Roughly 10,000 ride-hailing drivers for both Uber and Lyft were not working beginning Monday after the two companies lost a vote over mandatory fingerprint background checks for drivers. Voters in Austin, Texas, over the weekend rejected a measure, Proposition 1, that would have exempted drivers from required fingerprinting as part of their background checks. Uber shut down in Austin at 8 a.m. Central time. "Disappointment does not begin to describe how we feel about shutting down operations in Austin," said Chris Nakutis, general manager of Uber Austin, in prepared remarks. Rival company Lyft in a statement said it paused operations Monday. "Unfortunately, the rules passed by city council don't allow true ride sharing to operate. Instead, they make it harder for part-time drivers, the heart of Lyft's peer-to-peer model, to get on the road and harder for passengers to get a ride," according to a Lyft statement. About 10,000 ride-hailing drivers for both companies are being impacted, said Taylor Patterson, an Uber spokeswoman.

Uber driver Mark Ralston | AFP | Getty Images

The companies ironically are retreating in a Texas city known for its tech scene, and support of start-ups. Uber, for example, debuted in Austin in 2011 as a pop-up service at the annual South by Southwest event. While people like ordering a ride with a mobile app and not needing to pay in cash, other critics charge ride-hailing start-ups unfairly compete with taxi drivers by entering their markets without following regulations or fare schedules.

But at least one Uber watcher contends the vote in Austin wasn't really about fingerprinting or safety concerns. "This is about politics," said Brishen Rogers, associate law professor at Temple University. "This is about the sort of companies cities want to embrace," Rogers said. "And these issues are playing out through the lens of safety. But I don't think safety is the issue."

Of course no one in the taxi industry or ride-hailing community openly disputes the priority of passengers' safety. But background checks aren't a panacea. And some data suggest such checks have a limited ability to prevent workers' future bad behavior.

"As the Equal Employment Opportunity Commission (EEOC) has emphasized, background checks have limited predictive value and can have a disparate impact on minority drivers," Rogers wrote in a white paper on Uber that was published last year.

Beyond the controversy surrounding background checks, the phenomenal growth of both Uber and Lyft in only a few years is indisputable. Seemingly overnight, the new business models have swooped in on the old-school taxi and limousine industry. Uber today has a presence in some 400 cities worldwide, from San Francisco to Shanghai. The company is a tech unicorn — a private company with a valuation of at least $1 billion.

But Uber in particular also sparks sharp debate about what constitutes an even playing field for its employees, and broad workers' rights and due process for freelancers in the growing gig economy. Sometimes referred to as the on-demand economy, freelancers use smartphones and other technology platforms to connect to available work and income streams such as driving passengers to destinations or renting out a room or house. Uber's blockbuster success has sparked copycat business models and other on-demand services, anchored in a mobile app. Services can include finding someone to do your chores and handiwork around the house. As the Silicon Valley joke goes, on-demand start-ups are about getting people to do stuff your mom used to do. Now as the era of cheap money eases and valuation expectations adjust, even the Uber business model is losing some of its sheen.