Aug 13, 2020 - Economy & Business

Breaking down Uber and Lyft's threat to suspend services in California

A car.

Illustration: Lazaro Gamio/Axios

Uber and Lyft are ratcheting up the fight with California’s state government over the classification of drivers with a move that would deprive Californians of their ride-hailing services (and halt driver income).

Driving the news: On Wednesday, both companies said that if a court doesn’t overturn or further pause a new ruling forcing them to reclassify California drivers as employees, they’ll suspend their services in the state until November’s election, when voters could potentially exempt them by passing a ballot measure.

Between the lines: Many critics suggested the companies are bluffing, but I’m not so sure. A few reasons...

  1. The logistics aren’t trivial. They’d have to figure out staffing needs and a schedule, hire however many drivers they need, and onboard everyone.
  2. It’s unlikely the companies want to go through all the above, just to reverse course if they win in November.
  3. Depriving customers of these services could get them more support in November. The companies have, in the past, successfully turned customers into their political advocates.
  4. With demand for ride-hailing already being significantly deflated, the additional drop in revenue is perhaps something they’re willing to swallow.
  5. Even if they could make these shifts quickly, it’s unlikely the companies want to give drivers a taste of employee life and risk sabotaging their ballot measure.
  6. Lastly: They’ve done it before. In 2016, when Austin passed new rules requiring driver fingerprinting, Uber and Lyft suspended operations and didn’t return until Texas overrode the rules a year later.

Why it matters: Only Uber and Lyft are party to this lawsuit, but several district and city attorneys — and regulators — are already suing other gig economy companies like Instacart and DoorDash over the same California law.

  • What happens at the California ballot box in November will have ramifications beyond Uber and Lyft’s ride-hailing businesses.
  • It could also affect the future of high-demand services like food and grocery delivery, which have become critical for many Californians while the COVID-19 pandemic continues.
  • (Uber also operates a food delivery business and recently agreed to acquire rival Postmates, which is widely popular in California cities like San Francisco and Los Angeles.)

The bottom line: Don’t expect these companies not to pull out all the stops to fight this.

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