Things are getting heated right about now. Uber CEO Dara Khosrowshahi and Lyft President John Zimmer are threatening to take away their toys and stop playing in California.
The ridesharing giants are upset because earlier this week, a judge in California ruled that both Uber and Lyft must classify their drivers as employees within 10 days, or file an appeal.
Now, Uber and Lyft are threatening to leave the state of California – temporarily – unless a court does not overturn that recent ruling.
Would Uber and Lyft really do this? And what kind of impact could this have on California drivers?
We want to hear from you! What do you think the future of rideshare will look like in 2021? Share your opinions here!
- If Uber and Lyft do leave California, you need to be prepared with another gig because they usually leave quickly
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Background to Uber and Lyft Potentially Leaving California
On January 1, the law AB5 went into effect in California. Following the letter of the law, neither Uber nor Lyft can classify their drivers as independent contractors (ICs).
Both companies have ignored the law and have pinned their hopes on Proposition 22, which will be on the November ballot.
Proposition 22 creates a hybrid category for rideshare drivers that would not provide nearly the same benefits afforded an employee, thereby keeping Uber and Lyft’s driver expenses as low as possible.
On Monday, the judge ruled against Uber and Lyft and gave them 10 days to abide by the law or appeal. Uber and Lyft both said they would appeal the ruling during the 10-day period before it goes into effect.
Uber and Lyft Threaten to Leave California
Here is what Uber CEO Dara Khosrowshahi said to MSNBC reporter Stephanie Ruhle:
“Uber would likely shut down temporarily for several months if a court does not overturn a recent ruling requiring it to classify its drivers as full-time employees. If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly.”
As I look at the language, it is clear to me that Khosrowshahi is not saying Uber WILL shut down. He says it is “likely.”
He also does not say Uber WILL not be able to switch to an employee model. Instead, he says “it’s hard to believe” Uber could do it.
On Wednesday during Lyft’s earnings call, The Verge reported the following from President John Zimmer:
“If our efforts here are not successful it would force us to suspend operations in California,” Zimmer said on a call announcing the second quarter earnings of 2020. “Fortunately, California voters can make their voices heard by voting yes on Prop 22 in November.”
Is This a Scare Tactic?
Khosrowshahi is a seasoned CEO. He is hyper-aware of his choice of words. Zimmer has been around long enough to also know the impact of his words.
Let us assume this is a scare tactic. My question is, who are they trying to influence? The judge is not going to change his mind.
The drivers who Uber would be abandoning can’t do anything about it.
The passengers who Uber and Lyft would be abandoning can’t do anything about it.
We want to know what you think of this news! Share your opinion below:
A History of Leaving An Area
When Uber and Lyft leave, they typically leave quickly. In Austin, that gave rise to many, many rideshare companies that tried to fill the void. We covered how Austin fared after Uber and Lyft pulled out and, while chaotic, it definitely led to a lot of new companies.
For the most part, many of those companies are no longer in existence or are very casual (i.e. not exactly easy for passengers to find or use). RIP Ride Austin, which was one of the companies we profiled originally!
How Timing Impacts This Decision
Due to the pandemic, ride volume is down. If ever there was a time to leave town with little financial downside, this is it.
It would not be a big hit for Uber as it might have been pre-pandemic. However, Lyft announced on their earnings call that California is 16% of their total rides:
*stay expires Aug 20. So by Aug 21, California could be virtually rideshare-less$Lyft adds: California makes up about 16% of total rides
— Deirdre Bosa (@dee_bosa) August 12, 2020
What Should California Drivers Do?
It is possible that another rideshare company could move into the California market to grab some market share. It is a HUGE opportunity for a company like Alto out of Dallas or even some of the smaller start-ups.
If you’ve been thinking of starting a rideshare company, maybe now is the time to do it! Listen to this podcast episode with Ed Walker on getting insurance for your company if you’re serious about it.
Uber and Lyft Show Little Commitment To Drivers
In a situation like this, Uber and Lyft are showing their true colors. Instead of biting the bullet for a couple of months and classifying drivers as employees in one single state until the big November election, they are threatening to leave town.
To further exacerbate the situation, Uber and Lyft have no guarantee that Proposition 22 will pass. What if it doesn’t? Would that mean they would leave California for good?
I don’t think so. California is no Austin, TX, or Broward County, FL. The loss of California revenue would be enormous.
Furthermore, if turning gig workers into employees (or something like it) is successful, other states may follow California’s lead and implement similar laws. Will Uber just begin to leave the US, state by state? That wouldn’t make sense.
Drivers, prepare for the worst. Sign up for delivery gig jobs now before an influx of newly laid off drivers flood the background check processes for delivery jobs.
Overall, I think this is a huge mistake on Uber and Lyft’s parts. This either plays out in one of two ways:
- Uber and Lyft leave California and drivers, desperate for any work in this tumultuous environment we all live in now, vote en masse for Proposition 22. Uber and Lyft are happy and return to California.
- Uber and Lyft leave California and drivers (and passengers), angry to be abandoned during these terrible times, take it out on Uber/Lyft and vote against Proposition 22.
Option 3 is Uber and Lyft are calling California’s bluff, California somehow caves, and Uber and Lyft remain in California. These are apparently options Uber and Lyft are willing to take.
Either way, Uber and Lyft would be giving their opposition tremendous ammunition for political ads.
I recommend all drivers sign up for a few delivery services. If Uber and Lyft leave, it will happen fast and you don’t want to be left without a source of revenue. Always have options. Be safe out there.
Drivers, what did you think of the news when Uber’s CEO said Uber might leave California instead of making drivers employees? What about when President John Zimmer of Lyft agreed with them? Did it surprise you or not?
-Jay @ RSG
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