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Uber would likely shut down in California for over a year if new ruling not overturned

The proposed action was outlined in court filings Wednesday focused on whether most of its workforce is reclassified as employees rather than contractors.

OAKLAND, Calif. — In new court filings Wednesday, a top Uber official said the company would “almost certainly need to shut down” ride services in California for “likely more than a year” if a judge’s groundbreaking ruling issued this week is upheld on appeal.

In a new four-page declaration, Brad Rosenthal, Uber’s director of strategic operational initiatives, said that if the company has to reclassify the bulk of its workforce as employees rather than contractors, it will “force Uber to dramatically restructure its entire business model and its relationships with drivers and riders.”

In a call with investors Wednesday, Lyft CEO John Zimmer said the company would likely also suspend operations in the state for similar reasons.

Earlier Wednesday, Uber CEO Dara Khosrowshahi said the company would halt service in its home state of California for a few months if a judge’s groundbreaking ruling this week is upheld on appeal.

“We will have to shut down until November,” Khosrowshahi told MSNBC’s Stephanie Ruhle in an interview.

On Monday, Judge Ethan Schulman of the San Francisco County Superior Court found that there was an “overwhelming likelihood” that both Uber and Lyft had misclassified drivers as contractors rather than employees. Drivers make up the bulk of those companies' labor forces.

The ruling was the latest twist in a lawsuit brought against the companies in May by the state’s attorney general. Schulman put a hold on enforcement of his ruling for 10 days pending appeal.

In the new filings, both companies asked the judge to at least extend this hold period beyond 10 days while they begin the appeals process. Schulman is set to hold a hearing on this issue Thursday.

Khosrowshahi said that if the company is forced to adhere to the judge’s ruling, it would “take a significant amount of time” for the company to retool.

He said the new version of Uber in California would result in “much smaller service, much higher prices,” harking back to the early days of Uber, when it was largely a private car service that operated nearly entirely in city centers.

“That’s a reality, so it’s not a game of chicken one way or another,” he said. “It’s really up to the courts and we’re going to comply with the law, and we will look to get going again.”

Uber and Lyft save millions of dollars annually by classifying drivers as contractors. But by doing so, the judge found, they have been violating a 2018 California Supreme Court decision and a state law based on that ruling known as AB5. That law took effect on Jan. 1.

Employees, even part-time employees, are generally granted a slew of rights under California state and federal labor laws, while contractors are not. Those rights include workers’ compensation benefits, unemployment benefits and the right to unionize, among others.Last week, the California Labor Commissioner’s Office in Oakland also filed a similar lawsuit in Alameda County against Uber and Lyft for allegedly engaging in “systemic wage theft.”

The Uber CEO pushed for what he called the “best of both worlds” between employees and contractors, in the form of a proposed new state law, Proposition 22, which will be put to California voters in November. On Monday, the same day that the San Francisco judge ruled against Uber, Khosrowshahi wrote an op-ed in The New York Times arguing in favor of Proposition 22.

If enacted, Proposition 22 would grant a vast exemption to AB5 for Uber, Lyft and other similar gig economy companies including DoorDash. Those three companies in particular have contributed the overwhelming majority of the funding for the largest lobby group in favor of Proposition 22.

During the MSNBC interview, Khosrowshahi claimed, as Uber has done for several years, that drivers “want flexibility” for their work hours.However, there is nothing in AB5 or any other current state law that precludes Uber, or any other company, from offering both employment and scheduling flexibility.

Ultimately, Khosrowshahi argued that if Monday’s ruling is upheld, it will be harmful to drivers.

“It would put vast swaths of drivers out of work,” Khosrowshahi said.However, Schulman addressed this point head-on in his ruling Monday.

“But if the injunction the People seek will have far-reaching effects, they have only been exacerbated by Defendants’ prolonged and brazen refusal to comply with California law,” he wrote.

“Defendants may not evade legislative mandates merely because their businesses are so large that they affect the lives of many thousands of people.”