Lyft and Uber win delay to continue operations in California: BBG

After Lyft initially announced Thursday that it would suspend rideshare in California on Friday, both Lyft and Uber were granted a delay to reclassifying drivers. An Uber spokesperson told Yahoo Finance: “We are glad that the Court of Appeals recognized the important questions raised in this case, and that access to these critical services won’t be cut off while we continue to advocate for drivers’ ability to work with the freedom they want.” D.A. Davidson SVP & Sr. Research Analyst Tom White joins The Final Round panel breaks down the details.

Video Transcript

SEANA SMITH: It's a bit of a head scratcher, to be honest. And it's still a rapidly evolving situation. So I think we'll learn a little bit more about it as the days go on here. But when Lyft announced this morning that they basically sort of preempted the ruling, the official ruling, and said that they were going to shut down their operations, I think every one in the m-- on the Street kind of expected that they knew something, they had some inside sense of how this really was going to go.

Clearly, the ruling went in the opposite way. And the higher court judge that they appealed to found that this issue, this sort of legal issue of the balance of harms, which the first judge really didn't really buy that argument from Uber and Lyft, that shutting down ridesharing right now would really do damage to an already fragile economy, would hurt drivers who were already struggling to generate earnings, et cetera. This higher-court judge decided that there was something there, that the harm shutting them down maybe was significant enough to extend this stay here.

I think the fact that you had mayors of two of California's largest cities in San Diego and San Jose today publicly coming out and saying that granting the injunction would be a bad thing could have helped sway the court's decision a bit. But I think the bigger picture here is that regardless of this stay or not stay, both of these companies, Uber and Lyft, are squarely focused on the November ballot initiative, their proposition, Prop 22, which basically seeks to exempt them from AB5 officially and legally.

That's really going to be the main focus of both of these companies. They're going to try and drum up support. They already really have support on the driver's side, it sounds like. Sounds like they're going to have a large and vocal group of drivers who are in support of Prop 22. And now they've got to work on convincing the broader population of California.

MELODY HAHM: Tom, speaking of AB5, since the bill was enacted in January, it's caused more headaches, perhaps more complexities than perhaps originally intended. When you think about not only Uber, Lyft, but DoorDash, Instacart, Postmates-- they all have poured money into this ballot initiative, right, to make sure that there could be a third classification of worker. Do you ultimately imagine AB5 going away? How much of a carving out exceptions and exemptions can there exist with a law that originally was intended for the companies like Uber and Lyft?

TOM WHITE: Yeah, look, hard to handicap with 100% precision. But I really do feel like there's a better chance than not that Prop 22 gets voted in by Californians. As I said, it sounds like drivers-- and I'm not just going off the words of Uber and Lyft, who obviously have an incentive to say that drivers are behind this, but there are studies out there from sort of more independent bodies that suggested drivers, call three out of four, four out of five drivers, generally prefer being viewed as a contractor.

So I think the combination of that, plus combined with the idea that Californians probably enjoy the products and the services that these new economy companies provide, and so particularly if they're forced to kind of experience a period where they don't have access to those services, I think there's a better than not chance that Prop 22 goes through. That said, I think the bigger factor here, or the bigger thing to consider, though, is that generally speaking, driver-related costs for all the gig economy companies are going up. I think even Dara and the CEOs of Lyft would agree with that.

But what they want to avoid is this sort of overly simplistic definition of what constitutes a full-time employee, which hasn't really been updated or refreshed for 100 years, plus that that sort of definition evolves a bit.

DAN ROBERTS: Tom, Dan Roberts here. Speaking of hard to handicap, if we look to the future, I would think the most important next step is do other states follow California, right? And does this same effect happen in other states? That would be the biggest problem to the kind of future existence, the existential problem for Uber and Lyft.

And it's funny, I mean, if you think back, I remember a time when Airbnb was shut down in Austin for a while. And people thought that was so surprising. Oh no, what's the future of this company? It seems to me they sort of are able to move past it eventually.

I mean, I feel a little bit like Uber and Lyft, it behooves them to play up how damaging this is for them in California and to kind of exaggerate it. But, I guess, what I'm really asking is how you feel these companies are going to try to prevent other states from following suit? Because that would be the much bigger existential crisis, if California is not a one-off.

TOM WHITE: So rest assured, I think the gig economy coalition has got an army of lobbyists basically fighting this fight in all the important states for them. Look, investors talk about this idea of sort of AB5 contagion, right? Will other states basically use California's-- really, the example of how to model their own labor laws. And hard to handicap, again.

But I do feel like the way that AB5 is structured in it's very sort of narrow view of what constitutes full employment versus contractor, I think that's bound to be revisited nationwide, right? You've got this situation where if you want benefits, you have to give up all the flexibility of what attracts a lot of drivers to ridesharing, right? But if you don't want benefits, you basically have those no-- you basically have no safety net if you want to maintain that flexibility. So it's just really-- it doesn't seem to make all that much sense, kind of the way that it's just so starkly distinguished right now.

SEANA SMITH: All right, Tom White, senior research analyst at D.A. Davidson. Always great to have you on the show. Thanks so much for joining us.

TOM WHITE: Thank you.