Uber and Lyft will not ditch California drivers and riders at midnight, after a state appeals court let them—for now—continue treating their drivers as independent contractors, instead of employees.
The court’s order halts a brief but furious game of chicken between the companies and the state of California, which sued them to follow a new labor law passed last fall. Uber and Lyft had threatened to leave the state over the law, Assembly Bill 5, which creates a more stringent test to differentiate contractors from employees. The companies said they didn’t have enough time to prepare for what would have been a monumental shift in their business model in the midst of a pandemic, though the law was passed last year.
For drivers and riders, the status quo is now set to continue until at least mid-October, when judges will hear the companies’ and state’s arguments in court. The appeals court also ordered the companies to submit a guarantee that they will comply with the law if they lose. Workers who are employees instead of contractors are entitled to minimum and overtime wages, paid sick leave, health benefits, and access to social insurance programs like unemployment.
The appeals court decision likely means that California voters—rather than judges—will determine the outcome of the Golden State labor fight. Uber, Lyft, Instacart, and DoorDash are backing a statewide ballot measure, known as Proposition 22, to create a “third” category of employment, which would include a minimum wage, some auto insurance and vehicle maintenance costs, and a health care stipend. The companies have poured more than $110 million into a “Yes on 22” campaign.
If Proposition 22 fails, and companies don’t prevail in their appeal, Uber and Lyft would have to rethink their business model in California, which is both their home state and host to some of their biggest markets. Lyft has said in legal filings that complying with AB 5 would mean “restructuring its business and changing its relationship with drivers by, for example, drastically reducing their flexibility and taking control over their time to manage them as employees.” Some drivers say the flexibility to work when and where they want attracted them to the platform.
The New York Times reported this week that both companies have considered a franchise model in the state, which might allow them to avoid treating drivers as employees. Or the companies could leave the state for good. Neither company responded to questions about its plans if Proposition 22 fails.
In a statement, Uber spokesperson Davis White said the company was “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.”
Lyft spokesperson Julie Wood said, “While we won’t have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers.”