning, it looked unlikely the California Court of Appeal would step in to hand Uber and Lyft more time, meaning the companies plan to shut down their ride-hailing features would end by midnight.

“This is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips,” Lyft said Thursday in a post. “We don’t want to suspend operations. We are going to keep up the fight for a benefits model that works for all drivers and our riders.”

An Uber representative said the company was waiting to hear from the court today, but planned to follow through on suspending services before midnight until at least November, when voters will decide on a ballot initiative called Proposition 22 they’re pushing alongside fellow gig economy titans like DoorDash, Instacart and Postmates. The initiative would exempt the companies from the new labor law, but would require them to provide some additional benefits to drivers.

The companies are also exploring “alternative models,” Lyft spokesperson Julie Wood said, which could include a franchise-like strategy.

Here’s what the decision means for drivers and riders.

No rides, for now

The announcements mean Californians will not be able to hail an Uber or a Lyft for now.

Both companies said they’ve provided essential services during the COVID-19 health crisis for vulnerable populations, including free rides and food deliveries for health care workers and seniors.

At a time when riders want to avoid public transportation, the companies have argued, Uber and Lyft drivers can help residents get to the grocery store, visit the doctor or pick up medication.

Lyft provided 2.6 million non-emergency health rides in 2019, the company said, with 90% Medi-Cal patients. The company has also partnered with dozens of California government programs, with 25% serving people with disabilities.

An Aug. 18 Uber policy research post noted 46% of trips in April serviced Californians who live in low-income neighborhoods.

“Uber continues to play a vital role in meeting mobility needs across the state during shelter-in-place,” the post includes. “If Uber has to shut down its Rides business in California, riders in the state won’t be able to make some of these essential trips — and this burden would fall disproportionately on communities with low incomes and limited access to other transportation options.”

Food delivery, shipping and car rentals

A few of the apps’ features will still be available even with ridesharing on a hiatus.

You can still order a meal through Uber Eats, for now. The company said it was closely monitoring a lawsuit filed by San Francisco District Attorney Chesa Boudin against DoorDash for also allegedly violating AB 5 worker classification requirements.

Uber Freight, the company’s platform that connects truck drivers with shippers, will also stay in service.

For Lyft Express Drivers, those who don’t have their own car and use rentals through the platform to drive, won’t have to return their vehicle, the company said, as long as the rental agreement is fulfilled. However, they won’t be able to drive for the company with the car. They can return the vehicle and only have to pay for the days they had the rental.

Drivers out of work

Perhaps the most concerning outcome of the shutdown is how hundreds of thousands of drivers will face some level of unemployment, depending on how much they drive for a company.

Around 305,000 Lyft and 100,000 Uber drivers could be affected, though the two companies have some worker overlap, all amid a pandemic that skyrocketed California’s unemployment rate to 14.9% in June.

The deluge of unemployed drivers could generate an “economic crisis” said UC Hastings labor law professor Veena Dubal, “which shows they are not very interested in the well-being of their workers.”

Both Uber and Lyft say the majority of their drivers want to maintain independent status, and that the legal challenges threaten their income capacity.

Groups working against Proposition 22, however, say the companies are intentionally avoiding their legal obligation to provide a fair wage and benefits like workers’ compensation and sick leave for their drivers.

“Uber and Lyft created this nightmarish business model that puts drivers on the outer edges of society, scrambling just to make ends meet,” said Jerome Gage, a Southern California-based Uber and Lyft driver. “I refuse to be intimidated by their scare tactics...because all drivers are deserving of employee benefits the law provides.”