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Uber and Lyft Say They Will Likely Suspend Service in California Because of Suffocating Labor Order

Ellie Bufkin | Published on 8/13/2020

Global rideshare giant Uber has said they will most likely have to suspend their service throughout California now that the state has ordered them to hire all of their drivers, rather than allow them to drive as independent contractors. 

The order comes after the state has been engulfed in controversy following the enactment of Assembly Bill 5 in January, legislation that completely upended employment laws in California. The bill totally redefined the parameters of independent contract work, which specifically skewered the gig economy and freelance work. 

Under AB5, gig workers such as rideshare drivers, delivery drivers, and other on-demand service workers for an industry that has surged in the past few years, contract work is limited severely. The law requires that the company hires the workers rather than allow them to work their own hours at their own pace, a restriction that completely undermines the business model for the gig economy.

Democratic lawmakers helmed by California Assemblywoman Lorena Gonzalez introduced the bill to ostensibly help workers in the state receive state-mandated employer benefits that they would be eligible for if they were forced onto the staff. 

In practice, however, AB5 has cost thousands of Californians work as freelancers and gig workers are no longer legally allowed to earn money unless they are a normal member of staff. Freelance writers, for example, must be taken on as full-time staff if they produce more than 35 pieces of writing per publication per year. In the digital age, that threshold has been crippling for writers who have depended on being able to contribute to multiple outlets simultaneously. 

Both Presumed Democratic Presidential nominee Joe Biden and his VP pick Sen. Kamala Harris fully support AB5, despite the fact that even far-left Californians have spoken out against its stranglehold on earning potential in the state. They also support the PRO Act, a federal measure that would apply the same job-killing laws to the entire nation. The Democratic-led House of Representatives passed the measure earlier this year. It is not expected to come up for a vote in the Republican-held Senate, but will likely resurface in another form should Democrats gain more control in Congress after November.  

The business model for Uber works for riders because of the low overhead made possible by the independent contracting relationship with the drivers. The corporation works for drivers who often contract with multiple companies and get to pick their own hours. As full-time employees of just one company with mandatory set schedules and costly benefits, the ride rates would be exorbitant and the employment freedom for the drivers would evaporate. 

The fate of rideshare driving and business in the state has been held up in litigation for months as Uber, Lyft, and Postmates have taken California to court over the devastating impact of AB5 on their business. Now, out of options, Uber has said they will probably not be able to continue service in the nation's most populous state. 

A San Francisco court ordered this week that Uber and Lyft would not be exempt from the restrictions of AB5 and would be required to classify their drivers as employees, not independent contractors, an order they had resisted until now. 

A ballot measure for Californians in November, Proposition 22, would exempt app-based on-demand ride and delivery services from the draconian demands of AB5. That measure was largely funded by the companies to the tune of $30 million. 

Lyft President John Zimmer encouraged voters to take the matter seriously when they head to the polls this fall. 

"If our efforts here are not successful it would force us to suspend operations in California," Zimmer said. Uber CEO Dara Khosrowshahi echoed Zimmer's sentiment.

"If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly," Khosrowshahi told MSNBC. Both companies intend to appeal the court ruling, which has given them 10 days to do so. Should they fail, Uber and Lyft both stated they will be required to suspend service pending the results of the election and success of Prop. 22.