UPDATE: Uber CEO Dara Khosrowshahi said the company would probably shut down operations in California temporarily if this week’s ruling is not overturned. However, that would only apply to the company’s rideshare business. An Uber spokesperson confirmed to Eater that the company “has no plans to cease California operations of Uber Eats.”
A California judge late Monday ordered that Uber and Lyft must reclassify their drivers as employees. This preliminary injunction is stayed for 10 days, during which time Uber and Lyft can file an appeal. Both companies have said they will do so.
This week’s order comes after California Attorney General Xavier Becerra and city attorneys in California sued Uber and Lyft in May for allegedly treating their workers as contractors. The suit alleged that these companies were in violation of AB5, which went into effect in January of this year. Under the law, gig economy workers (including food delivery couriers and drivers) must be classified as employees and given access to benefits like sick leave, unemployment, and workers comp.
Uber, Lyft, and other gig worker companies have already funneled substantial resources into challenging AB5. In December of 2019, Uber and Postmates filed a complaint (which was later rejected) alleging the law violates constitutional rights. DoorDash, along with Uber and Lyft, has vowed to spend millions to get a ballot measure in 2020 that would counteract AB5. And these tech companies have argued ad nauseam that their workers want to be independent contractors and that their services are exempt from the law on the grounds that they are platforms, not transportation companies.
California Superior Court Judge Ethan Schulman wrote in this week’s ruling that such logic “flies in the face of economic reality and common sense… To state the obvious, drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business.”
That third-party food delivery services stand on the same side of the AB5 argument as rideshare companies is no surprise. The third-party delivery model relies on workers to transport food from restaurants to customers’ homes. Having to pay workers things like health benefits and paid sick leave would undercut the entire third-party delivery model, adding extra costs for the likes of Uber and DoorDash, and ultimately slowing their still-elusive path to profitability.
Uber went as far as to say that if this week’s injunction stands, it may have to exit California. Assuming that would apply to both its rideshare business and its Eats operation, that would erode the company’s recent deal to acquire Postmates, a service that’s most popular on the west coast.
No other state has yet moved so aggressively to get gig workers reclassified. But thanks to COVID-19, much light has been shed on workers’ access to things like health benefits or even paid sick leave and unemployment during a global crisis. In March, a New York Court ruled that Postmates couriers are employees and therefore eligible for unemployment. In the same month, Instacart revamped its benefits for drivers after workers threatened to strike.
You can read this week’s ruling in full here. If it stands, and Uber and Lyft are unsuccessful in their appeals, the order could have a ripple effect across other states in the U.S.