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Appeals court gives reprieve to Uber, Lyft in California

If the court had not granted a stay, Lyft and Uber said they would have discontinued service in California.
If the court had not granted a stay, Lyft and Uber said they would have discontinued service in California.Jason Henry/New York Times

BERKELEY, Calif. — An appeals court has allowed ride-hailing giants Uber and Lyft to continue treating their drivers as independent contractors in California while an appeal works its way through the court.

Both companies had threatened to shut down if a ruling went into effect Friday morning that would have forced them to treat all their drivers as employees, a change they said would be impossible to accomplish overnight.

Lyft told riders and drivers in a Thursday blog post that it planned to discontinue providing rides in California just before midnight last night, unless a court granted a stay in a pending case. Uber CEO Dara Khosrowshahi had repeatedly said its service would have no choice but to stop providing rides in California if the state’s law went into effect because the company can’’t afford to hire 50,000 drivers as employees quickly enough to comply.

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The shutdown would have been a major blow to two companies that still haven’t proven they can make money, even as they have held down their expenses by treating drivers as independent contractors who don’t receive the same benefits as their full-time employees.

California represents a substantial chunk of both companies’ businesses. It accounted for 9 percent of Uber’s worldwide rides before the pandemic caused people to avoid traveling. The state is even more important to Lyft, which doesn’t operate outside of the United States besides Canada. California accounted for 21 percent of Lyft’s rides before the pandemic, but that figure dropped to 16 percent during the April-June period as more people stayed at home and there were few places to go.

The unavailability of the two ride-hailing services also would have delivered another blow to the California economy by taking away the paychecks of Uber and Lyft drivers while also making it more difficult for people without cars to get around. That’s why the mayors of San Diego and San Jose — two of the three largest cities in California — joined forces this week urging the appeals court to block the law from going into effect.

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The companies are hoping to overturn the California law underlying the lower-court decision with a ballot initiative in the upcoming election. Uber and Lyft are among the biggest contributors to a $110 million effort to get the initiative, Proposition 22, passed to rescind the law. Lyft urged for passage of the initiative in its blog post.

At issue is a decision that could re-shape the so-called gig economy as drivers, delivery workers, and others who work for popular apps on an as-needed basis seek improved working conditions and benefits that many in the workforce enjoy.

In his ruling against Uber and Lyft, San Francisco Superior Court Judge Ethan P. Schulman ordered them to make the employment classification change for their California drivers, which would guarantee benefits like overtime, sick leave, and expense reimbursement. That ruling doesn’t affect Uber’s growing Eats business, so regardless of what happens with the case, Uber will continue delivering food.

Schulman’s decision followed a new California law aimed at companies that employ gig workers. It says companies can only classify workers as contractors if they perform work outside the usual scope of their business. California Attorney General Xavier Becerra and several city attorneys sued Uber and Lyft, saying they were violating that law.

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The ride-hailing companies have argued that they’re technology companies, not transportation companies, so drivers are not a core part of their business.

California officials say treating drivers as contractors harms more than just drivers, since the companies don’t contribute to the state’s dwindling unemployment insurance fund on the drivers’ behalf.

Meanwhile, Uber’s former security chief was charged Thursday with attempting to conceal from federal investigators a hack that exposed the email addresses and phone numbers of 57 million drivers and passengers.

The criminal charges filed in US District Court in San Francisco against Joe Sullivan, 52, are believed to be the first against an executive stemming from a company’s response to a security incident.

But the charges drew an important distinction between failing to protect Uber’s computer network and failing to tell the authorities about it. Prosecutors said that Sullivan committed two felonies when he didn’t disclose the 2016 incident to federal investigators who were already investigating a similar data breach that had occurred two years earlier.

“When a company like Uber gets hacked, we expect good corporate citizenship; we expect prompt disclosure to the employee and consumer victims in that hack,” David Anderson, the US attorney in San Francisco, said in an interview. “In this case, what we saw was the exact opposite of good corporate behavior.”

If convicted on both charges, Sullivan could face up to eight years in prison.

Sullivan became Uber’s chief security officer in 2015 after leading cybersecurity efforts at Facebook. He led the ride-hailing company’s security work until he was fired in 2017 when his handling of the data breach, which also exposed the license numbers for about 600,000 drivers, was discovered by Uber’s newly appointed chief executive.

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Sullivan, who is now the chief information security officer at the Internet company Cloudflare, could not be immediately reached for comment. In a 2018 statement about the breach, Sullivan said, “I was surprised and disappointed when those who wanted to portray Uber in a negative light quickly suggested this was a cover-up.”


Material from The New York Times was used in this report.