A California appeals court judge blocked an order requiring Uber and Lyft to classify drivers as employees, averting an expected shutdown of the ride-sharing services in California at midnight tonight. The court granted Uber and Lyft a temporary stay while their appeals process play out.
Lyft had already announced it was planning to temporarily cease operations in the state earlier today, and Uber CEO Dara Khosrowshahi had said the same about his company in an interview yesterday.
But the companies won an 11th hour reprieve from the California Court of Appeals hours before the shutdown was expected to go into effect. Uber and Lyft will now have until October to convince the court to throw out the order that it employ its drivers. If they are unsuccessful, the companies will be back where they started, and may again decide to shutdown.
Uber and Lyft are under enormous pressure to fundamentally alter their business models in California, the state where both companies were founded and raised billions of dollars in venture capital. Uber and Lyft say drivers prefer the flexibility of working as freelancers, while labor unions and elected officials contend this deprives them of traditional benefits like health insurance and workers’ compensation.
In January, a new law went into effect called AB5, which makes it more difficult for companies to use independent contractors. The law was mostly targeted at ride-sharing companies like Uber and Lyft, which have built their businesses on the concept of independent contractors using their own vehicles to make trips and shouldering the costs of their work.
This won’t be the final word. Uber and Lyft, along with DoorDash, were successful in getting a proposition on the state’s 2020 ballot that, if approved, would allow it to sidestep AB5 and continue classifying its drivers as independent contractors. The measure, Proposition 22, also stipulates that the companies provide more benefits to drivers, such as a minimum wage and access to health insurance. Unions and other pro-AB5 groups argue these benefits fall short of what drivers would be entitled to as employees.
In a statement, Uber celebrated the court’s ruling. “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,” a spokesperson said.
In a statement, Lyft said that the temporary stay was a victory, but the company would still push for the passage of Prop 22. “While we won’t have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers,” a Lyft spokesperson said.