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Uber and Lyft Consider Operating Franchises to Bypass California Law

By Rich Duprey – Updated Aug 18, 2020 at 1:10PM

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Drivers would work for vehicle fleet owners licensing the platforms of the ridesharing apps.

Rather than pulling out of California, as Uber (UBER 0.19%) has threatened to do over being forced to classify its drivers as employees instead of independent contractors, the ridesharing app and its peer Lyft (LYFT 3.10%) are considering turning their business in the state into franchise operations.

By licensing the Uber and Lyft brand to vehicle fleet owners in California, the companies could do an end run around the controversial state law that threatens to turn some gig workers into the unemployed. 

Lyft's president told analysts last week during its earnings conference call, "If our efforts here are not successful [in thwarting the law's application to the company], it would force us to suspend operations in California."

Uber driver with fares

Image source: Uber.

On a collision course

The New York Times reports Uber and Lyft are considering allowing companies to establish ride-hailing businesses in California using their respective platforms. Uber has already developed such a model in Germany and Spain, where regulations force it to work with vehicle fleet owners to operate.

By creating a franchise-like model, Uber and Lyft could maintain that they are simply tech companies and that ridesharing is not their primary business.

The California law, AB 5, affects not just ridesharing, but meal delivery services, media publishing, trucking companies, and more that use freelancers and similar independent workers.

The law could drive numerous companies out of California or out of business, with the Competitive Enterprise Institute, a libertarian think tank, estimating it could raise prices and fares as much as 50% by imposing costs some 67% higher on the companies.

By treating independent contractors like employees, analysts estimate it will cost Uber approximately $500 million annually and Lyft some $290 million annually.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

Stocks Mentioned

Uber Technologies Stock Quote
Uber Technologies
$26.45 (0.19%) $0.05
Lyft Stock Quote
$10.64 (3.10%) $0.32

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