Lyft Inc. said it will suspend ride-sharing operations in California as of midnight, making good on its promise to stop doing business in the state rather than comply with a law to reclassify its drivers as employees.

“This is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips,” the company wrote in a blog post on Thursday. “We’re personally reaching out to riders and drivers to share more about why this is happening, what you can do about it, and to provide some transportation alternatives.”

Lyft shares dropped as much as 8.5 per cent to US$25.74 in New York trading.

The move follows a court ruling requiring Lyft and larger rival Uber Technologies Inc. to comply with California’s new law. The order takes effect at midnight Thursday night, if no extension is granted.

Uber has also threatened to suspend operations in California at midnight if no legal reprieve is granted, but has not officially announced its plans. The ride-share giant would not suspend its food delivery operations, which have surged during the coronavirus pandemic, and were not part of the state lawsuit that has now come to a head.

An Uber spokesman declined to comment on Lyft’s announcement.

Uber and Lyft, both based in San Francisco, have argued that their current model allows drivers more flexibility. Labor organizers say they should be obligated to pay regular worker protections and benefits.

In its blog post, Lyft promoted California Proposition 22, which would take the issue directly to voters, allowing the companies to continue to classify workers as contractors if passed. “A ballot measure this November, Prop 22, proposes the necessary changes to give drivers benefits and flexibility, while maintaining the rideshare model,” Lyft wrote.

Gig companies including Lyft, Uber and Instacart Inc. wrote and financed the November ballot measure, contributing most of the US$110 million in funding for the campaign to pass it. But more than campaign contributions, withdrawing from California will have the effect of gaining widespread attention for the proposition.

Veena Dubal, a professor at the University of California Hastings College of the Law, said that by spending service, Lyft and Uber are creating a crisis and then leveraging it to pass the Proposition 22 ballot measure that they wrote and financed which has fewer worker protections.

“This is not how democracy should work in America,” Dubal said. “Businesses should not be allowed with their tens of billions of dollars to create laws for themselves.”

The financial impact on Lyft of suspending service in its home state may be muted. The pandemic has already decimated ride-hail demand, with revenue in cities like San Francisco and Los Angeles down more than 70% during the second quarter, according to the companies. For Lyft, California represents 16% of total revenue. California represents less than 10% of Uber’s ride volume, according to estimates by Bloomberg Intelligence Analyst Mandeep Singh.

Political wrangling over the law is ongoing. As the companies appeal the court ruling requiring them to comply with the new law, California Attorney General Xavier Becerra asked a state court Wednesday to ignore their pleas for an extension. If the appeals court agrees with Becerra or takes no action, the stay of the ruling will expire.