We’re now just a few days from what could be the suspension of Uber Technologies and Lyft service in California, and speculation is growing about how the companies will respond.
Last week, a California judge ordered the ride-sharing companies to comply with the provisions of AB5, a state law that effectively requires management to treat drivers as employees, rather than contractors.
While AB5 went into effect Jan. 1, the two companies have declined to comply, asserting that the law should not apply to them. In May, the city attorneys of Los Angeles, San Diego, and San Francisco sued the companies on behalf of the state, seeking to force compliance.
On Aug. 10, the judge issued a temporary injunction banning further violations of the law, but stayed the order for 10 days to allow the companies to appeal. Unless the stay is extended, it will expire Friday morning. Both ride-sharing companies said last week that they will have to temporarily suspend operations in California if the ruling stands.
But the New York Times on Tuesday reported that the two companies are considering licensing their brands to fleet vehicle operators, who would pay the drivers, rather than Uber (ticker: UBER) and Lyft (LYFT), thus freeing them from the terms of AB5. The article notes that Uber already works with fleet operators in Germany and Spain, and it says Lyft has presented the idea to its board.
“This is similar to how Uber Black operated a decade ago, with higher prices and less reliability,” Uber said in response to an inquiry about the report. “In some models, drivers bring their own cars; in others, the cars are owned by the fleet. In either case, drivers would likely earn a predetermined hourly wage for their time on-app—but, in exchange, fleets would need to monitor and enforce drivers’ activity and efficiency, for instance by putting drivers into shifts, dictating where and when they must drive, and enforcing trip acceptance criteria. We are not sure whether a fleet model would ultimately be viable in California.”
Lyft told the Times it also has looked at alternative models but would prefer a system that would allow drivers to remain independent.
Lyft provided Barron’s with the same statement it made to the Times.
“We’ve looked at alternative models, and the one that would work best for drivers is what we’re supporting in the ballot measure—they remain independent and can work whenever they want while also receiving additional health care benefits and an earnings guarantee,” Lyft said.
The article notes that there are complications, including potentially higher costs with a third party that needs to be paid, and the fact that few fleet operators are big enough to absorb all of the demand that Uber and Lyft now handle.
Meanwhile, Reuters is reporting that Uber plans to continue to operate its Uber Eats food delivery service even if it shuts the ride-sharing business. An Uber spokesperson told the news service that the Uber Eats does not appear to be affected by the lawsuit that triggered the temporary injunction.
Uber stock rose 1.4% to $29.89, while Lyft gained 0.7% to $27.36.
*by Eric J. Savitz via Barron’s*