The Lyft firm says it is suspending operations in California after a judge ordered it to treat drivers as employees.
Both Lyft and Uber were told they had to classify their drivers as employees and not contractors by Friday.
Lyft has now said its California services will stop at 23:59 local time on Thursday (06:59 GMT on Friday).
Uber has warned that it will have to do the same if a stay is not granted by an appeals court before the deadline.
But Uber has yet to make any formal announcements.
“This is not something we wanted to do, as we know that millions of Californians depend on Lyft for everyday, essential travel,” Lyft said in a statement posted online.
Both companies have always claimed that their drivers are self-employed.
But a California law that went into effect earlier this year, known as AB5, extended employee classification to workers in the “gig economy”.
The judge’s ruling that the law applies to both Uber and Lyft means companies must provide drivers with extra benefits, such as unemployment protection.
Both companies filed an appeal against the sentence – and asked for its execution to be suspended while the courts handled the appeal.
Unless the stay was granted, both companies had 10 days to undertake what they considered a significant overhaul of their California business.
Both warned they could be forced to withdraw services from the state after 11:59 pm local time on Thursday.
What did the companies say?
Lyft says four out of five of its drivers don’t want to be classified as employees. Both argue that flexibility is appreciated by those who choose to work for them.
The two companies had emailed customers and pushed notifications to apps to try and get support for their part of the topic.
Uber chief executive Dara Khosrowshahi, meanwhile, wrote an opinion piece for the New York Times, arguing that his company wasn’t really averse to paying the costs of things like health insurance.
Instead, he argued that the choice between being a full-time employee and a “gig” worker was a problem in itself and the laws needed to be changed. He advocated for a system where companies pay benefits based on a rate per hour worked.
But he also said the company can only offer full jobs to a small portion of its workforce. In a podcast interview with Vox Media, he summed up the problem like this: “We can’t go out and hire 50,000 people overnight.”
Lyft echoed that sentiment, telling the court that it “cannot make the changes that the injunction requires with a simple switch.”
Companies have external support.
Some drivers don’t want to be classified as employees, and the mayors of San Diego and San Jose – a Democrat and a Republican – have joined forces to warn that closing services “virtually overnight” would harm one million residents in the state.
What happens next?
There is a potential way out for ride-sharing companies in the coming months.
A ballot that will be put to a vote in November, at the same time as the US presidential election, would grant Uber and Lyft an exemption from the law. It is known as proposition 22.
“Your voice can help,” Lyft wrote in its blog post about discontinuing services.
“Prop 22 proposes the necessary changes to give drivers the benefits and flexibility, while maintaining the rideshare model that helps you get where you need to go,” he said.
Both companies, along with other supporters like the DoorDash food delivery app, have reportedly spent millions of dollars on lobbying and campaigning for the law.
Labor groups, meanwhile, are firmly against, arguing that it will save companies huge sums of money at the expense of drivers.
It is possible that a closure of services could last at least until November, when the matter could be decided by the outcome of Proposition 22.