Uber and Lyft Are Considering Franchising

Recent injunctions in California are forcing several third-party delivery and ride-sharing companies to reclassify their contractor drivers as full-time employees. Now, Uber and Lyft may be looking for another way — franchising.

According to an article on The New York Times, Uber and Lyft have been discussing licensing their brands to operators of vehicle fleets. “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 Times wrote.

Last year, the AB-5 codified a state supreme court ruling was designed to grant employment benefits to gig workers. Now, as the recent injunctions show, it 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.

Many third-party delivery companies say most of its workers prefer to be contractors, arguing that flexibility over working hours and location is impossible under an employee model. But critics have said it places unreasonable financial burdens on drivers and gives Uber and Lyft unfair advantages over businesses that follow employment laws.

From The Times:

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.

This franchise-like model isn’t completely foreign to these ride-sharing companies. Transportation rules have already forced Uber’s operations in Germany and Spain to work with fleets. Lyft based its plan on FedEx, which franchises some of its delivery routes to local operators, current and former employees told the New York Times.

Of course, franchising comes with its own set of challenges. Working with a franchisee who oversees fleets of drivers could increase costs because it introduces another person in the chain of command who needs to be paid. This could also potentially create raised fares or reduced service fees, current and former employees told the New York Times. The companies would also have to surrender some control over driver behavior to the franchisee, leaving the company more vulnerable to reputational damage if something went wrong. Another hurdle is that few fleet operators in California are large enough to absorb Uber and Lyft’s market share.

Read more at nytimes.com.