A stunning court ruling puts Uber and Lyft in a tight spot
A California judge ruled that Uber and Lyft must classify their drivers as employees in a stunning preliminary injunction issued Monday afternoon. The injunction is stayed for 10 days, however, giving Uber and Lyft an opportunity to appeal the decision. Uber said it planned to file an immediate emergency appeal to block the ruling from going into effect.
Uber and Lyft are under increasing pressure to fundamentally alter their business models in California, the state where both companies were founded and ultimately prospered. At issue is the classification of ride-hailing drivers as independent contractors. Uber and Lyft say drivers prefer the flexibility of working as freelancers, while labor unions and elected officials contend this deprives them of traditional benefits like health insurance and workers’ compensation.
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In May, California Attorney General Xavier Becerra, along with city attorneys of Los Angeles, San Francisco, and San Diego, sued the companies, arguing that their drivers were misclassified as independent contractors when they should be employees under the state’s AB5 law that went into effect on January 1st. Becerra later filed a motion for a preliminary injunction that could compel the ride-hailing companies to classify drivers as employees immediately. AB5, which was signed into law last September, enshrines the so-called “ABC test” to determine if someone is a contractor or an employee.
“It’s this simple,” California Superior Court Judge Ethan Schulman wrote in his ruling, “Defendants’ drivers do not perform work that is ‘outside the usual course’ of their business. Defendants’ insistence that their businesses are ‘multi-sided platforms’ rather than transportation companies is flatly inconsistent with the statutory provisions that govern their businesses as transportation network companies, which are defined as companies that ‘engage in the transportation of persons by motor vehicle for compensation.’”
He added, “It also flies in the face of economic reality and common sense… To state the obvious, drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business.”
In a statement hailing the ruling, Becerra said California and its workers “shouldn’t have to foot the bill when big businesses try to skip out on their responsibilities. We’re going to keep working to make sure Uber and Lyft play by the rules.”
This was just the latest legal blow against Uber and Lyft in California. Last week, the state’s labor commissioner alleged in a pair of lawsuits that the companies were stealing wages from drivers by refusing to classify them as employees.
Drivers’ groups that have been pressuring the companies to reclassify their drivers celebrated the decision as forward progress. “Today’s ruling affirms what California drivers have long known to be true,” Mike Robinson, a Lyft driver and member of the Mobile Workers Alliance, a group of Southern California drivers, said in a statement, “workers like me have rights and Uber and Lyft must respect those rights.”
But Uber and Lyft maintain this ruling conflicts with the desires of the majority of drivers and will result in fewer jobs during a global pandemic that is putting strain on workers’ finances.
“The vast majority of drivers want to work independently, and we’ve already made significant changes to our app to ensure that remains the case under California law,” an Uber spokesperson said. “When over 3 million Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry during an economic depression.”
A Lyft spokesperson agreed. “Drivers do not want to be employees, full stop,” the spokesperson said. “We’ll immediately appeal this ruling and continue to fight for their independence. Ultimately, we believe this issue will be decided by California voters and that they will side with drivers.”
If drivers were classified as employees, Uber and Lyft would be responsible for paying them minimum wage, overtime compensation, paid rest periods, and reimbursements for the cost of driving for the companies, including personal vehicle mileage. But as independent contractors, drivers receive none of these benefits.
The flurry of lawsuits and court rulings in California comes ahead of the November election, when the state’s voters will decide on an Uber-and-Lyft-backed ballot measure that would override AB5 by classifying ride-hail drivers and other gig economy workers as independent contractors.
