An Uber and Lyft shutdown in California looks inevitable — unless voters bail them out

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No Uber and Lyft rides in California? After a judge rejected the companies’ effort to delay an order that they classify drivers as employees, it seems inevitable. Uber and Lyft have until August 20th to comply with the order. But the companies have said they will need to go dark in the Golden State in order to retool their business.

The judges may not have the last word. Uber and Lyft are counting on California’s notoriously mercurial voters to help them circumvent AB5, which went into effect in January and makes it more difficult for companies to use independent contractors. Uber and Lyft built their respective businesses on the concept of using freelance drivers who aren’t eligible for traditional benefits like health insurance and paid leave.

Earlier this year, the companies, along with DoorDash, raised nearly $100 million to place a question on the November ballot. They succeeded, and this fall, voters will be asked to permanently classify ride-hailing drivers as independent contractors. The measure, called Proposition 22, also directs the companies to adopt certain labor and wage policies that fall short of traditional employment.

To accomplish their political goals, ridesharing companies are turning to their customers. Lyft emailed its customers urging them to vote yes on Prop 22 and added pro-Prop-22 messages to its app. Uber has yet to do the same, but the company has shown a flair for using dramatic tricks to turn its customers into political allies. In 2015, the company added a pop-up feature in its app to troll the mayor of New York City and encourage the company’s customers to pressure him to back off on proposed legislation that could seriously hamper Uber’s growth efforts in the city. It worked, and Mayor Bill de Blasio relented.

It was a short-lived victory. Eventually, de Blasio and the New York City council rallied to cap the number of new Uber and Lyft vehicles and to establish a wage floor for drivers. New York State is now considering legislation similar to AB5 that would force the companies to classify drivers as employees.

Photo by ROBYN BECK/AFP via Getty Images

Shutting down operations in California would be a much bigger, much more dramatic, and certainly far riskier move than adding a new widget in its app. But it would also be an extremely visceral way to show voters what things could be like if Prop 22 fails.

Uber and Lyft drivers have long complained about poor pay, lack of protections, and an inability to unionize to collectively bargain with the companies. There have been stories about drivers sleeping in their cars because they can’t afford to live in the cities where they work, struggling to make ends meet, and feeling totally at the mercy of a faceless algorithm that dictates when and where they drive and for how long.

Uber and Lyft have said they realize they need to adapt to changing attitudes about work in California, and hold up Prop 22 as evidence of this. The ballot measure promises to raise compensation for ride-hailing and delivery drivers by requiring companies to pay them above minimum wage, plus 30 cents per mile, according to the companies. It would also mandate health care coverage for drivers who work at least 15 hours per week, and provide insurance for on-the-job injuries.

California voters aren’t just being asked to let Uber and Lyft continue classifying drivers as independent contractors; they’re also being asked to endorse an unprofitable business model that denies workers overtime pay, reimbursement for expenses, workers’ compensation and paid leave, pro-AB5 groups say.

California is an obvious place for the line to be drawn in the sand. It’s where Uber and Lyft were founded and where they raised billions of dollars from investors before eventually going public. But neither company has ever been profitable. They both have actually set records for the amount of money lost in the run-up to their respective IPOs. And since going public, they have continued to bleed cash.

“Prop 22 is not just securing an AB 5 carveout for gig companies,” said Carlos Ramos, a 39-year-old Lyft driver based in San Diego and member of the pro-AB5 group Gig Workers Rising. “It is also designed by gig companies to ensure that these corporations are exempted from having to observe basic labor protections for workers for generations to come.”

Uber and Lyft have said they realize they need to adapt to changing attitudes about work in California, and hold up Prop 22 as evidence of this. The ballot measure promises to raise compensation for ride-hailing and delivery drivers by requiring companies to pay them above minimum wage, plus 30 cents per mile, according to the companies. It would also mandate health care coverage for drivers who work at least 15 hours per week, and provide insurance for on-the-job injuries.

AB5 prompted Uber to make several major changes to its app: it now displays prices differently, allows customers to select preferred drivers, and discontinued some benefits associated with its driver rewards program. Uber CEO Dara Khosrowshahi recently advocated for a “third way” for gig workers that offers more protections while keeping the flexibility to set your own hours.

Khosrowshahi doesn’t have to shut down Uber in California to make this point. Along with Lyft and DoorDash, his company has over $110 million in cash it can spend to sway voters on Prop 22, according to CalMatters. By comparison, pro-AB5 labor groups have only $866,000. That could be enough to score a win.

A majority of California voters said they planned to vote on the ballot measure, according to polling firm Redfield and Wilton. But they’re split on how they will vote: the poll found that 41 percent of voters say they will vote yes for Proposition 22, and 26 percent say they will vote no. In addition, a significant 34 percent say they still do not know how they will vote.

Transportation Union And Rideshare Drivers United Members Hold Rolling Vehicle Protest Calling On State To Enforce AB5

Photo by Mario Tama/Getty Images

It’s unclear how groups like Gig Workers Rising plan to make their case to voters. So far, they’ve been staging protests at Uber and Lyft headquarters in the hopes they can generate some media attention. But they have yet to outline an advertising strategy.

By contrast, Uber and Lyft have money to burn on advertising, a direct line of communication to their customers, and a willingness to lose tens of millions of dollars more to make their point. Going dark in one of its biggest markets in the country to really drive the message home about what’s a stake could be a gamble worth taking. Uber lost over $16 billion in the three years running up to its IPO. Since going public, it lost another $13 billion. By comparison, Lyft lost a measly $2.6 billion in 2019, but its business is based entirely in North America, while Uber is global.

Whatever money both companies will lose closing up shop in California could be pocket change compared to getting to rewrite the laws governing work in the state.

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