Uber issues an empty threat to cease operations in California

Don't worry: History shows that jurisdictions where Uber or Lyft left saw other taxi companies quickly fill the gap

By Nicole Karlis

Senior Writer

Published August 16, 2020 8:00AM (EDT)

Uber Technologies headquarters in San Francisco, California. (Liu Guanguan/China News Service via Getty Images)
Uber Technologies headquarters in San Francisco, California. (Liu Guanguan/China News Service via Getty Images)

On Monday, the New York Times ran a quixotic op-ed from Uber CEO Dara Khosrowshahi. "I Am the C.E.O. of Uber. Gig Workers Deserve Better," the headline read.

Though the headline seems to imply it, Khosrowshahi doesn't say that Uber itself should treat their drivers better. Instead, he casts the blame for gig workers' sorry lot on our "outdated" employment system that forces workers to choose between benefits and freedom. Economists and drivers counter that giving Uber drivers the benefits of full-time employees, like health insurance and paid-time off, is vastly preferable to "flexibility."

The op-ed appeared timed to coincide with news that broke later that day that a California judge ruled in a preliminary injunction that Uber and Lyft must classify their drivers as employees rather than contractors — and that they have ten days to do so. Uber has balked at classifying their drivers as employees, stating it will decrease the number of drivers for the company and increase the cost for riders. California's Assembly Bill 5 (AB5) went into effect on January 1, 2020 and looks to the "ABC test" for determining whether someone is a contractor or employee, which Uber and Lyft drivers meet. The impetus for AB5 was to make gig economy work into more stable and reliable work, and reduce worker exploitation.

Khosrowshahi then issued a threat, telling MSNBC's Stephanie Ruhle on Wednesday that Uber would have to cease operations in the state of California if the court doesn't approve Uber's appeal and the ruling holds. (Ironically, Uber's headquarters is in San Francisco, meaning the company would then be based in a state in which it didn't operate.)  Similarly, John Zimmer, co-founder and president of rideshare competitor Lyft, also threatened to suspend operations in the state if the ruling isn't overturned, according to CNBC.

In other words, we could see an Uber and Lyft-free California until November or beyond — unless Proposition 22 passes, an astroturfed ballot measure that would exempt these companies from Assembly Bill 5 and essentially end the fight to classify drivers as full-time employees. Closing up shop in California would certainly put a dent in Uber's revenues, given that Los Angeles and San Francisco are two of the five largest markets for the company: Uber has stated as much in financial disclosures that new regulations in major metro areas could negatively affect their financials. 

"Leaving the state altogether even just for three months would be a major decline in revenue," Michael Reich, a professor of economics at the University of California, Berkeley, told Salon. "And it would open up opportunities for other companies to come in and gain market share."

Reich pointed out that there are other transportation network companies (TNCs) that would quickly fill the gap in Uber and Lyft's absence. Wingz, Silver Ride, Executive Ride, and Nomad Transit are a few that have permits to operate in California.

"I would expect to see more business if Uber and Lyft pull out of California," Christof Baumbach, the CEO of Wingz, told Salon in an emailed statement, adding that Wingz has a different approach than Uber. Instead of calling rides on demand, users pre-schedule rides. "We allow customers to book rides with their favorite driver to have the safest and best ride experience," Baumbach added. 

Ziro specifically positions itself as a better option for drivers, advertising that it pays better and doesn't hide fees or scrape tips from its drivers, who are referred to as "captains."

As Saba Waheed, a research director at the UCLA Labor Center, told Salon in an interview in October 2019 regarding the fall of Uber and Lyft: "If it's not them, someone will pick it up and figure out how to do it."

Indeed, that's what has happened in Austin, Texas, when Austinites voted against Proposition 1, which would have allowed Uber and Lyft to use their own background check system for drivers in May 2016. A majority of Austinites wanted fingerprinting as part of the background check process, but Uber and Lyft argued that requiring fingerprints for new drivers required an outdated system that would make it harder for them to efficiently hire enough drivers. The two companies reportedly spent $8 million trying to convince Austinites to pass Proposition 1. Likewise, in California, the astroturf campaign to pass Proposition 22 has reportedly cost rideshare giants $110 million and counting.

As for Austin, Uber and Lyft eventually returned to the city when Republican Texas Gov. Greg Abbott signed a new state ride-hailing law that didn't require fingerprinting, superseding Austin's rule.

Yet during the one-year ban, local citizens turned to local and smaller rideshare businesses, including a nonprofit rideshare service called RideAustin. When Uber and Lyft returned, these companies saw a decline in businesses right away. According to a Medium post by RideAustin, the local nonprofit saw trip volume drop 55 percent in the first week when the Silicon Valley giants returned to Austin.

"We were at ~50% market share before Uber/Lyft returned and we had anticipated losing ~50% of that to them (to a steady state of 25%)," the company explained. "But the swiftness of our decline was certainly faster than we modeled."

Similar scenarios have started to play out internationally. In London, Uber wasn't granted a license in 2017 due to repeated safety failures. However, it continues to operate as the company appeals the decision; the final decision from the magistrates court has yet to be made, according to BBC.

Reich said he thinks it would be easy for Uber drivers to make the transition to another company, or to work for a taxi company in California instead.

"[Some] Uber drivers are former taxi drivers who have already made the transition — not all of them made the transition, but quite a few did," Reich said. "I think [drivers] could very rapidly switch back to [being] taxi drivers."

In California, drivers are less concerned about losing Uber work and more concerned that Khosrowshahi's threat is a tactic to push back on the power they've gained from organizing.

"Dara Khosrowshahi is doing what all anti-labor bosses do when things aren't going his way; he's threatening to take his ball and go home unless he gets what he wants," Tyler Sandness, a driver and organizer in Los Angeles, said in a statement. "What is happening in California, and what Uber doesn't understand, is that drivers are paving the way for stronger protections for workers across the state at a moment where we need stability, fair wages and the right to organize."

Khosrowshahi often says that making drivers full-time employees will take away their freedom and flexibility. Reich said that's not true.

"There are many drivers now, who are full-time drivers under independent contractor status; they're not the majority of the drivers, but they do do the majority of the rides and Uber certainly knows that," Reich said. "If you shift to employee status, you're not required to take away the flexibility of the drivers when they want to work; that's not a legal requirement."

Reich added he believes Khosrowshahi's argument is a statement intended to "scare part-time drivers."

By Nicole Karlis

Nicole Karlis is a senior writer at Salon, specializing in health and science. Tweet her @nicolekarlis.

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Ab5 Furthering Gig Economy Labor Lyft Rideshare Uber