An appeals court has allowed ride-hailing giants Uber and Lyft to continue treating their drivers as independent contractors in California in a decision that will give the two companies a few more months to protect their business models in a key market.
The stay pauses a lower-court ruling that was scheduled to take effect at midnight on Friday and would have forced Uber and Lyft to treat all their drivers as employees – a change the companies said would be impossible to accomplish overnight and would have saddled them with a financial burden that would be difficult for them to shoulder while they are still struggling to turn a profit.
Lyft told riders and drivers in a Thursday blog post that it planned to discontinue providing rides in California just before midnight without a stay. Uber CEO Dara Khosrowshahi had repeatedly said its service would have no choice but to stop providing rides in California if the state’s law goes into effect because the company can″t afford to hire 50,000 drivers as employees quickly enough to comply.
A California shutdown would have dealt a staggering blow to Uber and Lyft at a time when both are still sustaining huge losses while the pandemic has scared off millions of riders who aren’t traveling as much or are worried about possible exposure to the novel coronavirus.
The state represents a big part of Uber and Lyft’s businesses. It accounted for 9% of Uber’s worldwide rides before the pandemic caused people to avoid traveling. California is even more important to Lyft, which doesn’t operate outside of the U.S. besides Canada. It accounted for 21% of Lyft’s rides before the pandemic, but that figure dropped to 16% during the April-June period as more people stayed at home and there were few places to go.
Uber said the appeals court reprieve will ensure its “critical services won’t be cut off while we continue to advocate for drivers’ ability to work with the freedom they want.”
Lyft applauded the stay in a statement while vowing “to continue fighting for independence plus benefits for drivers.”
Investors cheered the news too as Uber’s stock gained nearly 7% to close at $31.41 and Lyft’s stock gained nearly 6% to close at $29.76.
The stay delivered a temporary setback for California Attorney General Xavier Becerra after winning a lower-court ruling earlier this month that would have enforced new employment standards passed by state lawmakers last year.