Business Uber and Lyft in California under threat of suspension due to a court ruling on retraining their drivers from the status of contractors to staff this week. To avoid the reclassification, the company considered the model franchise taxi services in the state, following the example of Uber in Germany and Spain.
This Thursday ends a deadline by which Uber (UBER) and Lyft (LYFT) are required to retrain drivers of its taxi services from the status of contractors to regular employees under the law AB 5, California, according to the court order, issued last week.
Leaders Uber and Lyft have made certain statements that will be forced to suspend business in California if you lose your appeal in court on this issue. They also stated that they position themselves as a technology platform and not a transport company, so do not have to comply with these provisions of the law.
Shares Uber and Lyft declined 3.6% and 8.84% respectively in the last week.
In Lyft, stated that the California market accounts for 16% of all trips taxi on its platform, Uber is also the largest market.
According to the analyst Dan Ives of Wedbush Securities, changes in accordance with AB 5 would cost Uber $500 million per year, and Lyft $200 million per year. The management of both companies will not do it because the company is still unprofitable and has lost most of its customers during a pandemic coronavirus.
According to a report by The New York Times on Tuesday, Uber and Lyft are considering switching to a franchise model in California to sell their licenses to taxi services in the state, according to the example of Uber in Germany and Spain, where the laws obliged the company to work with the fleet owner.
Creating a franchise model that Uber and Lyft could be more confident that they are just a technology company and sharing travel is not their core business.
On Tuesday shares of Uber and Lyft have grown up on these encouraging news 2% and 2.8%, respectively. However, the franchise model is not the ideal solution for business companies, as in this case, there are risks to quality customer service.
Since the drivers are employees of third-party taxi services, Uber and Lyft are losing control over the behaviour of drivers and influence on them. In addition, working with “third parties” can lead to increased costs that could force Uber and Lyft to increase rates to customers or to reduce cost drivers.
The Uber representative Matt Wing, commented on the opinion of company management about it: “Drivers are likely to a predetermined hourly fee for the time spent during the execution of the order made in the application, but in return fleets are likely to monitor and ensure the implementation of action and efficiency drivers, for example, translating the drivers of change, dictating where and when they drive. We are not sure whether ultimately viable, such a model work in California.”
Source:
The New York Times
