Lyft suspended California service after ordered to classify drivers as employees

A driver adjusts his face mask as Uber and Lyft drivers with rideshare Drivers United and the Transport Workers Union of America ‘caravan’ outside the California Labor Commissioner’s office amid the coronovirus epidemic in Los Angeles, California on April 16, 2020 Organizes the protest. (Photo by Mario Tam / Getty Images)

Mario Tum

The company said in a blog post that Lyft will suspend service in California at 11:59 pm Pacific time Thursday after a court imposed an initial injunction. The injunction was stayed for ten days by the companies appealing, but is set to come into effect on Friday.

Top officials at Uber and Lyft warned last week that they would have to suspend service to comply with a court order, which would include re-appointing their operations and re-hiring employees.

Uber has not yet made any formal announcement about suspending service in California, but it is expected to happen.

Lyft’s stock was down 8% on Thursday after this news. Uber shares were down 3%.

The injunction was part of a lawsuit filed by the California Attorney General and three attorneys in the city, claiming that Uber and Lyft reduced expenses for workers by misclassifying them as contractors rather than employees. While a judge granted the state’s request for an injunction that was unconstitutional, the companies were one of the key standards in the new state labor law, Legislative Assembly Bill 5 (AB5), which states that hiring contractors Business should work outside the normal course of the firm.

Uber told an executive at Ater last week that Uber planned to continue its food delivery service in California. The injunction targets ride-hailing drivers, but investigations on food delivery services have already begun under AB5, with San Francisco’s district attorney suing the app-based delivery service DoorDash for caretaker workers .

Uber and Lyft have a chance to avoid further legal action under AB5. If voters support Proposition 22, Uber, Lyft and other app-based ride-hailing and food delivery services will be exempted from AB5. Gigs in such services also provide measures for additional benefits for workers.

As of October 1, Lyft had about 305,000 drivers in California, completing trips within the past year, although that number is now much lower because the coronavirus virus epidemic has kept many people away from travel. A spokesperson did not immediately respond to a request for recent data.

Uber said in a recent blog post that California has approximately 209,000 active drivers per quarter.

While a suspension may drum up support for ballot measurement if riders miss services, it will also present an opportunity for competitors to swoop. Alto and Arcade City, two start-ups in the midst of a legal battle, have intensified plans to enter California. Even existing services and taxi drivers can seize the opportunity to gain market share. Rendership is already low across the board, however, travel has stalled during the coronovirus epidemic.

Nevertheless, a similar situation arose in Austin in 2016, when Uber and Lyft suspended the service under a new background check law that they said would prolong their process of signing up drivers. When several new services gained momentum, the two giants regained their customer base, when the state overturned the law.

In his blog post, Lyft encouraged voters in November to support Proposition 22. It also said that California residents can still use the Lyft app to rent bikes, scooters and cars.

Subscribe to CNBC on YouTube.

Look: Uber and Lyft Respond to California Prohibition Verdict


Leave a Reply

Your email address will not be published.