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How Uber, Lyft’s fight against California lawmakers is heating up

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  • A state judge ruled that Uber and Lyft must start classifying their drivers as employees instead of gig workers starting on Thursday.
  • In response, the firms are threatening to temporarily shut down their businesses in California. 
  • Here’s how Uber and Lyft have fought hard over worker classification in their home state — and how their fight heated up this month.
  • Visit Business Insider’s homepage for more stories.

Ride-sharing giants Uber and Lyft are threatening to pull their businesses from their home state of California on Thursday until at least November and possibly longer, if a judge doesn’t grant them a 10-day stay on a ruling that classifies drivers as employees.

This is the latest effort from the firms to keep their drivers classified — and paid — as contractors instead of employees.

Companies like Uber and Lyft have built their business models around hiring drivers as independent contractors, reserving full-time employee status for corporate jobs such as the tech workers that build and run their app.

Classifying drivers as contractors allows them to keep their costs lower. They’ve said doing so also affords drivers flexibility in how and when they work. If the companies were to reclassify them as full-time employees, they could have to pay them higher wages and more benefits including unemployment insurance.

Doing so would have a major long-lasting impact on Uber and Lyft businesses but especially now, in the wake of the pandemic, where revenues from their rides businesses has suffered.

Here’s how California has upped the ante in recent months to get the firms to upgrade drivers to employee status:

In January, a controversial gig worker law called Assembly Bill 5 (AB5) went into effect that made it harder for companies to classify workers as contractors. The law was designed for companies that rely on gig workers. Uber and Postmates pushed back and filed a lawsuit that challenged the law while Lyft continued to argue that their drivers were contractors, even under the new law. As a result, drivers alleged in April that they were collectively owed more than $630 million in back wages since the first few months of the year.

In May, the companies were hit with a lawsuit from the California Attorney General over their refusal to recognize drivers as employees, a classification made even more crucial given the COVID-19 pandemic, the subsequent economic fallout and rise in unemployment. Then, California’s labor commissioner filed a lawsuit against both companies on August 5 alleging that the firms were “committing wage theft” by “willfully misclassifying” drivers as contractors instead of employees.

A state judge ruled that the firms indeed would have to start classifying all drivers as employees by August 20, but both companies have argued that migrating all of their gig workers to employee status would take time and are appealing for a delay. If the appeal isn’t successful, they are threatening to shut down business throughout California on Thursday until at least the election in November. Uber sent an alert out to customers on Tuesday night warning riders of a potential shutdown.

It’s worth noting that both Uber and Lyft have a history of threatening to pull their businesses from markets when they don’t want to comply with regulations. Doing so has worked in some cases, as Business Insider’s Tyler Sonnemaker reported. Uber and Lyft are also toying with other workaround options that would change their business model in the hope of avoiding California’s law, like adopting a franchise model, The New York Times reported Tuesday.

Meanwhile, Uber and Lyft, as well as other firms with heavy gig workforces, have been pouring millions into funding for a November ballot measure called Proposition 22, the Chronicle’s Carolyn Said reports. Prop 22 aims to get ride-sharing and food-delivery services classified as exemptions from the AB5 law. Worth noting, if Uber and Lyft do shutdown in California, this could prompt voters to back Prop 22 come November after being cut off from the convenience of ride-sharing services.

Instead of AB5, the companies have been advocating for regulators to create a third classification, just for gig workers. It would allow platforms to set up a so-called “benefits fund” that would offer cash stipends to help gig workers cover some of their expenses, like healthcare or paid time off, without risk that the workers could later claim they were employees, not contractors.

Axel Springer, Insider Inc.’s parent company, is an investor in Uber.

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