It was looking for all intents and purposes like a done deal. Ten days ago, the State of California had ruled against Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT), bringing forward an injunction that would force them to reclassify their drivers as employees rather than independent contractors. In reaction to the new law, both Uber and Lyft were planning to suspend operations in the state at 11:59 pm last night, leaving Californians to fend for themselves for the weekend and beyond (the horror!).
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That was until a last-minute decision granted the companies an emergency stay to continue their service until an appeal has been heard, essentially blocking the new law from going into effect today. It will now review the ride-hailing companies’ appeal to overturn the decision that would see it treat its drivers like actual employees and all the terrifying things like minimum wage and benefits that would go with it.
Sarcasm aside, there’s a lot to unravel here. Uber CEO Dara Khosrowshahi has been particularly vocal in recent weeks talking about the impracticalities of the injunction. He makes quite a few salient points about the flexibility of being an independent contractor, the inevitable reduction of driver numbers if the company is forced to reclassify them, and the coming price hike for customers that would accompany a new look Uber.
This all funnels into Prop 22, an initiative brought forward by the ride-hailing and food delivery companies to come up with a new classification for gig workers which will go to a vote in November. The proposition would essentially exempt the ride-hailing giants from granting benefits to a lot of its drivers and further shun any laws that protect employees, aka business as usual. Residents of the Golden State can look forward to being bombarded in the coming months by pleas from the heads of the gig economy exploitation industry to preserve the flexibility granted to its workers and let them continue to capitalize on it.
The sad truth of this situation is that it’s not as black and white as one would hope it to be. The State of California, while noble in its intentions, has jeopardized the earning power of 200,000 of its citizens in a time when unemployment is near Great Depression-era levels. Punishing an industry that has forged itself around circumventing employment laws for more than a decade is an important act, but preserving the livelihood of so many of its citizens may have to come first. By holding 200,000+ jobs at ransom, and to a lesser extent the convenience of which it grants its customers, Uber and Lyft have shown the importance of their service to so many lives. For now, they will continue to burn cash unburdened by the laws that rule other businesses, but a reckoning is coming for this industry sooner rather than later.
To close: I wouldn’t touch either of these stocks with a barge pole.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Content Manager at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.