LYFT Inc (LYFT)

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Lyft to Suspend California Operations Just Before Midnight
By: TheStreet | August 20, 2020

• Lyft's move represents a protest against a state law requiring ride-hailing services to classify their drivers as employees.

Lyft (LYFT) shares fell after the No. 2 ride-hailing company said it’s suspending its California operations at 11:59 p.m. Thursday in protest of a state law requiring ride-hailing services to classify their drivers as employees rather than independent contractors.

Lyft stock recently traded at $26.72, down 5.05%, and has sunk 37% year to date.

On a recent earnings call, Lyft president John Zimmer told investors that California makes up 16% of Lyft's overall rides, though management added that the state has been recovering more slowly from the coronavirus pandemic than most markets. Lyft, which operates only in the U.S. and Canada, saw revenue drop 61% last quarter, though it reported improvements in July.

The suspension “is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips,” the company said in a blog post.

“For multiple years, we’ve been advocating for a path to offer benefits to drivers who use the Lyft platform -- including a minimum earnings guarantee and a healthcare subsidy -- while maintaining the flexibility and control that independent contractors enjoy.”

Drivers have told the company that’s what they want, Lyft said.

“Instead, what Sacramento politicians are pushing is an employment model that four out of five drivers don’t support. This change would also necessitate an overhaul of the entire business model -- it’s not a switch that can be flipped overnight,” the company said.

The new law, known as AB5, means “passengers would experience reduced service, especially in suburban and rural areas, and 80% of drivers would lose work and the rest would have scheduled shifts, and capped hourly earnings,” the company claimed.

“Lower-income riders trying to make it to essential jobs and medical appointments would be faced with unaffordable prices.”

Uber Technologies (UBER), the No. 1 ride hailing service which operates around the world, has said that it might suspend California operations, too, but hasn’t given definitive word.

Uber and Lyft have threatened to suspend operations in California until November, when state voters will decide on Prop 22 -- backed by a number of gig platforms including Uber, Lyft and DoorDash -- that would overturn key provisions of AB5.

The two companies are also reportedly looking to franchise their brands and technology to fleet operators in California as a way of getting around the new law.

Uber recently traded at $29.38, down 0.14%, and has eased 1% year to date.

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