August 12, 2020
In a major defeat for rideshare companies, a California judge on Monday ordered Uber and Lyft to re-classify their driver from independent contractors to employees pending a 10-day stay during which the “gig economy” companies can appeal the ruling.
Uber and Lyft have long asserted that their businesses are not transportation companies but rather platforms on which “independent contractor” drivers are matched with riders. This has allowed the companies to avoid providing costly benefits to which employees are entitled, such as health care, overtime pay, sick leave, workplace protections and reimbursement for expenses.
However, San Francisco Superior Court Judge Ethan P. Schulman issued a preliminary injunction in which he wrote that it is “obvious” that “drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business.”
Schulman added that the companies’ stance “flies in the face of economic reality and common sense.”
“Uber’s argument is a classic example of circular reasoning: because it regards itself as a technology company and considers only tech workers to be its ’employees,’ anybody else is outside the ordinary course of its business, and therefore is not an employee,” Schulman wrote. “Were this reasoning to be accepted, the rapidly expanding majority of industries that rely heavily on technology could with impunity deprive legions of workers of the basic protections afforded to employees by state labor and employment laws.”
CNBC reports Uber CEO Dara Khosrowshahi said the company would likely shut down temporarily in California if the ruling is not overturned.
“If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly,” Khosrowshahi said.
The suspension of service would likely last until at least November’s election, when California voters will decide on Proposition 22, which would exempt drivers for app-based transportation and delivery companies from being classified as employees.
Lyft told ABC News that “drivers do not want to be employees, full stop.”
“We’ll immediately appeal this ruling and continue to fight for their independence,” the San Francisco-based company added. “Ultimately, we believe this issue will be decided by California voters and that they will side with drivers.”
In May, California Attorney General Xavier Becerra joined the city attorneys of Los Angeles, San Francisco, and San Diego in a lawsuit alleging that rideshare companies were misclassifying their drivers as independent contractors, who should be employees under AB-5, a state law that took effect in January.
AB-5 applies the “ABC test” to determine a person’s status as either an employee or a freelancer:
A. The worker is free from the control and direction of the hiring entity in connection with the work’s performance, both under the contract for the performance of the work and in fact.
B. The worker performs work that is outside the usual course of the hiring entity’s business.
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
California officials have also argued that the harm caused by rideshare companies’ policies and actions hurts more than just drivers, as they do not contribute to the state unemployment insurance fund, which was rapidly depleted in the wake of massive job losses due to the coronavirus pandemic. As a result, the state was forced to borrow billions of dollars.
“Our state and workers shouldn’t have to foot the bill when big businesses try to skip out on their responsibilities,” Becerra said. “We’re going to keep working to make sure Uber and Lyft play by the rules.”
Drivers have driven much of the grassroots activism that led to AB-5 and other victories. They have consistently protested against declining pay and working conditions; as recently as last week drivers rallied against Proposition 22 at Uber and Lyft hubs around California.
A new report by the Partnership for Working Families and the National Employment Law Project argues that Proposition 22 would “create a permanent underclass of workers.”
“These companies have created a noxious combination that serves only one purpose: protect corporate wealth and power at the expense of worker health, safety, and dignity,” the report’s authors stated.
Gig worker advocacy groups hailed Monday’s ruling.
“This is a huge victory for workers and confirms what we already knew: Uber and Lyft have been breaking the law by misclassifying drivers in order to deny them fair wages and healthcare,” Transport Workers Union President John Samuelsen said in a statement.
“Drivers everywhere are standing up to fight for their rights and the courts have taken their side in case after case,” he continued. “Now it’s time for the companies to do what’s right: pay drivers what they are owed, provide the protective equipment they need, and treat them with the dignity they deserve.”
Responding to Uber’s threat to shut down in California, Becerra said that “any business model that relies on shortchanging workers in order to make it probably shouldn’t be anywhere, whether California or otherwise.”
(Photo credit: Stock Catalog/Flickr Creative Commons)