Faced with the prospect of classifying its drivers as employees rather than independent contractors, Uber Technologies Inc. is threatening to shut down temporarily in California.
“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,” CEO Dara Khosrowshahi told MSNBC Wednesday (Aug 12).
At the request of California Attorney General Xavier Becerra Monday (Aug. 10), a judge granted a preliminary injunction requiring Uber and Lyft to stop classifying their drivers as independent contractors pending further action by the court. The order is scheduled to expire on Aug. 20.
As a result of enactment of a state law known as Assembly Bill 5 (or "AB 5"), the companies must provide benefits to gig workers central to a business by classifying them as employees. Under the measure, Uber and Lyft would be forced to provide benefits and unemployment insurance for its drivers.
The ride-hailing firms have vowed to appeal the ruling during the 10-day period before it goes into effect.
Rather than classify drivers as employees, Khosrowshahi has advocated for what he calls an alternative way that would maintain drivers’ independence yet allowing companies to provide some protections without risking being viewed as full-time employers.
On Tuesday (Aug. 11), AG Becerra told CNBC’s “Squawk Alley” that the California judge who ruled that Uber and Lyft have to classify their workers as employees reportedly “saw straight through” the “bogus argument” that the companies’ workers like being classified as independent contractors instead.
Becerra also said he was unconcerned about the potential for Uber to leave the state as a result of the order.
“Any business model that relies on short-changing workers in order to make it probably shouldn’t be anywhere, whether California or otherwise,” he told the network.
In an op-ed piece in the New York Times on Monday (Aug.10), Khosrowshahi called on gig companies, including ridesharing services, to pay benefits for their workers, who are overwhelmingly independent contractors.
“Driving passengers or delivering food on a bike comes with real risk,” Khosrowshahi wrote. “States should require all gig companies to provide medical and disability coverage for injuries incurred on the job, creating a baseline safety net that we cannot give to drivers today without risking their independent status under the law.”