OAKLAND, California – Uber and Lyft facing increasing pressure classify their freelance drivers as full-time employees in California looking for another way.
One option that both companies are seriously discussing is licensing their brands to vehicle fleet operators in California, according to three people with knowledge of the plans. The change would be similar to an independently operated franchise that would allow Uber and Lyft to maintain an independent relationship with drivers so that companies don’t have to hire them and pay for their services.
The idea would effectively be a return to the days when groups of black cars were driven. Lyft has presented the plan to its board of directors, one person said. Uber, which already works with fleet operators in Germany and Spain, is also familiar with the business model.
The companies have not committed to the franchise-like plans, said those with knowledge of the discussions who asked to remain anonymous because the details are confidential. Uber and Lyft are waiting to see what impact California’s legal situation regarding drivers who have been treated as independent contractors.
Matt Kallman, an Uber spokesman, said the work on setting up fleets was “exploratory” and the company was “not sure if a fleet model would ultimately be viable in California”.
A Lyft spokeswoman, Julie Wood, said the company had looked at alternative models but was in favor of an approach where drivers “can stay independent and work whenever they want while receiving additional health benefits and an income guarantee”.
The hail giants are considering how to retool their stores as they grapple with a new California law. Bill 5that could improve their services. The bill to provide gig workers with employment benefits could force Uber and Lyft to consider drivers as workers if it can be demonstrated that the driver’s jobs are, among other things, part of the company’s core business.
Although the law went into effect in January, Uber and Lyft failed to comply, arguing that they are merely technical platforms, not transportation companies. In May, California sued Uber and Lyft enforce the new law.
Your clash with the state will come to a head this week. This month, a San Francisco Supreme Court judge ordered companies to keep their drivers busy until Thursday. Uber and Lyft executives who have argued they cannot meet that deadline have appealed the decision, warning that they would be forced to stop their services as early as Friday if the order were not reversed.
“If our efforts here are unsuccessful, we would be forced to cease operations in California,” Lyft president John Zimmer said in a call for profits last week. California makes up about 16 percent of Lyft’s business, he said.
Dara Khosrowshahi, Uber’s executive director, also said in one last week MSNBC interview that the company’s ride-hail services in California would be suspended, at least temporarily, if the order was not changed.
“It’s a fork,” said Dan Ives, Wedbush Securities executive director, who is following the hail campaign. “These are some of the tough decisions they have to make to save their business model.”
San Francisco-based Uber and Lyft have long viewed their drivers as contractors. That means drivers are responsible for their own vehicle and maintenance costs, and Uber and Lyft don’t pay overtime, unemployment insurance, or any other expense.
The companies have argued that this freelance model allows drivers to only drive when they want to. However, critics have stated that doing so puts an undue financial burden on drivers and gives Uber and Lyft an unfair advantage over companies that comply with labor laws.
Uber and Lyft have A.B. 5 and have fought its reach. The companies have tens of millions of dollars in one Optional measure that would free them from state law. Uber has also made changes to its product such as: B. the display of fares for drivers in advance and the ability to refuse journeys without penalties to strengthen their status as independent contractors.
But behind the scenes, Uber and Lyft officials also began discussing just-in-case options for their California businesses last year, people with knowledge of the plans said.
At Uber, many of the suggested ideas were coded with the names of characters from the Mario Bros. video game like Luigi, people said. The Washington Post previously reported on Project Luigi, which included the changes to the Uber app that give drivers more control over tariffs.
Another option that the policy teams of both companies circulated was the franchise-like model, said those familiar with the plans.
As part of the proposal, Uber and Lyft would invite other companies to set up hail fleets on their platforms. This could back up the companies’ claim that they are just tech companies that have built sophisticated shipping services and that providing transportation is outside of their core business and they are ahead of A.B. 5 requirements.
At Uber, efforts were inspired by the company’s activities in Germany and Spain, where transportation rules have already forced it to work with fleets, Kallman said.
Lyft based its plan on FedEx, which is outsourcing some of its delivery routes to local operators, current and former employees said.
Uber and Lyft employees said the companies had not worked together or shared information about their plans.
Running a franchise-like business can be a challenge. Working with a fleet operator could increase costs as it introduces a third party who has to be paid, which may force Uber and Lyft to raise tariffs or reduce their service fees, according to current and former employees. Companies would also likely have to give up control of driver behavior, making them more vulnerable to reputational damage if a driver harasses a passenger or a car is dirty.
Another hurdle is that few fleet operators in California are big enough to start Uber and Lyft business, partly because Uber and Lyft previously disrupted taxis, black cars, and similar operations.
For now, companies have their primary hopes placed on the election measure they have received from A.B. 5, said employees and financial analysts. The initiative, Proposition 22, proposes minimum wage standards and limited health benefits for drivers. It will appear on the California ballot in November.
Whatever changes Uber and Lyft make to their businesses to bring A.B. 5 will end up being expensive, said Wedbush Securities’ Mr Ives. He estimated it would cost U over $ 500 million a year and Lyft $ 200 million a year. Both companies are already unprofitable and have lost the majority of their drivers during the coronavirus pandemic.
“This legislation could really back down,” said Ives.