Uber CEO says its service will probably shut down temporarily in California if it’s forced to classify drivers as employees

Uber would likely shut down temporarily for several months if a court does not overturn a recent ruling requiring it to classify its drivers as full-time employees, CEO Dara Khosrowshahi said in an interview with Stephanie Ruhle on Wednesday on MSNBC.

“If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly,” Khosrowshahi said.

Uber and rival Lyft both have about a week left to appeal a preliminary injunction granted by a California judge on Monday that will prohibit the companies from continuing to classify their drivers as independent workers. Following the order will require Uber and Lyft to provide benefits and unemployment insurance for workers.

California’s attorney general and three city attorneys brought the lawsuit against the companies under the state’s new law, Assembly Bill 5, that aims to provide benefits to gig workers core to a company’s business by classifying them as employees. In his decision granting the preliminary injunction, the judge rejected the notion that drivers should be considered outside the course of the companies’ businesses, calling the logic “a classic example of circular reasoning.”

Uber and Lyft both said they would appeal the ruling during the 10-day period before it goes into effect.

Rather than classify drivers as employees, Khosrowshahi has advocated for what he calls a “third way” that would maintain drivers’ independence while allowing companies to provide some protections without risking being viewed as full-time employers. In a New York Times op-ed ahead of the court ruling, Khosrowshahi said gig companies such as Uber could pay into a fund that workers could dip into for paid time off or health-care benefits based on the number of hours they work.

Khosrowshahi said on Wednesday that his Plan B if Uber can’t win on appeal would be to temporarily pause service in California. While he said Uber would later resume service in the state, it would likely be more centered in cities, which could mean limited availability in less concentrated areas such as suburbs.

If the appeal doesn’t work out for Uber, it will be banking on voters to determine its fate. Khosrowshahi said if that’s the case, the service would likely shut down in California until November, when voters in the state decide on Proposition 22, which would exempt drivers for app-based transportation and delivery companies from being considered employees. Uber has argued its drivers prefer working as independent contractors, though California AG Xavier Becerra rejected that claim as a “bogus argument.”

Khosrowshahi emphasized that pausing service in the state would leave thousands of drivers without the income they would typically earn from Uber. Still, ridership has been down during the pandemic anyway, which the judge said made the injunction come at what is perhaps “the least worst time” for Uber and Lyft to adjust their business models.

Becerra said in an interview on CNBC on Tuesday that he was unconcerned about the potential for Uber to leave the state as a result of the order.

“Any business model that relies on shortchanging workers in order to make it probably shouldn’t be anywhere, whether California or otherwise,” he said.