LYFT Lyft Inc

By Preetika Rana 

Lyft Inc. said Thursday it will suspend operations in California as of midnight on Friday, to avoid violating an order that requires it to immediately reclassify its drivers as employees.

A state judge last week gave Lyft and Uber Technologies Inc. until Friday to reclassify their drivers as employees, after California sued the companies alleging they were violating a state law that took effect on Jan. 1. The companies are appealing the decision, but are required to comply unless a stay is granted before the Friday deadline.

Uber spokesman Noah Edwardsen said the company also plans to suspend operations if a stay isn't granted.

California's so-called gig-worker law requires companies to treat workers as employees rather than independent contractors if they are controlled by their employer and contribute to its usual course of business, among other things. As employees, drivers would be eligible for sick days and other benefits, issues that have become more pressing during the coronavirus pandemic.

Uber and Lyft, both based in San Francisco, have argued that they are technology platforms connecting riders with drivers, not transportation companies, so the drivers aren't part of their usual course of business.

Both companies argue that the reclassification would require drivers to work prescheduled shifts, robbing them of the flexibility they now enjoy. The companies say they would be forced to consolidate their fleets, using fewer drivers who work more hours a week; sharply reduce their footprints in the suburbs, where demand is spotty; and raise prices for rides to offset the new costs associated with recruiting, monitoring and managing driver operations.

Suspending ride-share in California, which accounted for 9% of Uber's rides world-wide and 16% of Lyft's before the pandemic, would deal another blow to a business ravaged by the health crisis. Uber reported a 75% year-over-year drop in rides in its second quarter; Lyft's active riders fell by more than half over the same period.

Complying with the order, though, would undermine the economics of ride-hailing at a time the companies are struggling to turn a profit. It could also set a precedent for legal battles playing out elsewhere in the U.S. and around the world. Massachusetts is suing Uber and Lyft over alleged driver misclassification, and Uber drivers in Europe have filed legal complaints seeking broader employment benefits.

Both companies have their sights on a November ballot initiative, where voters in California can decide whether they want to exempt them from the state law at the heart of the dispute.

Write to Preetika Rana at preetika.rana@wsj.com

(END) Dow Jones Newswires

August 20, 2020 14:12 ET (18:12 GMT)

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