Lyft will continue operating in California after appeals court grants reprieve


Published by CNBC.COM

Summary generated on August 20, 2020


    KEY POINTS.Lyft reversed a decision to suspend service in California Thursday after a California appeals court extended the length of time Uber and Lyft have until they need to comply with an order to reclassify drivers as employees.

    Earlier Thursday, Lyft said in a blog post it would suspend service in the state as of midnight PT.Both companies now have until 5 p.m. PT on August 25 to file written statements agreeing to expedited procedures required by the order.

    Lyft reversed a decision to suspend service in California Thursday after a California appeals court extended the length of time Uber and Lyft have until they need to comply with an order to reclassify drivers as employees.

    "While we won't have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers," a Lyft spokesperson said in a statement following Thursday's court order.

    "That's the solution on the ballot in November, and it's the solution drivers want because it preserves their ability to earn and to use the platform as they do now - whenever they want - while also getting historic new benefits. Without it, 80-90% of Californians who earn on app-based platforms will lose that opportunity."

    The court granted a preliminary injunction last week but stayed it until Friday while the companies appealed.

    Top executives at Uber and Lyft warned last week they would likely have to suspend service to comply with the order, which meant restructuring their operations and rehiring workers.

    Uber has not made a formal announcement yet about suspending service in California, but it is expected to do so.

    Lyft's stock tumbled 8.5% at one point Thursday following the news but regained about half the losses.

    Uber shares were up slightly after falling 3.2%. A driver adjusts his face mask as Uber and Lyft drivers with Rideshare Drivers United and the Transport Workers Union of America conduct a 'caravan protest' outside the California Labor Commissioner's office amidst the coronavirus pandemic on April 16, 2020 in Los Angeles, California.

    Mario Tama.The injunction was part of a lawsuit filed by California's attorney general and three city attorneys claiming Uber and Lyft skirted expenses for workers by falsely classifying them as contractors rather than employees.

    A judge granted the state's request for an injunction, saying he was unconvinced the companies met one of the key standards of the new state labor law, Assembly Bill 5, which says contractors must do work outside the normal course of the hiring firm's business.

    In a statement following Lyft's decision to suspend service, California AG Xavier Becerra said, "California is home to millions of businesses and millions of workers. Every day, companies here protect their workers' rights and benefits. California is America's economic engine because innovation and worker rights go hand in hand. Any company that suggests otherwise is peddling a false choice."

    Uber had planned to continue operating its food delivery service in California even during the suspension period, an Uber executive told the website Eater last week.

    The injunction targets ride-hailing drivers, but scrutiny on food delivery services has already ramped up under AB5, with San Francisco's district attorney suing the app-based delivery service DoorDash, claiming it misclassified workers.

    Uber and Lyft have a chance to avoid further legal action under AB5 with a November ballot measure they're supporting.

    If voters support Proposition 22, Uber, Lyft and other app-based ride-hailing and food delivery services will be exempted from AB5.

    The measure also provides for additional benefits for gig workers at such services.

    As of Oct. 1, Lyft had about 305,000 drivers in California who completed trips within the past year, though that number is likely far lower now as the coronavirus pandemic has kept many riders from traveling.

    Uber said in a recent blog post that its number of active drivers per quarter in California is about 209,000.

    San Jose Mayor Sam Liccardo, a Democrat, said the outcome of Lyft leaving the state was disappointing.

    "We simply don't want to see more people going without income, particularly when we know that there is a negotiated solution that we have here," Liccardo said in an interview on CNBC's "The Exchange" Thursday.

    He advocated for "Portable" benefits along the lines of what Uber CEO Dara Khosrowshahi has labeled a "Third way." Under the model, drivers working for multiple app-based businesses could accumulate benefits based on the number of hours they work no matter if they stick to one platform or not.

    While a suspension could drum up support for the ballot measure if riders miss the services, it will also present the opportunity for competitors to swoop in.

    Two start-ups, Alto and Arcade City, have accelerated plans to enter California amid the legal battle.

    Even existing services and taxi drivers could seize the opportunity to gain back market share.

    Still, a similar situation played out in Austin in 2016 when Uber and Lyft suspended service there over a new background check law they said would prolong their process of signing up drivers.

    While several new services took hold, the two giants regained much of their customer base when they returned after the state reversed the law.

    In its announcement Thursday, Lyft encouraged voters to support Prop 22 and said Californians could still use the Lyft app for bike, scooter and car rentals.

    WATCH: Uber and Lyft respond to California injunction ruling.