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Uber and Lyft Consider Franchise-Like Model in California

OAKLAND, Calif. — Uber and Lyft, which are facing mounting pressure to classify their freelance drivers as employees in California, are looking for another way.

One option that both companies are seriously discussing is licensing their brands to operators of vehicle fleets in California, according to three people with knowledge of the plans. The change would resemble an independently operated franchise, allowing Uber and Lyft to keep an arms-length association with drivers so that the companies would not need to employ them and pay their benefits.

The idea would effectively be a return to the days of how groups of black cars were run. Lyft has presented the plan to its board of directors, one person said. Uber, which already works with fleet operators in Germany and Spain, is also familiar with the business model.

The companies have not committed to the franchise-like plans, said the people with knowledge of the discussions, who asked to remain anonymous because the details are confidential. Uber and Lyft are waiting to see how California’s legal situation around drivers, who have been treated as independent contractors, plays out first, they said.

Matt Kallman, an Uber spokesman, said the work on establishing fleets was “exploratory” and that the company was “not sure whether a fleet model would ultimately be viable in California.”

A Lyft spokeswoman, Julie Wood, said the company had looked at alternative models but favored an approach where drivers “remain independent and can work whenever they want while also receiving additional health care benefits and an earnings guarantee.”

The ride-hailing giants are considering how to retool their businesses as they grapple with a new California law, Assembly Bill 5, which could upend their services. The law, which was designed to grant employment benefits to gig workers, could force Uber and Lyft to categorize drivers as employees if it was shown that the drivers’ jobs were part of the companies’ core business, among other criteria.

Although the law went into effect in January, Uber and Lyft have not complied with it, arguing that they are simply tech platforms and are not transportation businesses. In May, California sued Uber and Lyft to enforce the new law.

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Credit…Mario Tama/Getty Images

Their clash with the state is set to come to a head this week. This month, a San Francisco Superior Court judge ordered the companies to employ their drivers by Thursday. Executives at Uber and Lyft, who have argued that they cannot meet that deadline, have appealed the decision and warned that they would be forced to shut down their services as soon as Friday if the order was not reversed.

“If our efforts here are not successful, it would force us to suspend operations in California,” John Zimmer, Lyft’s president, said in an earnings call last week. California accounts for about 16 percent of Lyft’s business, he said.

Dara Khosrowshahi, Uber’s chief executive, also said last week in an MSNBC interview that the company’s ride-hailing services in California would stop, at least temporarily, if the order was not changed.

“It’s a fork-in-the-road situation,” said Dan Ives, a managing director at Wedbush Securities who tracks the ride-hailing industry. “These are some of the tough decisions they need to make to save their business model.”

Uber and Lyft, which are based in San Francisco, have long considered their drivers to be contractors. That means that drivers are responsible for their own vehicle and maintenance costs and that Uber and Lyft do not pay for overtime, unemployment insurance or other expenses.

The companies have argued that this freelance model allows drivers to drive only when they want to. But critics have said it places unreasonable financial burdens on drivers and gives Uber and Lyft unfair advantages over businesses that follow employment laws.

Uber and Lyft have strenuously objected to A.B. 5 and have been fighting its reach. The companies have poured tens of millions of dollars into a ballot measure that would exempt them from the state law. Uber has also made changes to its product, such as showing fares to drivers upfront and allowing them to decline rides without facing penalties, to reinforce their status as independent contractors.

But behind the scenes, officials at Uber and Lyft also began discussing just-in-case options for their California businesses last year, the people with knowledge of the plans said.

At Uber, many of the proposed ideas were code-named with the names of characters from the Mario Bros. video game, like Luigi, the people said. The Washington Post reported earlier on Project Luigi, which included the changes to Uber’s app that give drivers more control over fares.

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Credit…Jim Wilson/The New York Times

Another option that policy teams at both of the companies floated was the franchise-like model, the people with knowledge of the plans said.

Under the proposal, Uber and Lyft would invite other businesses to establish ride-hailing fleets using their platforms. That could bolster the companies’ claims that they were simply tech companies that built sophisticated dispatch services and that providing transportation was outside their core business, protecting them from A.B. 5’s requirements.

At Uber, the effort drew inspiration from the company’s operations in Germany and Spain, where transportation rules have already forced it to work with fleets, Mr. Kallman said.

Lyft based its plan on FedEx, which franchises some of its delivery routes to local operators, current and former employees said.

Uber and Lyft employees said the companies did not collaborate or share information about their plans with each other.

A franchise-like business can be challenging. Working with a fleet operator could increase costs because it introduces a third party who needs to be paid, potentially forcing Uber and Lyft to raise fares or reduce their service fees, current and former employees said. The companies would also likely have to surrender some control over driver behavior, leaving them more vulnerable to reputational damage if a driver harassed a passenger or a car was dirty.

Another hurdle is that few fleet operators in California are large enough to absorb Uber’s and Lyft’s business, partly because Uber and Lyft previously disrupted taxis, black cars and similar operations.

For now, the companies have staked their primary hopes on the ballot measure that would exempt them from A.B. 5, employees and financial analysts said. The initiative, Proposition 22, proposes minimum-wage standards and limited health benefits for drivers. It will appear on California’s ballot in November.

Whatever changes Uber and Lyft make to their businesses to comply with A.B. 5 will ultimately be expensive, said Mr. Ives of Wedbush Securities. He estimated that it would cost Uber $500 million a year and Lyft $200 million a year. Both companies are already unprofitable and have lost much of their ridership during the coronavirus pandemic.

“This legislation could really be a backbreaker,” Mr. Ives said.

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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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Want More Diversity? Some Experts Say Reward C.E.O.s for It

When Charles E. Jones, the chief executive of a large Ohio-based utility, realized that his senior executives weren’t fully behind his push to hire and promote people of color and women, he decided to do something to get their attention.

In 2018, Mr. Jones linked 10 percent of annual bonuses for himself and other top executives at his company, FirstEnergy, to diversity goals, and increased the number to 15 percent the next year. “I’ve got experience that suggests that if you tie compensation to the things you want to have accomplished, you are much more successful at getting them accomplished,” he said.

Mr. Jones’s approach is striking because it is extremely rare in corporate America. But he and other management experts say it shouldn’t be. For decades, companies and top business schools have preached the gospel of tying pay to all manner of business goals, like stock price performance and profits.

Yet just 78 of roughly 3,000 companies said fulfilling diversity goals determined some portion of chief executives’ pay, according to an analysis of public pay disclosures by Pearl Meyer, a compensation consulting firm. Of those, only 11 revealed the share of pay affected by fulfilling diversity goals, and 21 gave some details of their diversity goals.

The issue has gained new salience in recent weeks as businesses across the United States have declared support for Black Lives Matter, pledged to hire more people of color and ditched decades-old brands like Aunt Jemima that were built on racist imagery.

Charles A. Tribbett III, a consultant who advises large corporations about hiring and compensation, said many executives and board members were discussing whether to link pay to diversity goals, a change he endorsed. “I believe the time is now for that discussion to be turned into action,” said Mr. Tribbett, a managing director at Russell Reynolds.

Deb Lifshey, a managing director at Pearl Meyer, agreed that there was growing interest in the practice, though she said it was too early to say whether it would be sustained. “Whether or not this will have a material impact on how much compensation they’re making is hard to tell,” she said.

Only five of the Fortune 500 companies have Black chief executives, and some of the most successful American companies haven’t significantly increased the number of African-Americans in their senior ranks.

Making diversity targets part of compensation and disclosing them would not just give top executives a financial incentive to hire and promote more Black and Latino people, but also provide a public scorecard that employees and shareholders could use to determine whether companies were following through on their commitments.

FirstEnergy paid out nothing on the diversity-related part of the bonus in 2018 after the company fell short on two of three targets. Last year, it paid out the segment of the bonus for meeting two of the goals: hiring women and people from underrepresented ethnic groups for professional jobs, and including them as candidates in succession plans. But executives fell short on a measure related to how employees responded to questions about diversity in a company survey.

Mr. Jones said most people at his company did not discriminate against Black and brown people, but he believes some do. “Quite frankly, in a company like ours, which is 90 percent white, you actually have outright racism that still exists, that we have to deal with,” he said.

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Credit…FirstEnergy
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Credit…Kristoffer Tripplaar/Sipa USA

Even as an old-economy business like FirstEnergy has embraced a relatively progressive policy, other businesses widely considered to be liberal bastions, like Google and Facebook, have not.

In 2018, Zevin Asset Management, a Boston-based investment firm that says it takes a “socially responsible” approach, proposed that Google connect some executive pay to diversity, among other measures, but the measure was soundly defeated.

“We saw companies saying a lot about how they want to move the needle in the tech space but not disclosing a lot or setting goals,” Pat Miguel Tomaino, a director at Zevin, said. “Nothing trumps having a part of your compensation at risk on a key business initiative.”

Top tech executives are accustomed to having formal targets built into their pay. Last year, Google’s chief executive, Sundar Pichai, received a compensation package valued at $280.6 million. Just over $121 million of it came in units linked to the stock performance of Google’s parent company, Alphabet.

Founders like Mark Zuckerberg of Facebook and Sergey Brin and Larry Page of Alphabet do not receive cash bonuses or stock-based compensation. But they control so much of their companies’ voting stock that they could pretty much single-handedly approve the inclusion of diversity targets in executive compensation. Facebook, for example, valued the 2019 compensation of its chief operating officer, Sheryl K. Sandberg, at $27 million.

Facebook said it had made “bold goals to build a more diverse and inclusive workplace,” adding that leaders were evaluated on inclusion and recruitment in their performance reviews. Google declined to comment.

That said, some tech companies have linked pay and diversity.

Achieving diversity goals helps determine one-sixth of the cash bonus of Microsoft’s chief executive, Satya Nadella, a bonus that last year totaled $10.8 million. “This is an important demonstration of executive commitment to creating an inclusive workplace, and we find this helps ensure there is shared accountability to make progress,” the company said in a statement.

Uber, which in the past was criticized for a cutthroat work culture, perhaps goes further than any other company. Diversity targets are embedded in the stock compensation of its chief executive, Dara Khosrowshahi, accounting for a fourth of his performance-based stock awards. Uber valued his performance award for last year at $6.25 million. The goals include achieving growth in the percentage of workers who are from underrepresented ethnic groups at the senior analyst level and above over a three-year period that has not ended.

Bo Young Lee, Uber’s chief diversity and inclusion officer, said the policy had “really crystallized what we’re trying to achieve, and gave something for us to pivot off of, and explore other aspects of our diversity and inclusion strategy.”

But diversity-related goals may end up having less bite than advertised because they might be relatively easy to achieve, which can be hard to evaluate when companies do not disclose details about their goals. In addition, even companies that use this approach do not let it determine a sizable portion of overall pay.

Of course, there are plenty of other ways to bolster the hiring and promotion of people of color and women, experts say. Regularly disclosing in meaningful detail how the company is performing on important diversity metrics can help employees hold senior executives accountable. Mr. Tomaino, the activist investor, says Google is a leader in providing useful information in its diversity report. The report, for example, shows that Black employees are more likely to leave than the average employee.

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Credit…Nina Westervelt/Bloomberg

Some companies, like JPMorgan Chase, the country’s largest bank, claimed they could do more without strict goals. Joseph Evangelisti, a JPMorgan spokesman, said the bank had increased the number of Black professionals — managing and executive directors — by more than half over the last four years.

The board and its top leaders do not “believe in using a simple, formulaic, short-term approach,” he said, “because they’re looking to our leaders to develop and implement strategies that provide long-term, sustainable outcomes to drive diversity, equity, inclusion and, ultimately, success of our diverse employees.” JPMorgan did not say what percentage of professionals were Black employees.

But activist investors say they will keep pressing for diversity targets for senior executive pay. “The issue here is that we’re in a multiethnic country where wealth is controlled by white people,” Mr. Tomaino said. “It’d make sense for companies that possess big levers to help create change.”

Mr. Tribbett, the consultant, said that even though companies might disclose and meet diversity goals, it was particularly important to look at whether this meant they were succeeding in hiring and promoting Black employees in particular.

“What we’re trying to achieve right now is an increase in African-Americans into the boardroom and into the C-suite and up the ladder of the company,” he said. “So when a C.E.O. metric is positively achieved, but within that metric the Black portion of it still has not been achieved, then I think we have failed.”

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What Hong Kong’s Pandemic Experience Taught Uber About Other Cities

OAKLAND, Calif. — In late February, Uber executives were set to gather in San Francisco to form business plans for the year as the coronavirus steadily spread beyond China. While some executives who were initially invited had been told to stay home, the remaining few huddled at Uber’s headquarters to make plans for the inevitable pandemic.

One of them, Susan Anderson, who managed Uber’s business in Australia, New Zealand and North Asia, delivered bad news: In Hong Kong, Uber trips had declined rapidly as the coronavirus took hold.

“People were tracking what the rate of the virus spread was, and we saw that translate into a drop in trips pretty early on,” Ms. Anderson recalled in an interview. “It became obvious that this was not going to be contained.”

Months later, Uber is facing its greatest crisis: keeping the ride-hailing business afloat when many people are still staying home. Coronavirus totals in the United States, Uber’s highest-revenue market, continue to grow, challenging cities and local businesses that are trying to reopen. And rides, not surprisingly, are only haltingly returning to a semblance of what they were.

Hong Kong, on the other hand, has recovered from the pandemic faster than most other cities where Uber operates. The outbreak has been less severe there than in the United States, and many commuters have gone back to work. Although Uber’s business in Hong Kong is small and doesn’t generate much revenue, the foothold gave the company a preview of how quickly its business would slip away during the pandemic — but also a best-case example of what its recovery elsewhere could look like.

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Credit…Tasos Katopodis/Getty Images

At first, drivers were reluctant to get back behind the wheel. Commuters returned to Uber once restrictions were lifted, while infrequent riders didn’t. Hong Kong also provided a testing ground for new virus safety features, like facial recognition software to detect whether drivers were wearing masks, before they were introduced globally.

The city began lifting restrictions in February, but a second wave of cases in March caused another dip in rides — a sign of the unsteady recovery that Uber is likely to see in the United States.

“If the world looked like Hong Kong, we would be in great shape,” Uber’s chief executive, Dara Khosrowshahi, said during a March call with financial analysts. At the peak of the outbreak in Hong Kong, rides declined 45 percent, Uber said.

In major U.S. cities, Uber rides dropped as much as 80 percent. On average, they had begun to recover about 12 percent last month, the company said. The recovery in Hong Kong has been stronger, with business up 70 percent from its lowest point.

There were signs of recovery in states that began reopening, like Georgia, where business was up 43 percent, and Texas, up 50 percent. But those states are starting to see virus numbers spike, and Uber’s experience in Hong Kong suggests that a downturn in business is likely to follow.

“It’s been very beneficial for us having a presence here,” Ms. Anderson said of Hong Kong. “It’s given us a few more weeks to understand what this might look like.” She added, “There are some things that are going to hold globally true, and some things that really need regional tailoring.”

Some safety measures, like providing sanitizing products to drivers, became part of Uber’s global plans. After Hong Kong commuters returned to Uber more quickly than casual riders, the company increased its promotion of its commuting services.

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Credit…Demetrius Freeman for The New York Times

One safety measure that might prove difficult to replicate in some parts of the United States is the acceptance of masks. In Hong Kong, wearing a mask is a commonly accepted way to avoid the spread of a virus. It made Hong Kong an ideal place for Uber to test its mask requirements and mask-detection software before rolling them out in the United States.

In May, Uber began to require masks for drivers and passengers in the United States, but the simple act of asking people to put on a mask has become contentious. In Australia, public health officials did not recommend masks, so Uber did not require them there.

Because of its history of dealing with virus outbreaks, including the SARS outbreak in 2003, residents of Hong Kong are acutely aware of the risks.

Gary Yau, an Uber driver in Hong Kong, stopped accepting passengers in January because he was worried about catching the coronavirus and infecting his wife and infant son. Now he picks up for or five passengers a day. He finally felt comfortable reopening his Uber app after offices reopened, while some social distancing regulations and border closures remained in effect.

  • Frequently Asked Questions and Advice

    Updated June 30, 2020

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

    • Is it harder to exercise while wearing a mask?

      A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.

    • I’ve heard about a treatment called dexamethasone. Does it work?

      The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.

    • What is pandemic paid leave?

      The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.

    • Does asymptomatic transmission of Covid-19 happen?

      So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.

    • What’s the risk of catching coronavirus from a surface?

      Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

    • How does blood type influence coronavirus?

      A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.

    • How many people have lost their jobs due to coronavirus in the U.S.?

      The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.

    • How can I protect myself while flying?

      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.