Afternoon Coffee: Uber may suspend rides in California over contractor lawsuit; unemployment claims fall below 1 million; automation of logistics networks accelerated by COVID-19 pandemic

Californians might not be able to take a ride-share service in the near future after Uber said it could temporarily shut down and retool operations in the state because of a court ruling that ordered Uber and Lyft to classify drivers as employees rather than contractors, according to news reports.

A judge this week issued an injunction ordering the two companies to stop violating provisions of a California law, AB5, that has strict guidelines about when companies can classify workers as contractors. By classifying drivers as employees, the companies would have to provide more benefits to the drivers. Uber executives said compliance with the law would require an entire overhaul of its business model.

“We think the ruling was unfortunate,” Uber CEO Dara Khosrowshahi said in an interview with MSNBC. “If the court doesn’t reconsider, then in California it is hard to believe we’ll be able to switch our model to full-time employment quickly, so Uber will shut down for a while.”

He said rides could return in a couple of months with “much smaller service, much higher prices,” like Uber's initial business model that was like a private car service.

First-time unemployment claims fall below 1 million

First-time claims for unemployment benefits fell below 1 million for the first time since March 21, a sign that the labor market is beginning to recover from the COVID-19 disruption, according to CNBC. Total claims for the week ending Aug. 8 counted 963,000, the U.S. Labor Department reported in releasing the figures today.

Jobless claims totaled above 1 million for 20 consecutive weeks after the U.S. economy faced restrictions to contain the spread of COVID-19. People collecting benefits for at least two weeks, known as continuing claims, still totaled nearly 15.5 million, according to the article. This was a decrease of 604,000 but is still well above pre-pandemic numbers.

“The labor market continues to improve, but unemployment remains a huge problem for the U.S. economy,” Gus Faucher, chief economist at PNC Financial Services, said in the article. “The number of people filing for unemployment insurance, both regular and PUA benefits, continues to steadily decline as layoffs abate. But job losses remain extremely elevated, far above their pre-pandemic level.”

COVID-19 accelerating automation of logistics networks

A number of warehouse robots supported American Eagle Outfitters’ online orders during the coronavirus lockdown this year, according to the Wall Street Journal. The robots are part of a phenomena of companies incorporating technology to boost output and deal with demand efficiently. COVID-19 is accelerating the automation move, the Journal reported.

The coronavirus disruption is leading to more companies considering automating distribution and fulfillment, especially as consumers rush to online shopping. Social distancing practices within warehouses challenge logistics networks, the article said. According to a study from Honeywell International, more than half of warehouse operators said they are willing to invest in automation as a result of the pandemic.

“During non-COVID-19 times, if demand grew by 50%, I would go hire 300 more people,” Shekar Natarajan, the senior vice president of global inventory and supply chain logistics for American Eagle, told the Wall Street Journal. “It’s really tough because you’re also trying to make sure you’re keeping the associates safe. ... You cannot actually bring in 1,000 to 2,000 untrained people into the distribution facility and maintain safe working conditions.”

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