Lyft suspending California service after being ordered to classify drivers as employees

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Lyft suspending California service after being ordered to classify drivers as employees

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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. (Photo by Mario Tama/Getty Images)

Mario Tama

Lyft will suspend service in California at 11:59 Pacific Time Thursday after a court granted a preliminary injunction last week requiring it to reclassify drivers as employees, the company said in a blog post. The injunction was stayed for ten days while the companies appealed, but is set to go into effect Friday.

Top executives at Uber and Lyft warned last week they would likely have to suspend service to comply with the court order, which would involve them restructuring their operations and re-hiring workers. 

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

Lyft’s stock was down 8% Thursday following the news. Uber shares were down 3%.

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 (AB5), which says contractors must do work outside the normal course of the hiring firm’s business. 

Uber had planned to continue operating its food delivery service in California even during the suspension period, an Uber executive told 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 for misclassifying workers.

Uber and Lyft have a chance to avoid further legal action under AB5 with a ballot measure they’re supporting in November. 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 October 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 from travelling. A spokesperson did not immediately respond to a request for more recent figures.

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

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 on the opportunity to gain back market share. Ridership across the board is already low, however, as travel has stalled during the coronavirus pandemic. 

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 blog post, Lyft encouraged voters to support Proposition 22 in November. It also said California residents could still use the Lyft app for bike, scooter and car rentals.

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WATCH: Uber and Lyft respond to California injunction ruling

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