In August 2020, California gig workers walked away with a crucial victory in California Superior Court after Judge Ethan Schulman ruled that transportation network companies Uber and Lyft had failed to comply with California Assembly Bill 5 (AB 5). The ruling now triggers what might be a lengthy, expensive and contentious appellate process. Enforcement of the court’s preliminary injunction was stayed for 10 days for purposes of giving Uber and Lyft sufficient time to exercise that right. Uber said it would immediately appeal the decision. A Lyft spokesperson stated that the company would also file its appeal in short order.
In May of 2019, California, through Attorney General Xavier Becerra and the attorneys for various California municipalities brought an action seeking injunctive relief to enjoin Uber and Lyft from violating AB 5. They alleged that drivers for the companies had been misclassified as independent contractors when in fact, they should be employees under the bill. Historically, the drivers have not been eligible for Workers Compensation. The petition for the injunction was filed after AB 5 became law on January 1, 2020. California law generally provides that injunctive relief can be granted upon a showing of the following:
- There would be an inadequate remedy at law. Monetary compensation would not be a sufficient solution.
- There would be a serious risk of irreparable harm without an injunction.
- There is a showing of a likelihood that the plaintiff would prevail on the merits of the underlying case.
- The balance of hardships to the defendant if injunctive relief was granted against the harm to the plaintiff if it was denied favors the plaintiff.
The Superior Court ruling comes on the heels of legislation that was passed late in 2019 that operated to classify Uber and Lyft drivers as employees and not independent gig workers. The ruling essentially set California’s “ABC Test” in stone. California businesses must pass that three-part test in order to legally classify individuals as independent contractors. The three parts of that test follow:
- The worker must be free from the control and direction of the hiring business regarding the performance of the work, both under the contract for its performance and in fact.
- The worker must perform work that is outside the usual course of the hiring entity’s business.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Both Uber and Lyft had argued that they were tech platforms that assisted customers with arranging for transportation services rather than in the nature of dispatch services. Central to their position was that drivers who associated with them were independent contractors rather than employees. The court found the allegation that drivers weren’t pivotal to their businesses unbelievable.
The two companies argued that requiring them to reclassify drivers as employees would be cost prohibitive, requiring them to fundamentally redefine their business models. Drivers who would otherwise work whenever they wanted to would be required to work scheduled hours in what had historically been a very flexible driving hours arrangement. Drivers were able to work whenever the wanted to by simply logging into their company’s app. Elected officials and labor unions argued that the business arrangement deprived drivers of established basic benefits like social security, workers’ compensation coverage, unemployment insurance or even overtime pay.
Judge Schulman stated that “drivers are central and not tangential to Uber and Lyft’s entire ride-hailing business.” He went on to remark that “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 of the ordinary course of its business.”
A deluge of California lawsuits and court decisions have preceded the general election. Both Uber and Lyft have advocated in favor of a ballot measure that would effectively nullify AB5 by classifying their drivers along with other gig economy workers as independent contractors and exempt from AB 5. There is justified speculation that both Uber and Lyft will suspend California operations in California until after the November election. They’ve poured more than $110 million into their lobbying efforts. If a successful vote doesn’t prompt a resumption of operations, it’s likely that Uber and Lyft won’t be doing business in California again. Given the timing of it all, California voters might be closing the barn door after their legislature ran the horses out.