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Uber and Lyft prepare for an epic legal battle

August 23, 2021, 9:05 PM UTC

Uber and Lyft have hit a bump in the road.

On Friday, a California Superior Court judge ruled that a California law allowing companies to classify so-called gig workers as contractors is unconstitutional. The ruling, if it holds up, is a big setback for ride-hailing companies because it would force them to treat drivers as employees—meaning the companies would have to spend a lot more on benefits.

In early trading on Monday, investors in Uber and Lyft appeared concerned about the ruling’s impact, sending shares of the two companies down, as CNBC noted. However, later in the day, Lyft shares were up 2.7% to $47.14 while Uber’s had gained 2.7% to $41, indicating that investors saw little short-term pain.

Among the reasons for the judge’s ruling on the law, which passed as part of the Proposition 22 ballot initiative in November, was that it blocked the state’s legislature from setting workplace standards. For example, if officials wanted to make gig workers eligible for worker’s compensation, they would be hamstrung, the judge said. 

As expected, the Protect App-Based Drivers & Services Coalition—an industry group that backs Uber, Lyft, and other gig companies—criticized the judge’s ruling, calling it an “outrageous decision.” The group noted that it would “file an immediate appeal” and that “all of the provisions of Prop 22 will remain in effect until the appeal process is complete.”

In other words, it will be business as usual for Uber and Lyft as their lawyers wage a lengthy legal battle over the judge’s ruling. You can bet the companies will do anything to ensure they don’t have to add more driver expenses to their balance sheets. 

For its part, Lyft recently hit a small milestone this month by becoming profitable—as long as a long list of one-time expenses are ignored. But in fact, the company still bleeds money, reporting a net loss of $251.9 million in its latest quarter. Meanwhile, Uber reported a loss of $509 million before interest, tax, and expenses in its most recent quarter, while analysts were expecting a loss of $325 million, Bloomberg News noted.

For Uber and Lyft, paying lawyers to fight the judge’s ruling will be cheaper than paying for the extra benefits that would come from classifying gig workers as employees.


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Jonathan Vanian
@JonathanVanian
jonathan.vanian@fortune.com

NEWSWORTHY

Facebook's transparency troubles. Days after a Facebook executive called Facebook "the most transparent platform on the Internet," The New York Times reported the company had buried some unflattering information. The info in question was a quarterly report showing that a story about a Florida doctor who had died several days after receiving the COVID-19 vaccine had been among the most visible pieces of content on Facebook. Under pressure, company soon released the report

Branson SPACs it again. British billionaire Richard Branson is taking another one of his businesses public via a merger with a blank-check company. Virgin Orbit has agreed to a deal with NextGen Acquisition Corp. II, which, if completed, would lead to the Virgin Galactic-spinoff being a public company listed on Nasdaq. The deal is expected to raise $483 million for the company, and comes roughly two years after Branson took Virgin Galactic public through a SPAC.

Handling China's tech crackdown. Executives at Chinese e-commerce company JD.com do not expect Beijing's crackdown on China's tech industry to hurt the company's business. JD.com added a record 32 million users during the latest quarter while profits exceeded analyst expectations. The Chinese government's intensified scrutiny of home-grown tech has come down particularly hard on JD.com rival, Alibaba, which was fined $2.5 million in April over anti-competitive concerns. 

Taking crypto across the pond. PayPal has launched its cryptocurrency services in the U.K., marking the first time the company has made it available outside the U.S. Users will now be able to buy, sell, and hold cryptocurrencies including Bitcoin, Ethereum, Litecoin, and others through the platform, which is being rolled out with the help of Paxos Trust Company. But unlike their U.S. counterparts, investors in the U.K. will be limited to £15,000 for a single crypto purchase, with an annual cap of £35,000.

 

FOOD FOR THOUGHT

Jack Ma. For months, many people have wondered: Where is Jack Ma? The founder of Ant Group and Alibaba virtually vanished after the Chinese government squashed Ant's planned $34 billion IPO amid its tech crackdown. Well, over the weekend, The Wall Street Journal released a superb read about the behind-the-scenes tensions that ultimately pitted the Chinese government against Ma, who then disappeared from public life.

From the article:

Mr. Ma, 56 years old, has exchanged a wall-to-wall schedule of business travel and meetings with world leaders for golf and the reading of Taoist texts, people familiar with his activities said. He hired a teacher to learn oil painting, starting out with images of birds and flowers and then shifting to an abstract style, according to these people and photos of his artwork viewed by The Wall Street Journal.

He also has traveled to Beijing to try to smooth things over, the people familiar with his activities said. It was too little, too late, officials said. Mr. Ma strayed too far out of his lane. His ambition and outspoken nature, traits that drew a strong following among many in China, would no longer be tolerated in the tightened grip of Mr. Xi and the ruling party. 

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BEFORE YOU GO

CloudKitchens invades Oakland. CloudKitchens, the new food-preparation startup from former Uber chief Travis Kalanick, is experiencing some pushback from Oakland, Calif. residents who are unhappy about sharing a neighborhood with a so-called ghost kitchen, according to a report by SFGate. CloudKitchens' Oakland outpost is in a "quiet residential neighborhood," which has upset some citizens who must deal with the many delivery drivers who stop by the facility to pick up food that's been prepped for delivery. 

From the article: Even if CloudKitchens’ permit is revoked (which is somewhat unlikely), they probably won’t have to move out of the building; they could simply apply for another permit, under a different classification. That process could trigger a variety of different hearings, and the neighborhood could win some concessions that make the site slightly less of a nuisance, but it’s likely they’ll find some way to stay, and the trucks and endless streams of delivery drivers will continue. Whatever happens, one thing is clear: Everyone is in for a long fight, and this quiet community will probably never be the same. 

This edition of Data Sheet was compiled by Declan Harty

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