(CNN)Uber (UBER) and Lyft (LYFT) narrowly avoided shutting down their ride-hailing services in California after an appellate court granted the companies a temporary reprieve delaying an order that would have forced them to reclassify their drivers in the state by Friday.
While the legal decision on Thursday buys the companies more time, they still do have a deadline hanging over their heads to reclassify their drivers as employees rather than independent contractors.
“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,” said Uber spokesperson Noah Edwardsen in a statement.
With hours to go before the original deadline, the companies were bracing for a shutdown. Lyft said earlier Thursday it would suspend service in the state by end of day if an appeals court didn’t grant its request for a delay. Uber said earlier this week it would also suspend service by midnight Thursday if not granted a similar delay on the order.
As part of an ongoing lawsuit, a California court last Monday ordered the companies to reclassify their drivers in the state as employees rather than independent contractors in 10 days, or by this Friday.
In response to that court order, both companies warned that they might suspend operations in California. Each coupled those warnings with a push for a referendum in November to exempt them from the law, known as AB-5, if they could not successfully appeal for a longer stay on the order.
Under AB-5, which went into effect January 1, companies must prove workers are free from company control and perform work outside the usual course of the company’s business in order to classify workers as independent contractors rather than employees.
Thursday’s order lays out new deadlines for the companies. By September 4, 2020, the CEOs of Uber and Lyft must submit sworn statements with “implementation plans” for complying with the law within 30 days if the court upholds the earlier injunction order and if the ballot initiative does not pass. Oral arguments are scheduled for October 13, 2020.
A reclassification of their workers would represent a radical shift forced on the two businesses. Uber and Lyft have both built up massive fleets of drivers by treating them as independent contractors. Making the drivers contractors rather than employees has meant they are not entitled to benefits like minimum wage, overtime pay, workers’ compensation, unemployment insurance and paid sick leave.
When faced with tough legislation over the years, the companies have threatened to suspend their services, and sometimes followed through on it, riling up customers and drivers, and putting pressure on lawmakers. This time around, industry watchers had warned that the shutdown may not have the same impact on residents as it once did in earlier fights because of their steep drop in ridership from the pandemic.
The New York Times reported earlier this week that while pushing their November ballot initiative, the companies are also considering their other options, including exploring a franchise-like model where they would not employ drivers directly but would instead potentially license their name to fleet operators in the state.
