California’s new labor law, AB5, makes in difficult for companies to classify workers as independent contractors instead of employees who are entitled to minimum wage and benefits such as workers compensation.
Companies that have flourished in the state’s gig economy have been hit hard. In fact, Uber and Lyft have been threatening to shut down their services in California at the end of this week after a judge’s order to classify their drivers as employees, instead of independent contractors, as required by a AB5.
However, an appellate court have given these two companies a reprieve, so operations will continue for the time being.
On Thursday afternoon, an appeals court said the companies can keep operating with their drivers as independent contractors while they fight the order.The court has also given the companies until early September to come up with plans for how they would comply with the law.The threatened shutdown would have left hundreds of thousands of drivers without work and millions of customers with one fewer transportation option in California, which is among both companies’ biggest markets.
The news was welcomed by the market.
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.
Uber and Lyft have suffered with the implementation of pandemic policy. Both firms say that converting drivers to formal employees with benefits would force the companies to lay off drivers.
In its earnings call with investors this month, Uber said its core business of picking and dropping people off has fallen nearly 75%.Uber is now making more money delivering food than it is from ride-hailing. Still, its revenue remains down 30% from the same period last year.Since the coronavirus outbreak started, Uber has laid off some 6,700 office workers, and Lyft has let go of nearly 1,000 employees.
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