Uber CEO says company will shut down in California if forced to make drivers full-time employees

App-based drivers must be eligible for benefits and protections, state argues

Ride-hailing app Uber could close operations in California if the state upholds a law that would require its drivers to be considered full-time employees.

CEO Dara Khosrowshahi told MSNBC that "it's hard to believe we'll be able to switch our model to full-time employment quickly" if a judge does not grant an appeal against a preliminary injunction that prohibits Uber and Lyft from relying on their drivers as independent contractors, ineligible for company benefits and unemployment insurance.

The state's lawsuit challenging the two ride-hailing business giants invoked a recently passed law that aims to align gig economy workers with more traditional employment structures and protections, including minimum wage, unemployment benefits and overtime pay.

Mr Khosrowshahi – who argued in a New York Times column that Uber's labour practises are "outdated and unfair" – has instead argued for a "third" option that would retain independent workers while forcing gig economy companies to "establish benefits funds which give workers cash that they can use for the benefits they want, like health insurance or paid time off."

Absent a successful appeal or "third way" legislation, the company is likely to suspend its business in the state until at least November, when California voters are poised to vote on Proposition 22, which would exempt app-based drivers from the law.

Following May's lawsuit from California Attorney General Xavier Becerra and joined by city attorneys in Los Angeles, San Diego and San Francisco, Judge Ethan Schulman ruled that the companies' argument "flies in the face of economic reality and common sense."

As regular employees, app-based drivers would be eligible for a minimum wage, reimbursements, overtime pay and other benefits that they are currently not receiving as independent contractors.

The law, which went into effect on 1 January and is supported by a 2018 US Supreme Court decision, has faced several legal challenges and criticism from industry groups, including truckers, freelance journalists, press associations and musicians who fear their livelihoods could be threatened if their unconventional earnings and contracts are susceptible to more stringent employment rules.

Across the US, the economic fallout from the coronavirus pandemic has exposed the fragility of gig economy workers that are not guaranteed wages, healthcare benefits or sick pay.