Tech

Appeals court grants Uber and Lyft a temporary reprieve following threats to shut down in California

Key Points
  • A California appeals court extended the length of time Uber and Lyft will have to comply with an order requiring them to reclassify rideshare drivers as employees.
  • Top executives at Uber and Lyft both said last week they'd likely have to suspend service in the state to comply with the preliminary injunction. Both companies said they would continue to operate in the state as a result of the extended stay.
  • California officials claimed in a lawsuit that by violating a new state labor law, AB5, Uber and Lyft were skirting expenses like payroll taxes and unemployment insurance for their workers.
A traveler checks his phone beside an Uber sign, August 20, 2020 at Los Angeles International Airport in Los Angeles, California.
Robyn Beck | AFP | Getty Images

A California appeals court extended the length of time Uber and Lyft will have to comply with an order requiring them to reclassify rideshare drivers as employees. As a result, Uber and Lyft said they would continue operating in California during the stay after threatening to suspend service.

The temporary reprieve gives Uber and Lyft until 5 p.m. PT on Tuesday to file written statements agreeing to expedited procedures stated in the order.

Uber and Lyft's stocks were both up about 6% after the order. Both names had fallen into the negative after Lyft announced earlier Thursday that it would suspend its service in California at midnight PT but reversed its decision after the appeals court granted additional time. An Uber spokesperson said the company would continue to operate in California during the stay.

"We are 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," an Uber spokesperson said in a statement. Uber had not announced a decision to suspend service prior to the order.

Top executives at Uber and Lyft both said last week that they'd likely have to suspend service in the state to comply with the court order. The lower court granted a 10 day stay on the preliminary injunction but rejected to extend it. That stay was set to expire at the end of the day Thursday.

California Attorney General Xavier Becerra had requested the injunction as part of a May lawsuit that alleged Uber and Lyft violated the state's new labor law known as Assembly Bill 5 (AB5), which aimed to grant benefits to gig economy workers. Becerra and city attorneys from San Francisco, Los Angeles and San Diego claimed that by violating the law, Uber and Lyft were skirting expenses like payroll taxes and unemployment insurance for their workers.

The stay will extend until Uber and Lyft's appeals are resolved on the condition that they agree to a new timeline and procedure. If they do not, the stay will expire on Tuesday at 5 p.m. PT. One of those conditions is that the CEOs of Uber and Lyft both submit sworn statements on or before Sept. 4 confirming they've developed plans to comply with the preliminary injunction within 30 days of a ruling if the appeals court affirms the preliminary injunction and if Proposition 22, the ballot measure that would exempt the firms from AB5, fails to pass.

"We're confident in the facts of our case and look forward to continuing our fight to defend the rights of workers," a spokesperson for Becerra said in a statement.

While Uber and Lyft opposed AB5 prior to its passage, they later claimed they were not subject to the law as technology platforms, rather than employers. Uber, for example, made changes to its platform in California that allowed drivers to view more information about upcoming rides and have more control over their selections. That change could help Uber make the argument it does not control what workers do on the job, which is a key part of the three-pronged test that determines if hiring firms are employers.

But the lower court rejected arguments from the companies that drivers' work is outside the normal course of their business, another requirement of the so-called ABC test. 

An Uber executive told Eater last week that the company planned to continue operating its food delivery service in California in the event that it paused its ride-hailing business. While the injunction targets ride-hailing drivers, food delivery services have already attracted scrutiny under AB5. In June, San Francisco's district attorney sued the app-based delivery service DoorDash for misclassifying workers.

At least two start-ups, Alto and Arcade City, have said they were accelerating plans to enter California amid the legal battle. Other services, including traditional taxis, that already exist in the state also viewed a potential pause of Uber and Lyft's service as an opportunity to claw back market share.

A similar free-for-all occurred in 2016 when Uber and Lyft temporarily left Austin, Texas, over a new background check law that they argued would unnecessarily delay driver sign-ups. Several new rideshare businesses took hold, though Uber and Lyft ultimately gained back passengers upon their return once the state reversed the law.

This time, however, ride volume is already muted by the pandemic, which has prevented many people from travelling. 

Uber and Lyft are both backing a ballot measure, Proposition 22, that would exempt their ride-hailing and food delivery businesses from AB5 while providing for additional benefits for drivers. Voters will have the opportunity to decide on that question on Election Day.

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