Lyft will postpone its ride-hailing service in California

Lyft will postpone its ride-hailing operations in California together with Uber, the company confirmed in a blog post. The company was instructed by a state judge to recruit its drivers than categorizing them as independent contractors. However, Lyft is planning to stop its operations in California than agreeing to that order – for now at least.

Lyft’s Statement in a Post

Lyft wrote in a post:

“This is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips”.

The company added:

” We’re personally reaching out to riders and drivers to share more about why this is happening. What you can do about it, and to provide some transportation alternatives”.

Uber has also mentioned that it will stop operations in California at the end of the day. Though the company is yet to announce it. A spokesperson for the company rejected to comment, however, it distributed a link to a Medium article. Disagreeing that Uber has been an important transportation service throughout the coronavirus pandemic.

Lyft’s bike and scooter-sharing services will still be operating in California. And also its car rental service and public transit navigation tool.

Uber and Lyft are under pressure

Uber and Lyft are under massive pressure to amend their business models in California. California is the state where the two companies were founded and made billions of dollars in venture capital. Both companies made it clear that drivers like the versatility of operating as freelancers. While labor unions as well as elected officials assert this deny them of traditional benefits. Just like workers’ compensation and health insurance.

A new law called AB5 went into effect in January. Which makes it very hard for companies to make use of independent contractors. The law was mainly centered at ride-sharing companies, just like Lyft and Uber. Which have placed their business on the idea of independent contractors shouldering the prices of their work.

In May,  California Attorney General Xavier Becerra, together with city attorneys of Los Angeles, San Francisco, and San Diego sued both companies. Saying that their drivers were miscategorized as independent contractors when they should be seen as employees below AB5. Xavier Becerra, later on, filed a motion for a preliminary directive. That could push the ride-hailing companies to immediately categorize their drivers as employees

Ethan Schulman instructed both companies to reclassify their drivers

Ethan Schulman, California Superior Court Judge also supported Becerra. By going further to instruct the companies to reclassify their drivers as soon as possible.

Schulman wrote:

“To state the obvious, drivers are central, not tangential, to Lyft and Uber’s entire ride-hailing business”.

However, the companies have chosen to close instead. In its blog post, Lyft criticized “Sacramento politicians” for placing an “employment model that 4 out of 5 drivers don’t support”. The company says the adjustment ” would also necessitate an overhaul of the entire business model. It’s not a switch that can be flipped overnight”.

Note: AB5 was signed into law in September, in the year 2019 and went into action in January. Which is closely 8 months ago.

Lyft and Uber’s Comment

Uber and Lyft mentioned that under AB5, their services will be more costly and less dependable. Lyft mentions that 80 percent of its drivers “would lose work. And the rest would have scheduled shifts and capped hourly earnings”.

However, this won’t be the last word. Both companies, together with DoorDash, were fortunate in getting a proposition. Prop 22, on the 2020 ballot of the state that, if accepted. Would enable it to avoid AB5 and keep categorizing its drivers as independent contractors.

Prop 22 also requires that the companies allow more benefits to drivers. Benefits like minimum wage and access to health insurance. Unions and several other pro-AB5 groups say these benefits fall short of what drivers will be permitted to as employees.

Lyft says:

“We don’t want to suspend operations. We are going to keep up the fight for a benefits model that works for all drivers and our riders”.