Lyft's president threatened to shut down its California operations over a court ruling requiring it to reclassify drivers as employees

  • Lyft president John Zimmer said that the company may pause all operations in California if forced comply with a recent court ruling ordering it reclassify drivers as employees.
  • Zimmer told investors during its earnings Wednesday that California accounts for about 16% of its total rides.
  • Regulators said the state's work requires ride-hail companies like Lyft and to treat drivers as employees and took them to court over their refusal to comply, and a court handed the companies a major defeat earlier this week.
  • Both Lyft and Uber, whose CEO made a similar claim about suspending operations earlier Wednesday, have a long history of threatening to stop doing business in places where they oppose regulations.
  • Visit Business Insider's homepage for more stories.

Lyft president John Zimmer warned that the company may temporarily stop operating in California due to a court ruling earlier this week ordering the ride-hailing giant to reclassify drivers as employees.

"If our efforts here are not successful it would force us to suspend operations in California," Zimmer told investors during Lyft's quarterly earnings call Wednesday, according to the San Francisco Chronicle.

Zimmer's comments echoed a similar warning from Uber CEO Dara Khosrowshahi, who told MSNBC earlier on Wednesday that "it's hard to believe we'll be able to switch our model to full-time employment quickly."

On Monday, a California court ruled that Lyft and Uber must treat their California drivers as employees rather than independent contractors under the state's  gig work law, . The ruling dealt the companies a major blow in their legal battle with the state over drivers' status.

The judge in the case issued a 10-day stay on the ruling in order to give the companies time to appeal. Both have argued that reclassifying drivers would significantly hurt their business.

"Lyft cannot comply with the injunction at the flip of a switch," Zimmer said, according to the Chronicle, adding that doing so during the coronavirus pandemic would be "nearly impossible."

He told investors that rides taken in California account for roughly 16% of the company's total trips.

Lyft and Uber have refused to reclassify drivers as employees under AB-5, initially arguing the law doesn't apply to them. But the state's top rideshare regulator determined the opposite in a June ruling, and a group of city attorneys from California cities including Los Angeles, San Francisco, and San Diego filed suit against the companies over the issue in May.

Lyft and Uber have made similar kinds of threats in the past — and it's worked

Uber and Lyft have a long history of making — and in some cases acting on — similar threats about leaving when faced with regulations they don't like.

Researchers from the University of California Berkeley noted in 2018 that Lyft and Uber used similar tactics in Chicago, Houston, Austin, and San Antonio in response to the cities' efforts to require drivers to undergo more rigorous background checks in order to work for the platforms. Both companies temporarily left Austin, and Uber also left San Antonio, before the regulations were revised or overturned with legislation supported by the companies.

"Uber's threats to leave a market have been an effective tool of overturning regulations," the researchers concluded.

The researchers also pointed to Uber's regulation-busting strategies such as leveraging its app to mobilize drivers and consumers in support of legislation or ballot initiatives it supports and "manipulation of public opinion data available to regulators."

Uber and Lyft have deployed similar approaches in their effort to avoid having to comply with AB-5. The companies poured $30 million each into a ballot measure that would exempt rideshare and food delivery companies from the law.

Zimmer used Wednesday's call as an opportunity to push the Lyft and Uber-backed measure, telling investors that "California voters can make their voices heard by voting Yes on Prop. 22 in November," according to the Chronicle.

The companies argue that, in addition to helping their own bottom lines, drivers also benefit from the flexibility of working as independent contractors. They have also said that new benefits that they would provide under Proposition 22 will give drivers the best of both worlds.

But driver advocacy groups have pushed back on those talking points, saying that it lets Lyft and Uber off the hook for denying drivers more robust pay, benefits, and labor protections guaranteed to traditional employees in California, and that it's the companies' own fault if they curb flexibility in response to regulations.

The state's labor commission brought a separate lawsuit against the companies earlier this month on similar grounds, claiming that Lyft and Uber have committed wage theft by misclassifying drivers. Driver advocacy group Rideshare Drivers United, which has been rounding up driver wage theft accusations, claimed that Uber and Lyft owe more than $1.3 billion in payments to drivers in California.

Axel Springer, Insider Inc.’s parent company, is an investor in Uber.

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