Uber Will Close Down In California After Court Ruling, CEO Warns

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Court ruling to classify Uber and Lyft drivers as employees means Uber and Lyft will probably shut down temporarily in California – executives warn

The CEO of Uber has warned the people of California that its service in that US state will likely be shut down temporarily, because of a court ruling.

Last week in what could be a significant development for workers in the gig economy, Judge Ethan Schulman of San Francisco Superior Court ruled that drivers for Uber and Lyft are employees, and not freelancers or contractors.

This has triggered a similar shutdown warning from Lyft as well. During an earnings call, Lyft co-founder and President John Zimmer reportedly said Lyft may suspend services in California if the state does not overturn the recent ruling.


Court ruling

Essentially, the court had granted California’s request for a preliminary injunction blocking Uber and Lyft from classifying their drivers as independent contractors rather than employees.

Both companies had been accused of violating California’s Assembly Bill 5 (“AB5”), which is a new state law requiring companies to classify workers as employees if they controlled how workers did their jobs, or the work was part of their normal business.

California’s attorney general and three city attorneys had brought the lawsuit against the companies under the AB5 law. They want Uber and Lyft to provide benefits and unemployment insurance for theirt workers.

In his 34-page ruling, Judge Schulman blamed both Uber and Lyft of “prolonged and brazen refusal” to comply with state law.

Indeed, Judge Schulman reportedly said the plaintiffs showed an “overwhelming likelihood” they could prove Uber and Lyft classified drivers illegally.

“This is a resounding victory for thousands of Uber and Lyft drivers who are working hard – and, in this pandemic, incurring risk every day – to provide for their families,” Los Angeles City Attorney Mike Feuer said last week.

Judge Schulman delayed enforcing his order by 10 days to allow appeals, which both Uber and Lyft said they would pursue.

California suspension

But now in response, Uber CEO Dara Khosrowshahi said in an interview with MSNBC, that Uber’s service will probably shut down temporarily in California for several months, if it is forced to classify drivers as employees.

“If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly,” Khosrowshahi reportedly said.

Rather than classify drivers as employees, Khosrowshahi advocated for what he calls a “third way” that would maintain drivers’ independence while allowing companies to provide some protections without risking being viewed as full-time employers.

In a New York Times op-ed before last week’s court ruling, Khosrowshahi had said gig companies such as Uber could pay into a fund that workers could dip into for paid time off or health-care benefits based on the number of hours they work.

Khosrowshahi said on Wednesday that his Plan B if Uber can’t win on appeal would be to temporarily pause service in California.

While he said Uber would later resume service in the state, it would likely be more centered in cities, which could mean limited availability in less concentrated areas such as suburbs.

Earlier this month on this side of the pond, Uber expanded its ride-hailing reach in the UK with the purchase of Autocab for an undisclosed amount.

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Author: Tom Jowitt
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