Lyft said it would shut down operations in California if forced to classify drivers as employees, the company’s executives said in an earnings call with investors on Wednesday. Lyft joins Uber in threatening to pull out of one of its most important US markets over the question of drivers’ employment status.
At issue is the classification of ride-hailing drivers as independent contractors, which Uber and Lyft say most drivers prefer because of the flexibility and ability to set their own hours. But labor unions and elected officials contend this deprives them of traditional benefits like health insurance and workers’ compensation. Earlier this week, Uber and Lyft were ordered by a California superior court judge to classify their drivers as employees. Both companies have said they would appeal the ruling, which was stayed for 10 days.
But if their appeals fail, Lyft may join Uber in closing up shop in California, the company’s president John Zimmer said. “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.”
Uber and Lyft, along with DoorDash, are funding a ballot measure, Proposition 22, that would override AB5 by classifying ride-hail drivers and other gig economy workers as independent contractors. The ballot measure is the companies’ Plan B if their efforts to overturn the state’s legal challenges fail.
If drivers were classified as employees, Uber and Lyft would be responsible for paying them minimum wage, overtime compensation, paid rest periods, and reimbursements for the cost of driving for the companies, including personal vehicle mileage. But as independent contractors, drivers receive none of these benefits.
Lyft’s earnings report was grim, as the COVID-19 shutdown continued to pummel demand for app-based ride-hailing. The company reported $339 million in revenue in the second quarter, a 61 percent drop as compared to the same period last year. Lyft’s active ridership also fell 60 percent to 8.7 million active users this quarter compared to 21.8 million last year.
Lyft lost less money this quarter compared to last year because it was conducting fewer trips. Net losses for Lyft amounted to $437.1 million during the second quarter, compared to $644.2 million in the same period last year.
The company makes money on ride-hailing, bike- and scooter-trips, and its new vehicle rental business. Unlike Uber, Lyft does not have a full-fledged food- and grocery-delivery business to fall back on as its core ride-hailing business drops.