In August, Uber and Lyft received a favorable employment law ruling from an appeals court that ruled to extend a stay on an order requiring them to reclassify their drivers as employees. The legal battle, however, is far from over.
The case was brought by California’s attorney general and city attorneys from San Francisco, Los Angeles and San Diego who allege that Uber and Lyft violated the state’s new labor law, Assembly Bill 5 (AB5), by misclassifying rideshare drivers as contractors.
Certain provisions contained in AB5 installed a three-pronged test for whether a worker should be considered independent or considered an employee. To be considered independent, workers must: (1) be “free from the control and direction of the hiring entity,” (2) do work “outside the usual course of the hiring entity’s business,” and (3) be “customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
Uber and Lyft have not only argued that that their drivers meet the criteria to be independent contractors, but have also have asserted that the law didn’t apply to them because they are technology companies, not transportation companies, and that drivers are not a core part of their business.
Prior to the stay, the trial court granted the state a preliminary injunction that would require Uber and Lyft to reclassify their drivers as employees beginning Aug. 21. The companies argued that they would have to temporarily shut down in California in order to rework their businesses to comply with the injunction and rehire workers as employees, further stating that they would likely have to slash the number of workers they could employ once they returned, create more rigid work schedules for drivers and raise prices for riders. According to California officials, nothing in AB5 requires Uber and Lyft to eliminate flexible work for drivers, but the companies argue that it would be logistically implausible to do otherwise.
As of now, Uber and Lyft plan to remain operating under the same system that they have historically used while they continue to litigate in court. Even if and Uber and Lyft do not prevail in their court battle, they may have a second bite at the apple through Proposition 22, which will appear on the California ballot in November. Uber and Lyft have each contributed $30 million in funding to promote Prop 22, which would exempt their companies from compliance with AB5. In other words, if Prop 22 passes, it could render any adverse rulings meaningless as Prop 22 carves out obligations of app-based rideshare and food delivery services required under AB5.