UBER Uber Technologies Inc

By Preetika Rana 

Gig-economy companies including Uber Technologies Inc. and DoorDash Inc. won passage of a California ballot measure protecting their contract-worker systems, a major victory the companies hope will help them beat back challenges to their business models elsewhere in the U.S. and beyond.

After a decade of robust growth, ride-share and food-delivery companies have spent the past couple of years reckoning with efforts by policy makers and labor advocates to reclassify drivers as employees rather than as independent contractors. Late Tuesday, one of the biggest fights, in one of the companies' biggest markets, went in their favor: They don't have to change a thing.

California lawmakers had argued that drivers should be entitled to employee-like benefits such as a minimum wage, paid sick leave and unemployment assistance. The money-losing companies opposed a reclassification, saying it would force part-time workers to conform to pre-scheduled shifts, robbing them of the flexibility that they currently enjoy.

The outcome allows the ride-hailing and delivery companies -- including Lyft Inc., Postmates Inc. and Instacart Inc. -- to avoid complying with a California law that would have reshaped the way they operate in the most populous U.S. state. It also sets the tone for gig-worker regulation in the rest of the country.

The California fight has led to changes in the way companies treat drivers. In their effort to win popular support for the ballot measure, the companies offered to guarantee some new protections to the freelance workers their businesses rely on. The companies told voters they would provide health insurance for drivers who work 15 hours or more a week, occupational-accident insurance coverage and 30 cents for every mile driven, among other protections. Opponents of the measure said those benefits fall short of those awarded to full-time employees.

The companies say the result benefits drivers and consumers: They have conceded some benefits, while the drivers can continue to remain part-time. People familiar with the companies' plans say they plan to lobby for national legislation on the back of the California model.

The outcome "is an important turning point for this conversation," Lyft President John Zimmer told The Wall Street Journal on Wednesday. "Now, we're looking ahead and across the country, ready to champion new benefits structures," DoorDash Chief Executive Tony Xu said in a statement.

Uber, Lyft, DoorDash, Postmates and Instacart together pushed the most expensive ballot measure in the history of California, spending nearly $200 million to convince voters to exempt them from reclassifying their drivers as employees. State voters overwhelmingly ruled in favor of the exemption.

Labor advocates worry that similar ballot measures could become the norm and that states would be dwarfed by the financial resources the companies can marshal behind their cause.

"It will certainly have a chilling effect on other states," said Meera Joshi, New York City's former Taxi and Limousine Commissioner. "You had the companies sending personal emails, text messages to all drivers, rides. And then they have the financial power to repeat that messaging in a marketing-savvy way," Ms. Joshi said.

In July, Uber made a last-ditch appeal to the U.K. Supreme Court to overturn a series of court decisions that its British drivers were entitled to certain worker benefits. A decision is pending. The same month, Massachusetts sued Uber and rival Lyft for failing to provide employee-like benefits to its drivers. Other U.S. states, including Washington and New York, have threatened similar action.

Analysts say the companies needed a decisive win in their home state to send a strong signal to regulators elsewhere. "That's why they spent so much. This wasn't about California alone -- they knew the ripples of it would be felt everywhere," said RBC Capital Markets analyst Mark Mahaney. Investors "recognize that this is a broader win," he said.

Uber shares closed up nearly 15% on Wednesday; Lyft shares closed up 11%.

The win comes as Uber and Lyft's core ride-hailing business has been ravaged by the pandemic. Lyft's Mr. Zimmer said on Wednesday that business is down 50% year-over-year, though recovering from the 75% low at the height of the pandemic. Uber Chief Executive Dara Khosrowshahi said at a Wall Street Journal conference last month that global rides volume was also down 50% year-over-year. Uber reports third-quarter results Thursday; Lyft reports next week.

Meanwhile, food-delivery has been a bright spot during the pandemic. Mr. Khosrowshahi said last month that bookings were growing "well above 100%." Rival DoorDash is expected to go public later this year.

Write to Preetika Rana at preetika.rana@wsj.com

(END) Dow Jones Newswires

November 04, 2020 19:10 ET (00:10 GMT)

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