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Uber, Lyft Still Looking for Ways Around California Law

A judge in San Francisco Superior Court last week granted a temporary injunction to the state and three of its largest cities that would require Uber Technologies Inc. (NYSE: UBER) and Lyft Inc. (NASDAQ: LYFT) to stop classifying their drivers as independent contractors. The companies were given 10 days to file an appeal.

So far, the two ride-sharing firms have made little progress in their efforts to continue their businesses as usual. They and other gig companies have succeeded in getting a measure on the November ballot that would alter the legislation (called AB5) to maintain the drivers’ status as independent contractors in exchange for increased pay and benefits.

Uber, Lyft, DoorDash, InstaCart and Postmates have contributed about $110 million to support the change to AB5.

Another option that both companies are mulling over is treating drivers as franchisees. The New York Times on Tuesday cited three unnamed sources who say drivers would operate independent franchises giving Uber and Lyft an “arms-length association” with drivers. The drivers would not be employed by the companies so they would not have to pay their salaries or benefits.

Operating as a franchisor frees Uber and Lyft from the labor practices of its franchisees. In late December of last year, the National Labor Relations Board (NLRB) ruled that McDonald’s Corp. (NYSE: MCD) was not responsible for the labor practices of its franchisees. The ruling followed a five-year legal dispute that began when the Service Employees International Union accused McDonald’s of retaliating against workers who had supported the $15-an-hour minimum wage.

Uber and Lyft have made (toothless?) threats to shut down their services in California as soon as Friday if the ruling is not resolved. That’s one of those, “This hurts me more than it hurts you” solutions that makes little sense.

That’s why the ride-sharers are looking at a franchise model. They can license their names, require certain levels of payments and behavior, and let the drivers figure out how to make a living. What’s not to like?