Uber CEO Dara Khosrowshahi gave an interview on MSNBC Wednesday morning saying that the company would likely have to shut down operations in California for at least several months if it is forced to make all its drivers employees.
Khosrowshahi is escalating the company's conflict with California two days after a judge in San Francisco ruled that Uber and rival Lyft must classify their drivers as employees under state law. The decision was stayed for 10 days as the companies prepare their appeals, and as CNBC reports, Khosrowshahi is saying that shutting down operations in California is his "Plan B" if the next appeal doesn't go in the company's favor.
"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," he said.
This is just the latest turn in a years-long standoff between labor-friendly California and gig-economy companies, and it isn't the only legal drama that's played out in the last decade over the issue of whether app-based delivery or rideshare companies should be allowed to treat the majority of their workforce as independent contractors. Multiple cases have arisen in other states, though so far Uber hasn't been fully pushed into altering its fundamental business model, and neither has Lyft.
Khosrowshahi wrote an op-ed last week in the New York Times advocating for a "third way" of handling its driver workforce — essentially creating a pooled flexible spending account that would be used in lieu of the sort of benefits that full-time employees receive, like paid leave, sick time, healthcare, and unemployment insurance. He argues that drivers for rideshare companies still desire the flexibility that being a contractor allows.
"Our current employment system is outdated and unfair," he writes. "It forces every worker to choose between being an employee with more benefits but less flexibility, or an independent contractor with more flexibility but almost no safety net."
Under California law, as of this year, companies are not permitted to classify workers that are part of a company's core business as contractors, without giving them benefits. Tech companies like Uber have long tried to argue that they are simply a tech company and app-maker, and the drivers are using their app to make money independently. But SF Superior Court Judge Ethan P. Schulman wrote a 34-page decision saying that this argument "flies in the face of economic reality and common sense."
"To state the obvious, drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business," Schulman wrote.
The court decision, while not unexpected, comes at a time of crisis for Uber when its core business is suffering due to the pandemic. Far fewer people are willing to get in a stranger's car to get from A to B in the last several months, leading the company into a net loss of $1.8 billion in the second quarter of this year. While the ride-hailing business may recover in the next year as pandemic fears wane, that is far from certain.
As of mid-May, the company had laid off 6,700 employees this year, or 25 percent of its workforce, with Khosrowshahi saying that UberEats was likely the company's best step forward toward profitability. In July, Uber acquired Postmates in an effort to grow the food-delivery side of its business.
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