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It’s a Ballot Fight for Survival for Gig Companies Like Uber

OAKLAND, Calif. — By late August, the urgency was becoming clear. Top executives of Uber, Lyft and the delivery service DoorDash met to discuss a California ballot measure that would exempt them from a new state labor law and save their companies hundreds of millions of dollars.

The survival of their businesses was on the ballot.

Days later, political strategists responded to the executives’ concerns by telling the companies, which had already pledged $90 million to back the measure, that they needed to spend a lot more if they wanted to win, said three people familiar with the discussions, who were not allowed to talk about them publicly.

The fight over the ballot measure, Proposition 22, has become the most expensive in the state’s history since then, with its backers contributing nearly $200 million and 10 days still to go until the Nov. 3 election. Along the way, the companies have repeatedly been accused of heavy-handed tactics; a lawsuit filed on Thursday claims Uber is coercing the support of its drivers.

Despite the big spending and a barrage of television advertising, only 39 percent of likely voters said they supported Uber and Lyft in a poll last month by the University of California, Berkeley, while 36 percent opposed their proposal and others were undecided. People close to the campaign said they would want to see close to 60 percent approval in polling before they could breathe a sigh of relief.

The ballot measure, which is also being backed by Instacart and a delivery company that Uber is acquiring, Postmates, could be a harbinger for gig companies in the rest of the country.

Prop 22 would exempt the companies from complying with a law that went into effect at the beginning of the year, while offering limited benefits to drivers. The law is intended to force them to treat gig workers as employees, but Uber and its peers have resisted, fearing that the cost of benefits like unemployment insurance and health care could tip them into a downward financial spiral.

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Credit…Tag Christof for The New York Times

Though Uber and Lyft, for example, are publicly traded companies with a combined worth of $70.5 billion, they have never been profitable. They lose billions of dollars each year, and the pandemic has made turning a profit even more difficult. DoorDash, which has filed to go public, has also struggled. Analysts estimate that complying with California’s gig-worker law could cost Uber, which lost $1.8 billion in its most recent quarter, as much as $500 million a year.

Uber said it planned to cut off work for the approximately 158,000 California drivers who were active on the platform each quarter if its ballot measure failed. It would employ roughly 51,000 remaining drivers, it said, and raise fares to meet the higher business costs.

The ballot fight gained additional urgency Thursday evening when the California First District Court of Appeal ruled that Uber and Lyft must treat their California drivers as employees under the new labor law. The state attorney general and the city attorneys of San Francisco, Los Angeles and San Diego had sued the companies in May to enforce the law.

“If Prop 22 does not win, we will do our best to adjust,” said Dara Khosrowshahi, Uber’s chief executive, in a Wall Street Journal interview this week. “Where in California we can operate is a question mark, and the size and scale of the business will be substantially reduced.”

In past dust-ups with local regulators, Uber rallied its passengers for support. The pandemic has made that difficult, so it has urged its tech employees to get involved and used its app to reach out to drivers for support.

The Yes on 22 campaign also started an effort to organize drivers, a move copied from the labor groups that have long tried to organize drivers to fight for better working conditions. And it has forged relationships with high-profile advocacy groups, like Mothers Against Drunk Driving and the California chapter of the N.A.A.C.P.

“Drivers want independence plus benefits by a four-to-one margin, and we’re going to fight for them,” said Julie Wood, a spokeswoman for Lyft. “We believe California voters are on the side of drivers, too.”

A spokesman for DoorDash, Taylor Bennett, said, “Our support for Prop 22 is part of our commitment to protecting the economic opportunity that tens of thousands of Californians value and the access to delivery that so many restaurants rely on, especially at such a critical time.”

A spokeswoman for Instacart declined to comment. Postmates did not respond to a request for comment.

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In an effort to gain support, the companies have bombarded riders and drivers with push notifications, campaign ads that appear in their apps and emails promoting Prop 22. Before logging on to start work, Uber drivers have been presented with a slide show of warnings about how their lives could change if the proposition fails.

“A no vote would mean far fewer jobs,” one of the slides on the Uber app warned. “That’s why we’re fighting so hard to win.”

In the lawsuit filed against Uber on Thursday, drivers claim that the messages violated a state law that forbids employers to coerce their employees to participate in political activity.

“I can’t rule out that employers have engaged in coercive tactics like this in the past, but I have never heard of an employer engaging in this sort of barrage of coercive communications on such a broad level, ever,” said one of the attorneys for the drivers, David Lowe, a partner at Rudy, Exelrod, Zieff & Lowe. “It is such an extraordinary thing, from my perspective, for Uber to exploit this captive audience of workers.” Mr. Lowe said he opposed Prop 22.

Matt Kallman, an Uber spokesman, said, “This is an absurd lawsuit, without merit, filed solely for press attention and without regard for the facts.” He added, “It can’t distract from the truth: that the vast majority of drivers support Prop 22.”

In early October, the Prop 22 campaign was denounced by Senator Bernie Sanders after a fake progressive group calling itself Feel the Bern endorsed the proposition in a campaign flier that implied Uber had the backing of progressive leaders. The mailers were, in fact, sent by a firm that creates political mailers representing different views.

“The Prop 22 campaign is working hard to reach voters across the state and the political spectrum to ensure they know that drivers overwhelmingly support Prop 22,” said Geoff Vetter, a spokesman for the Yes on 22 campaign, which is funded by Uber, Lyft, DoorDash and other gig economy companies.

Questions have also been raised about the N.A.A.C.P. endorsement. A political consulting firm run by Alice Huffman, the leader of the California N.A.A.C.P., has received $85,000 from the gig companies’ campaign, public records show. The payment was reported earlier by the news site CalMatters.

Mr. Vetter said the payments were for “outreach.” The N.A.A.C.P. did not respond to a request for comment.

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Credit…Jim Wilson/The New York Times

Uber held an all-hands meeting this month for employees to meet drivers who support the proposition, and sent several emails encouraging staff to lobby friends and family.

Although the internal messages were upbeat, the policy staff raised concerns with campaign consultants during the meetings in late August and early September, the people familiar with those meetings said. Among their worries: that the ballot language was unfavorable to the companies, and that people were voting earlier than usual because of the pandemic, meaning advertising would need to be rapid and aggressive.

“We look at the data every day, and our metrics show a tight race,” Justin Kintz, Uber’s head of public policy, said in an early October email to Uber employees, obtained by The New York Times. “At the same time, with continued strong execution against our plan, we’re confident we can win.”

While the email noted that campaigning was optional, Mr. Kintz encouraged employees to participate in texting banks to contact voters and to promote the campaign in conversations with friends.

“The big reason that you’re seeing so much spending is because of the high stakes in this election,” said Mr. Vetter, the spokesman for the campaign. “Hundreds of thousands of jobs are on the line. These are services that millions of Californians rely on.”

The opposition campaign, which is funded by labor unions, has raised about $15 million. Supporters of the No on 22 campaign have argued that voters should reject the push by tech companies, and that the measure would harm workers already at a disadvantage during the pandemic.

“Proposition 22 will make racial inequality worse in California at the worst possible time,” said Representative Barbara Lee, a California Democrat. “You have very clearly crossed the line when you try to claim the equity mantle for a campaign that has always been about allowing multibillion-dollar app companies to write their own law so that they can keep exploiting the labor of drivers, eight in 10 of whom are people of color.”

No matter the outcome of the vote, the gig companies and their opponents are likely to take their campaigns to Washington. Massachusetts has filed a lawsuit similar to the one that the California court decided on Thursday evening, and Uber hopes to avoid continued state-by-state battles by pressing for federal legislation.

Erin Griffith and Noam Scheiber contributed reporting.

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Appeals Court Says Uber and Lyft Must Treat California Drivers as Employees

OAKLAND, Calif. — Uber and Lyft must treat their California drivers as employees, providing them with the benefits and wages they are entitled to under state labor law, a California appeals court ruled Thursday.

The decision points to growing agreement between the state courts and lawmakers that gig workers do not have the independence necessary for them to be considered contractors. But the California electorate will get to weigh in soon, too, when they vote in less than two weeks on a ballot initiative sponsored by gig economy start-ups to exempt themselves from the law.

The ruling by the California First District Court of Appeal is the result of a lawsuit brought by the state’s attorney general and the city attorneys of San Francisco, Los Angeles and San Diego. The state and city agencies sued the ride-hailing companies in May to enforce a new state labor law that aimed to make gig workers into employees.

“Every other employer follows the law,” Matthew Goldberg, deputy city attorney with the San Francisco City Attorney’s Office, told the appeals court during arguments last week. “This is dollars and wages and money that is being stolen from drivers by virtue of the misclassification.”

After a lower court ruled that Uber and Lyft must immediately comply and hire the drivers, the companies fought back. They threatened to shut down completely in California and appealed the decision, winning a last-minute reprieve from the appellate court while it considered the case.

This time, Uber and Lyft are unlikely to threaten a similar shutdown. The appellate court required them to develop plans to employ drivers in case the ruling did not go in their favor, and the companies have considered establishing franchise-like businesses in the state to avoid directly hiring drivers.

Uber and Lyft may choose to appeal the ruling to the state Supreme Court. But it could be a futile effort. In 2018, that court established a strict employment test that became the basis for the law Uber and Lyft are now fighting.

“We’re considering our appeal options, but the stakes couldn’t be higher for drivers,” said Matt Kallman, an Uber spokesman. He argued that if the ballot measure, Proposition 22, fails, hundreds of thousands of drivers would lose work and the company might shut down its services in parts of the state

Uber and Lyft have said that it would be too expensive to hire all of their drivers, causing catastrophic harm to their businesses. But that does not justify the losses for drivers who went without workplace protections, the appellate court said.

“When violation of statutory workplace protections takes place on a massive scale, as alleged in this case, it causes public harm over and above the private interest of any given individual,” the court wrote in its decision on Thursday.

State officials have argued that the companies must comply with the law, known as Assembly Bill 5, so that workers can obtain sick leave, overtime and other benefits — needs that have become especially pressing during the pandemic.

“This is a victory for the people of California and for every driver who has been denied fair wages, paid sick days, and other benefits by these companies,” San Francisco’s city attorney, Dennis Herrera, said in a statement. “The law is clear: Drivers can continue to have all of the flexibility they currently enjoy while getting the rights they deserve as employees. The only thing preventing that is Uber and Lyft’s greed.”

But Uber and Lyft have argued that they are technology companies, not transportation businesses. Employing drivers would force them to raise fares and hire only a small fraction of the drivers who currently work for them, they said.

The companies are sponsoring a state ballot initiative, Proposition 22, to exempt them from the law and allow them to continue classifying drivers as independent contractors, while providing them with limited benefits. The court gave Uber and Lyft a grace period in which to make changes, and if the ballot initiative is successful, it could throw the ruling into question.

“This ruling makes it more urgent than ever for voters to stand with drivers and vote yes on Prop. 22,” said Julie Wood, a spokeswoman for Lyft.

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Seattle Passes Minimum Pay Rate for Uber and Lyft Drivers

The Seattle City Council approved a minimum pay standard for Uber and Lyft drivers on Tuesday, becoming the second city in the country to do so.

Under the law, effective in January, ride-hailing companies must pay a sum roughly equivalent, after expenses, to the city’s $16 minimum hourly wage for businesses with more than 500 employees.

“The pandemic has exposed the fault lines in our systems of worker protections, leaving many frontline workers like gig workers without a safety net,” Mayor Jenny Durkan said in a statement.

Seattle’s law, passed in a 9-to-0 vote, is part of a wave of attempts by cities and states to regulate gig-economy transportation services. It is modeled on a measure that New York City passed in 2018. Last year, California approved legislation effectively requiring Uber and Lyft to classify drivers as employees rather than independent contractors, which would assure them of protections like a minimum wage, overtime pay, workers’ compensation and unemployment insurance. The companies are backing an initiative on the November ballot that would exempt their drivers from the California law.

Uber and Lyft have received more favorable treatment from federal regulators. Last week, the Labor Department proposed a rule that would probably classify their drivers as contractors, though it would not override state laws like California’s.

As in New York, the Seattle law will create a formula for minimum compensation for each trip — a combination of per-minute and per-mile rates that are “scaled up” by what is known as the utilization rate, or the fraction of each hour during which drivers have a passenger in their car. The idea is that a lower utilization rate should correspond to a higher per-minute and per-mile rate, to compensate drivers for being less busy.

The formula is intended to produce hourly pay of just under $30 before expenses and to motivate the companies to keep their drivers busier rather than flood the market with cars to reduce passengers’ waits.

A Lyft spokesman, CJ Macklin, said, “The city’s plan is deeply flawed and will actually destroy jobs for thousands of people — as many as 4,000 drivers on Lyft alone — and drive ride-share companies out of Seattle.”

Uber declined to comment, but said in a recent letter to the Seattle City Council that New York’s policy had resulted in fewer rides and higher prices for passengers, and that it had led the company to restrict the number of drivers on the platform at once.

Michael Reich, a labor economist at the University of California, Berkeley, who was an architect of the New York measure and advised Seattle on its new law, said that average driver pay had increased in New York and that overall revenue had risen enough to offset the drop in demand because of higher fares.

The growth in rides slowed after the policy went into effect, Mr. Reich said, but added that this was largely for reasons unrelated to the policy.

Beyond the pay standard, the Seattle measure stipulates that the companies must hand over all tips to drivers, that the tips cannot count toward the minimum and that the companies must provide protective equipment like masks to drivers or reimburse them for these costs.

A broader program proposed by Ms. Durkan, Fare Share, was approved last fall. The agenda included a tax on Uber and Lyft of 51 cents a ride, part of which has helped fund a streetcar project downtown and provide support for drivers, including help with appeals if they are removed from either platform.

The Fare Share measure required the city to set a minimum pay standard for ride-hailing drivers, but mandated a study to determine the amount.

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Uber and Lyft Threaten to Shut Down in California

OAKLAND, Calif. — Uber and Lyft threatened to suspend ride-hailing services throughout California on Thursday night, a defiant reaction to a judge who ordered the companies to reclassify their drivers as employees.

The ride-hailing blackout, which might begin at midnight Pacific Standard Time, could drag on for weeks, as Uber and Lyft battle a state labor law intended to give employment benefits to gig workers. An appeals court is weighing the companies’ requests to overturn the judge’s decision, but it is not clear when the court will issue a ruling.

State officials said the companies must comply with the law, known as Assembly Bill 5, so that workers have access to sick leave, overtime and other benefits — a need that has become more dire during the coronavirus pandemic.

But Uber and Lyft have argued that employing drivers would have a catastrophic impact on their businesses, forcing them to raise fares and hire only a small fraction of the drivers who currently work for them. They would temporarily shutter the businesses rather than comply, they said.

“This is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips,” Lyft said in a blog post. “We are going to keep up the fight for a benefits model that works for all drivers and our riders.”

Uber and Lyft have long categorized drivers as independent contractors, an arrangement that the companies say allows drivers to have more control over where and when they drive. But this model imposes a financial burden on drivers, who are responsible for their own vehicle maintenance, health insurance and other expenses that employers traditionally cover.

Last year, the California Legislature passed A.B. 5 in an attempt to set clearer employment standards for the state and rein in gig-economy giants like Uber. Legislators argued that Uber shortchanged its drivers and exploited an unfair advantage over law-abiding businesses in the state.

Although the law went into effect in January, Uber and Lyft did not change their practices. They argued that A.B. 5 did not apply to them and spent tens of millions of dollars on a ballot initiative that, if passed in November, would exempt them from the law.

In May, California’s attorney general sued Uber and Lyft to force them to comply with A.B. 5. The standoff came to a head last week when a San Francisco Superior Court judge, Ethan Schulman, sided with the state, ordering Uber and Lyft to reclassify their drivers by Thursday.

Uber and Lyft have argued that they are technology companies and that drivers are not a core part of their business. But that “flies in the face of economic reality and common sense,” Judge Schulman wrote in his ruling. “Were this reasoning to be accepted, the rapidly expanding majority of industries that rely heavily on technology could with impunity deprive legions of workers of the basic protections afforded to employees by state labor and employment laws.”

“The court has weighed in and agreed: Uber and Lyft need to put a stop to unlawful misclassification of their drivers while our litigation continues,” said the California attorney general, Xavier Becerra. “Our state and workers shouldn’t have to foot the bill when big businesses try to skip out on their responsibilities.”

Rather than hire drivers, Uber and Lyft will shut down. The decision is likely to cause the businesses, which have already struggled financially because of travel restrictions during the pandemic, to lose even more money.

San Francisco and Los Angeles are among Uber’s largest markets, and Lyft has said it draws about 16 percent of its business from California. Uber planned to continue operating Uber Eats, its food delivery service, which has bolstered its revenue during the pandemic, a spokesman said.

Although the potential shutdown felt drastic to drivers and riders who depend on Uber and Lyft, the move is not without precedent. The companies have terminated their services in other regions rather than complying with local laws they oppose. The shutdowns have often pressured local governments to pass laws that are more friendly to Uber and Lyft.

In 2016, Uber and Lyft shut down in Austin, Texas, to protest an ordinance that required background checks that used fingerprints for drivers. They returned the next year after Texas passed a statewide law that excludes fingerprinting from the background check requirements.

That strategy could work again for Uber and Lyft if California voters approve the ballot measure in November. If the companies lose that vote, they are considering plans to establish franchise-like operations in California, inviting third parties to hire their drivers.

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Uber’s Revenue Craters, as Deliveries Surge in Pandemic

OAKLAND, Calif. — Uber is synonymous around the world with ride hailing. But as the coronavirus pandemic shows few signs of loosening its grip, the company may become more closely associated with another business: delivery.

Uber said on Thursday that its ride-hailing business had cratered in the second quarter as people traveled less in the pandemic. The company’s revenue fell 29 percent to $2.2 billion from a year ago — the steepest decline since its initial public offering last May — as its net loss totaled $1.8 billion.

But its Uber Eats food delivery service surged, with revenue more than doubling from a year ago to exceed that of ride hailing for the first time. Revenue for Uber Eats soared to $1.2 billion, while rides came in at $790 million.

Dara Khosrowshahi, Uber’s chief executive, said in a call with investors on Thursday that the varied pandemic responses around the world had created “a tale of 10,000 cities” for the company, with business recovering in some regions and not in others.

In spite of the challenges, he said delivery was “a very high-potential opportunity” for Uber to expand even further by offering deliveries of home goods, prescription medications and pet supplies.

Uber has doubled down on food delivery in recent months. In May, Mr. Khosrowshahi sought to acquire Grubhub, a delivery service, but the companies struggled to agree on terms and to deal with potential antitrust scrutiny. Last month, Uber said it would instead acquire the delivery service Postmates in an all-stock deal valued at $2.65 billion.

Buying Postmates is expected to give Uber roughly 35 percent of the U.S. food delivery market, analysts said. That would allow Uber to challenge the delivery leader, DoorDash, which is estimated to have a 45 percent market share. The mixed results sent Uber’s share price down more than 2 percent in after-hours trading.

“Right now, they are swimming in the red ink,” said Dan Ives, managing director of equity research at Wedbush Securities. “Investors are still giving them the benefit of the doubt because of Uber Eats.”

Uber has consistently lost money, and Mr. Khosrowshahi remains under pressure to make it profitable. The company’s net loss in the second quarter narrowed from $5.2 billion a year ago, when it was dealing with stock-based compensation costs from its initial public offering. Uber said it still intended to become profitable sometime next year.

The company also said there were some signs that its rides business was improving internationally. In France, business had recovered about 70 percent, it said, while rides to work and to social gatherings in places such as Hong Kong, New Zealand and Sweden were higher than they had been before the pandemic.

But in the United States, which is one of Uber’s largest markets, rides were down 50 percent to 85 percent in many major cities.

Uber also faces legal challenges in California and Massachusetts, where the state attorneys general have sued Uber and Lyft for violating labor law. Drivers in both states should be classified as employees, not independent contractors, and be entitled to full employment benefits, the states have said.

If the lawsuits are successful, they could diminish Uber’s business because it would make it more expensive to operate, analysts said.

“It will be hard to argue that Uber and Lyft are the future of transportation,” said Tom White, an analyst for D.A. Davidson. “These guys will look a lot more like tech-centric, tech-smart taxi operators.”

Most drivers prefer to remain independent contractors, Mr. Khosrowshahi said. “We are confident in our position,” he said.

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California Sues Uber and Lyft, Claiming Workers Are Misclassified

OAKLAND, Calif. — California’s attorney general and a coalition of city attorneys in the state sued Uber and Lyft on Tuesday, claiming the companies wrongfully classified their drivers as independent contractors in violation of a state law that makes them employees.

The law, known as Assembly Bill 5, requires companies to treat their workers as employees instead of contractors if they control how workers perform tasks or if the work is a routine part of a company’s business.

At least one million gig workers in the state are affected by the law, which is supposed to give them a path to benefits like a minimum wage and unemployment insurance that have been traditionally withheld from independent contractors.

Although A.B. 5 took effect on Jan. 1, Uber, Lyft and other gig economy companies that operate in California have resisted and are not taking steps to reclassify their drivers. Uber, Lyft and DoorDash have poured $90 million into a campaign for a ballot initiative that would exempt them from complying with the law. Uber has also argued that its core business is technology, not rides, and therefore drivers are not a key part of its business.

The lawsuit also claims the ride-hailing companies are engaging in an unfair business practice that harms other California companies that follow the law. The suit seeks civil penalties and back wages for workers that could add up to hundreds of millions of dollars.

“California has ground rules with rights and protections for workers and their employers. We intend to make sure that Uber or Lyft play by the rules,” Xavier Becerra, California’s attorney general, said in a statement.

Because ride-hailing companies and app-based food delivery services do not employ drivers, they avoid the costs of insurance and vehicle maintenance, sick leave and unemployment. But the coronavirus pandemic has exposed gaps in the gig economy, as drivers have abruptly lost their income and struggled to get unemployment insurance, or fallen sick without access to paid sick leave.

“Californians who drive for Uber and Lyft lack basic worker protections — from paid sick leave to the right to overtime pay,” Mr. Becerra said. “Sometimes it takes a pandemic to shake us into realizing what that really means and who suffers the consequences.”

Gig companies have responded to the outbreak by offering limited quarantine pay to drivers who receive a positive coronavirus diagnosis or a doctor’s recommendation to isolate themselves. The companies have also distributed hand sanitizer and other cleaning supplies to drivers.

Uber has worried that providing those things could expose it to misclassification claims from workers, and the company has asked lawmakers to shield it from lawsuits over how its drivers are classified if it provides the drivers with medical supplies or compensation. Its chief executive, Dara Khosrowshahi, wrote a letter to President Trump recently asking for a new classification for drivers that would make them neither employees nor contractors.

Mr. Khosrowshahi has called for a so-called third way of classifying workers, which would provide some health benefits to drivers without making them employees who could receive full employment benefits.

The lawsuit comes at a fraught moment for Uber and Lyft, as the businesses struggle to adapt to the sudden decline in demand caused by the pandemic. Consumer data suggests that spending on ride-hailing has dropped as much as 83 percent. Lyft is expected to report its first-quarter earnings on Wednesday, while Uber reports on Thursday.

California’ move could influence other states with similar laws to take action against gig companies, labor experts said.

“Uber and Lyft have lived a kind of charmed life in terms of escaping law enforcement generally, and particularly with regard to employment law,” said William B. Gould IV, a law professor at Stanford University and the former chairman of the National Labor Relations Board. “The attorney general’s action can’t help but have a positive influence on law enforcement generally against them.”

Noam Scheiber contributed reporting from Evanston, Ill.

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Jobless Claims by Uber and Lyft Drivers Revive Fight Over Labor Status

California has been in a standoff with the ride-hailing companies Uber and Lyft over their drivers’ status under the law: whether they are contractors or employees. Now the coronavirus crisis has put a spotlight on a related question: Who is responsible for helping those drivers when there is no work?

The companies are urging their drivers nationwide to apply for emergency unemployment benefits that federal legislation established last month for the self-employed. But there’s a catch in California: The state doesn’t typically consider them self-employed.

Nonetheless, Gov. Gavin Newsom signed an executive order on Wednesday directing the state’s unemployment agency to help workers like Uber and Lyft drivers collect benefits under the federal program, known as Pandemic Unemployment Assistance.

That may put the state at odds with the rules of the federal program. U.S. Labor Department officials have emphasized that only workers ineligible for traditional unemployment benefits can receive the federal pandemic assistance. And under a state law passed last year and some previous determinations, the drivers are considered employees in California and should be able to draw traditional unemployment benefits.

Recourse to such assistance has been hampered, however, by the companies’ refusal to provide routine documentation to the state as they fight the law in court.

The circumstances effectively forced the state to provide unemployment assistance to drivers that they may not be legally entitled to receive, employment experts said.

“The states are caught in a hard place,” said Brian Chen, a lawyer who focuses on the rights of economically insecure workers at the National Employment Law Project, an advocacy group. “They’re trying to do the right thing. But this is what happens when ultrapowerful app companies with an army of well-paid lobbyists and lawyers are saying they’re going to fight to the bitter end against workers’ ability to demand rights under the law.”

The California labor secretary, Julie A. Su, said in an interview that she believed the state’s move to help drivers under the federal program was legal because the government had “emphasized flexibility” in administering the emergency aid.

The U.S. Labor Department did not provide comment for this article.

Allowing drivers to receive the new federal benefits rather than traditional unemployment assistance could help gig-economy companies like Uber and Lyft avoid significant costs in the future. Employers in California and other states are required to contribute to state unemployment trust funds on behalf of employees who might claim benefits.

While employers are not required to make contributions to fund pandemic-related claims, they will have to make contributions after the crisis. In effect, allowing the drivers to claim the federal benefit helps the companies avoid conceding that they are on the hook for funding state benefits.

An Uber spokesman said, “Congress fully funded Pandemic Unemployment Assistance for gig workers so that every state, many of which face historic deficits, could give these workers immediate financial support at no cost to their own funds.”

Uber has also pointed out that the state’s recent law doesn’t make drivers eligible for unemployment benefits on its own. It creates a test that state agencies must apply before granting benefits, and which they have yet to do in many drivers’ cases. Most experts believe that drivers will be deemed employees under the test.

Lyft declined to comment for this article.

California’s action appears to reflect a shift by state officials. Early this month, the state seemed to be trying to process benefits for Uber and Lyft drivers under the traditional unemployment system. On a website listing frequently asked questions by workers applying for benefits during the pandemic, it instructed gig workers to “list your gig employer as your last employer.” Workers who have employers would typically be eligible for traditional unemployment benefits and therefore ineligible for federal pandemic assistance for the self-employed.

Last week, Uber, Lyft and another gig company, DoorDash, sent an email to government officials asking the state agency overseeing unemployment insurance to remove that sentence from its website and to help gig workers apply for Pandemic Unemployment Assistance.

“Many self-employed ride-share and delivery drivers intend to apply for loans and other federal relief available to independent contractors,” the companies wrote, and they “worry that making an inaccurate representation that they are employees” could preclude that, the email said.

Ms. Su, the state labor secretary, said the purpose of the new approach was to ensure that struggling gig workers could begin to receive benefits rapidly. While some Uber and Lyft drivers had successfully claimed regular unemployment benefits in California before the executive order, the process took months because the companies refused to submit income data needed to verify eligibility.

“People are in very dire straits,” Ms. Su said. “They need these benefits. We’ve made it a priority to get them out.”

Andrew Stettner, an expert on unemployment insurance at the Century Foundation, a liberal think tank, said that the U.S. Labor Department could order California to desist but that it was unlikely to require the state to pay back money it had given to drivers.

States are sometimes tempted to push boundaries because the Labor Department “hasn’t always stood up to them,” Mr. Stettner added. “It’s not a very aggressive oversight agency.”

Some groups, like the California Labor Federation, had pressed the state to expedite traditional unemployment benefits for gig workers, an approach that experts like Mr. Stettner said they believed the state could take.

But Ms. Su said there was no way to expedite unemployment benefits for drivers under the traditional program without income data from Uber and Lyft. By contrast, under the rules of the pandemic assistance program, the self-employed and other eligible workers can begin receiving assistance quickly, even before documenting their income.

Ms. Su said that she had spoken with representatives from Uber and Lyft about the state’s approach but that the companies did not directly make the case for the action the state took.

In addition to California, at least three states — Illinois, New York and New Jersey — have deemed at least some Uber and Lyft drivers eligible for regular unemployment insurance. But Uber and Lyft are contesting these decisions in many states and are not paying into the state unemployment insurance funds.

If drivers in these states receive federal pandemic assistance rather than traditional unemployment benefits, it could help reduce the financial liabilities of companies like Uber and Lyft by tens of millions of dollars after the crisis passes.

Mr. Newsom did take some steps at odds with the positions of Uber and Lyft. His executive order made clear that the state law effectively requiring gig companies to classify drivers as employees still applied, entitling drivers to all protections of employment, like minimum-wage rules, overtime pay, workers’ compensation and paid sick leave.

He also said that the companies must hand over income data for their drivers, though it was unclear how he planned to enforce that demand.

“We don’t take any enforcement options off the table,” Ms. Su said when asked about the possibility of litigation.

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Uber and Lyft Are Searching for Lifelines

OAKLAND, Calif. — After Seattle became the first major city in the United States to experience a widespread coronavirus outbreak in March, Uber’s business there plunged between 60 and 70 percent, the company’s chief executive said.

A month later, with much of the country and many other parts of the world in lockdown because of the virus, investors fear the experience in Seattle is playing out in the entire business of Uber and its ride-hailing rival, Lyft.

The two companies, which were never close to being profitable when the economy was booming, face an existential question: How will they and their drivers stay afloat when most people are staying home?

On Thursday afternoon, Uber told financial analysts that it couldn’t forecast how much revenue it would generate this year because of the upheaval caused by the coronavirus. In February, Uber had said it expected to bring in between $16 billion and $17 billion this year.

Lyft has not yet made a similar announcement. But data collected by outside firms indicates the businesses of both companies collapsed in March.

Drawing from aggregated debit and credit card purchases of millions of U.S. consumers, for example, the analytics firm Second Measure found that spending on Uber’s rides dropped about 83 percent in March.

“I think every major metropolitan area, and really the whole country, is going to be down 70 to 80 percent,” said Tom White, a senior research analyst with the financial firm D.A. Davidson.

In Paris, one of Uber’s largest markets in Europe, Rayann Aly stopped driving after lockdowns were imposed in March. He said that business had dried up and that he was concerned for his health. Like other major cities, Paris is largely empty of traffic. The government has not provided a timeline of when the restrictions will be lifted.

“There is no business,” Mr. Aly, 38, said. “People stay at home.”

For now, the strategy at Uber and Lyft, like that at many other companies, appears to be: Wait it out. Financial analysts expect the companies to cut back on marketing and the incentives they often offer for drivers. If widespread shelter-in-place orders continue through the summer, analysts said, layoffs or furloughs among the companies’ thousands of office workers are possible.

Also, they’re trying to deliver food — as much of it as possible.

Uber’s money-losing food delivery service, Uber Eats, is suddenly in higher demand. It most likely surpassed Uber’s ride-hailing business in sales by mid-March and jumped about 27 percent for the month, according to Second Measure.

Although Lyft had no food delivery business before the pandemic, it created a temporary one. On March 22, it announced that it would begin delivering meals and groceries for students and seniors. And on Wednesday, Lyft expanded the program to 11 major cities, including Atlanta, Houston, San Francisco and Seattle.

“Delivery is the bright spot in this,” said Ron Josey, an analyst at JMP Securities. “Times like these do usher in a fundamental shift in how we, as consumers, act. While the fundamental shift might not be to ride share during this time, it is toward doing more things at home.”

Some drivers say the switch to food deliveries hardly makes up the difference.

Francisco Arauz, a 61-year-old Uber driver in Boston, said he earned an average of $20 to $30 an hour before the coronavirus lockdown. Now, despite adding food and grocery deliveries, he averages between $5 and $10 an hour.

“It just dropped,” Mr. Arauz said. “Whoosh.” He has started working more hours to try to make up the lost money.

Data collected from more than 30,000 drivers nationwide by the earnings tracker service Gridwise found that the average hourly earnings of drivers dropped 36 percent from the beginning of March to the middle of the month. By the end of March, wages began to recover slightly, but were still down 24 percent.

Some drivers who were interviewed said they chose to stay home altogether to avoid the virus, while others signed up for food delivery services. Some, like Mr. Arauz, instituted their own safety policies, like calling riders before pickup and asking them to wear masks while in the car.

“I don’t believe the burden should be on me,” Mr. Arauz said. Instead, he thought Uber should include such instructions for passengers in its app. The company has urged riders in Los Angeles to wear masks, because the local health authorities advise it, and has encouraged riders more broadly to sit in the back seat.

Uber and Lyft also have financial flexibility because their drivers are not on their payrolls. The companies treat drivers as independent contractors and do not pay for health care, vehicle maintenance and other costs that they would be responsible for if drivers were considered employees.

Lyft directed drivers who were out of work to apply for jobs at Amazon, which said it planned to hire more than 100,000 new workers to meet increased demand caused by the pandemic. Uber suggested that out-of-work drivers try Uber Eats, or apply for work with Amazon and other delivery platforms.

Rideshare Drivers United, which connects ride-hail drivers, has been flooded with requests for help from drivers who are trying to get unemployment benefits or file wage claims against Uber and Lyft, said Ivan Pardo, a labor organizer with the group. Under the federal coronavirus stimulus package, gig workers are eligible for unemployment insurance.

Last year, Uber and Lyft had disappointing initial public offerings of shares on Wall Street, largely because investors were leery of cash-burning businesses that were far from profitability. Both companies laid off some full-time employees and trimmed marketing budgets. Uber also got out of money-losing markets, selling its food delivery business in India and South Korea.

But the companies started 2020 with optimism. For years, they burned through cash as they expanded; in 2019, Uber lost $8.5 billion and Lyft $2.6 billion. But Uber predicted that it could be profitable by the end of this year, and Lyft said it would be profitable by the end of 2021.

“This hit is going to make getting to profitability even harder,” said Bill Gurley, a general partner at the venture capital firm Benchmark and a former Uber board member. “It may become an incentive to actually restructure or cut costs in a way they haven’t been willing to before, which might make the recovery to profitability quicker.”

Before the virus hit, Lyft expected revenue in the first quarter to top $1 billion. Analysts now expect revenue to be about $922 million. Uber had hinted during its last earnings report that it expected first-quarter revenue to be slightly below $4 billion. Analysts now estimate $3.5 billion.

The second quarter, which runs to the end of June, is expected to be much worse. JMP Securities recently projected that Uber’s revenue would fall 45 percent in the quarter and Lyft’s 61 percent.

Investors are spooked. Uber’s stock is down 17 percent since the beginning of March, while Lyft’s stock declined 26 percent.

But both companies still have plenty of cash. At the end of 2019, Lyft had $2.8 billion. In March, Uber said it had ended February with about $10 billion in cash. Of that, about $1.5 billion was committed to its acquisitions of Careem, a ride-hailing company in the Middle East, and Cornershop, a grocery delivery service.

Despite pressure from some drivers, neither company is rushing to get back on the road. In April, Uber began running a television commercial urging consumers to stop using it for rides. “Stay home for everyone who can’t,” the commercial implored.

Uber also issued a notice to riders in its app, asking them to stay home. In Lyft’s app, a similar message appeared: “Only travel if you must.”

“I thought, wow, that’s interesting. They are even suggesting that I not use them,” said Mark Mahaney, internet analyst at RBC Capital Markets. “They do have to ride out the lockdown. The question is just when the business will recover.”

Adam Satariano contributed reporting from London.

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