Tech

Lyft may suspend service in California if court requires it to classify drivers as employees

Key Points
  • Lyft may suspend services in California if the state does not overturn a recent ruling requiring it to classify its drivers as full-time employees, Lyft co-founder and President John Zimmer said on the company's second-quarter earnings call. 
  • Uber made a similar announcement earlier Wednesday. 
Lyft President John Zimmer (L) and CEO Logan Green during an interview at an IPO event in Los Angeles March 29, 2019.
Michael Luciano | CNBC

Lyft may suspend services in California if the state does not overturn a recent ruling requiring it to classify its drivers as full-time employees, Lyft co-founder and President John Zimmer said on the company's second-quarter earnings call. 

Shares of Lyft were as high as 6% after hours, but went negative when Zimmer said Lyft might suspend service in the state.

Uber would also likely pause its service in California if the ruling is not overturned, CEO Dara Khosrowshahi said in an MSNBC interview Wednesday. Khosrowshahi said a suspension would likely last until November when voters would decide on the ballot measure, Proposition 22, which would exempt drivers for app-based transportation and delivery companies from being considered employees.

Zimmer on Wednesday also stressed the importance of Proposition 22 on the company's earnings call. 

"If our efforts here are not successful it would force us to suspend operations in California. Fortunately, California voters can make their voices heard by voting yes on Prop 22 in November," Zimmer said. 

On Monday, a California judge granted a preliminary injunction requiring Lyft and Uber to stop classifying their drivers as independent workers after a ten day period in which the companies said they would appeal the ruling. If upheld, the order will require Lyft and Uber to treat its drivers as employees and cover additional expenses like benefits and unemployment insurance.

California Attorney General Xavier Becerra sued the companies in May alongside three city attorneys, alleging they violated the state's new law that aims to provide benefits to gig workers. Uber and Lyft have consistently opposed the law and are funding a ballot measure that would exempt them from it if passed.

Uber's Khosrowshahi has recently advocated for what he calls a "third way" to classify workers. He has argued there should be a way for workers to enjoy the flexibility of independent work while having access to some of the protections offered by employee status. In a New York Times op-ed published before the court ruling, Khosrowshahi suggested gig companies could pay into funds that workers have access to based on their hours worked in order to cover health insurance, paid time off or other costs. Lyft's leadership has not been as actively vocal on alternative labor models.

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California AG on court order requiring Uber, Lyft to classify drivers as employees