Ride-sharing giants Uber and Lyft are threatening to pull their businesses from their home state of California if a judge does not grant them a 10-day stay on a ruling that classifies Uber and Lyft drivers as employees. This is the latest effort from the firms to keep their drivers classified — and paid — as contractors instead of employees.

Companies like Uber and Lyft have built their business models around hiring drivers as independent contractors, reserving full-time employee status for corporate jobs such as the tech workers that build and run their app.

Classifying drivers as contractors allow them to keep their costs lower. The companies have also said doing so also affords drivers flexibility in how and when they work. If the companies were to reclassify them as full-time employees, they would have to pay them higher wages and more benefits including unemployment insurance.

Doing so would have a major long-lasting impact on Uber and Lyft businesses but especially now, in the wake of the pandemic, where revenues from their ride businesses have suffered.

Here’s how California has upped the ante in recent months to get the firms to upgrade drivers to employee status:

In January, a controversial gig worker law called Assembly Bill 5 (AB5) went into effect that made it harder for companies to classify workers as contractors. The law was designed for companies that rely on gig workers.

Uber and Postmates pushed back and filed a lawsuit that challenged the law while Lyft continued to argue that their drivers were contractors, even under the new law. As a result, drivers alleged in April that they were collectively owed more than $630 million in back wages since the first few months of the year.

In May, California Attorney General filed a lawsuit against the companies over their refusal to recognize drivers as employees, a classification made even more crucial given the COVID-19 pandemic, the subsequent economic fallout, and the rise in unemployment.

Then, California’s labor commissioner filed a lawsuit against both companies on August 5th alleging that the firms were “committing wage theft” by “willfully misclassifying” drivers as contractors instead of employees.

A state judge ruled on August 10 that the firms indeed would have to start classifying all drivers as employees by August 20, but both companies have argued that migrating all of their gig workers to employee status would take time and are appealing for a delay.

If the appeal is not successful, they were threatened to shut down business throughout California until at least the election when they had finally added their benefits for employees. Uber recently stated on their website that they are starting to give benefits to their employees Continued flexibility: 

• They are guaranteed minimum earnings which means they can keep a flexible schedule and will get guaranteed earnings.
• They have new healthcare benefits which means they will be eligible for healthcare benefits.
• They have more insurance coverage which means they will be covered by additional occupational accident coverage, including medical and disability benefits.

Both Uber and Lyft have a history of threatening to pull their businesses from markets when they don’t want to comply with regulations. Doing so has worked in some cases, as Business Insider’s Tyler Sonnemaker reported.

Uber and Lyft are also toying with other workaround options that would change their business model in the hope of avoiding California’s law such as adopting a franchise model, as The New York Times reported Tuesday, October 13th.

The companies have been advocating for regulators to create a third classification, just for gig workers. It would allow platforms to set up a so-called “benefits fund” that would offer cash stipends to help gig workers cover some of their expenses, like healthcare or paid time off, without the risk that the workers could later claim they were employees, not contractors.