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Uber, Lyft Granted Stay, Avoiding Shutdown in California

'We are glad that the court of appeals recognized the important questions raised in this case,' Uber said in a statement cited by Bloomberg.
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Shares of Uber Technologies  (UBER) - Get Uber Technologies, Inc. Report and Lyft  (LYFT) - Get Lyft, Inc. Class A Report rose Thursday, after a California appeals court issued an emergency stay to a state law that would have required the ride-hailing titans to reclassify their drivers as employees by Friday.

The two companies will now be able to continue operating their businesses as they have been while the court weighs their appeal. Oral arguments in the case are set to begin in mid-October.  

Uber recently traded at $31.39, up 6.68%, and has risen 6% year to date. Lyft stock recently traded at $29.80, up 5.90%, and has sunk 31% year to date.

Earlier Thursday, Lyft said it would have suspended its California operations at 11:59 p.m. PT Thursday to avoid having to abide by the law. And Uber had said it was considering the same strategy. Lyft confirmed Thursday that it would lift its suspension plans following the appeals court ruling, according to the Wall Street Journal.

“We are glad that the court of appeals recognized the important questions raised in this case, and that access to these critical services won’t be cut off while we continue to advocate for drivers’ ability to work with the freedom they want,” Uber said in a statement, cited by Bloomberg.

On a recent earnings call, Lyft president John Zimmer told investors that California makes up 16% of Lyft's overall rides, though management added that the state has been recovering more slowly from the coronavirus pandemic than most markets. Lyft, which operates only in the U.S. and Canada, saw revenue drop 61% last quarter, though it reported improvements in July. 

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“For multiple years, we’ve been advocating for a path to offer benefits to drivers who use the Lyft platform -- including a minimum earnings guarantee and a healthcare subsidy -- while maintaining the flexibility and control that independent contractors enjoy,” Lyft said in a blog post announcing its suspension.

Drivers have told the company that’s what they want, Lyft said.

“Instead, what Sacramento politicians are pushing is an employment model that four out of five drivers don’t support. This change would also necessitate an overhaul of the entire business model,” the company claimed.

The new law, known as AB5, means “passengers would experience reduced service, especially in suburban and rural areas, and 80% of drivers would lose work .”

Uber and Lyft have threatened to suspend operations in California until November, when state voters will decide on Prop 22 -- backed by a number of gig platforms including Uber, Lyft and DoorDash -- that would overturn key provisions of AB5. 

The two companies are also reportedly looking to franchise their brands and technology to fleet operators in California as a way of getting around the new law.