Uber Lays Off 3,700 Employees as it Struggles with a Sudden Loss of Revenue Due to the Coronavirus
The economic fallout of the coronavirus pandemic continues to ripple throughout the transportation industry. The shelter-in-place orders in the U.S. have hit ride-hailing companies and shared mobility startups especially hard. Today Uber Technologies Inc. announced the layoffs of nearly 4,000 employees as the company struggles with the sudden loss of revenue from its core ride-hailing business.
In addition to the massive layoff announcement, Uber CEO Dara Khosrowshahi said he will forgo his base salary for the remainder of 2020. The layoffs affect about 15% of Uber's workforce, including Uber's customer support and recruiting teams. Uber said it expects to incur about $20 million in costs for severance and related charges.
Uber's main U.S. rival, Lyft, also based in San Francisco, also laid off 982 employees last week, equal to 17% of its workforce. Lyft also cut base salaries of top executives in addition to furloughing hundreds of employees. The total layoff between the two leading ride-hailing companies is close to 5,000.
San Francisco-based Uber and its chief rival Lyft have been struggling with a sudden loss of business for the first time due to the coronavirus pandemic, which is now in its second month. Demand for ride-hailing has plummeted as people shelter-in place.
At first, Uber appeared to be able to weather the economic fallout of the coronavirus. In March, CEO Khosrowshahi announced that the company had enough cash reserves to get through the crisis, saying that Uber had $10 billion in unrestricted cash as of the end of February. However, with the lockdown lasting longer than expected, Uber was forced to cut its expenses by letting go of its employees.
Uber Drivers are Also Feeling the Effects of the Coronavirus Pandemic
A slowdown in ride-hailing is also affecting the thousands of Uber's drivers who suddenly find themselves with little to no work. Uber doesn't classify its drivers as employees since they are hired as independent contractors. The drivers receive a cut of each fare, with Uber taking the rest.
Uber has been publicly criticized for its use of contractors, which allows the company to avoid paying minimum wage, overtime, sick and family leave, unemployment and disability insurance, as well as workers' compensation.
The controversy surrounding Uber's use of contractors led to a new law being passed in California last year. California's Assembly Bill 5 (AB5), known as the "gig worker bill," went into effect on Jan 1, 2020. It requires companies like Uber that rely on independent contractors to reclassify them as employees. AB5 was intended to regulate companies like Uber that hire gig workers.
Uber's Chief Legal Officer, Tony West, fought hard against the bill before it was voted on in Sept 2019. Uber and Lyft transferred $60 million into a campaign committee account to rally support against AB5. Uber argued at the time that its drivers are not a part of its "core business." However that effort failed and California lawmakers approved the measure in a 29-11 vote.
Both Uber and Lyft were sued this week by the state of California for defying California's new law requiring Uber to reclassify its drivers as employees, so now Uber must deal with the lawsuit as well as the fallout of the recent pandemic.
Uber does have one bright spot. As most of the country shelters in place, Uber is experiencing soaring demand for its fast-growing food delivery service Uber Eats. Last year, the company's Eats division brought in $645 million in third quarter revenue, a 64% increase from the same quarter last year. For comparison, Uber's ride-hailing businesses grew 21% over the same period.
On Wednesday, Uber launched a new global Uber Eats feature that allows customers to send food to other people no matter where they live. The feature includes real-time delivery tracking for the sender.
Uber's stock closed at $27.82 down just under 1% on Wednesday. The stock rose 2% in after hours trading.
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