Jan 3, 2020 1:43 PM

Now the Courts Will Decide Whether Uber Drivers Are Employees

A California law aimed at requiring gig economy companies to classify workers as employees took effect January 1. That hardly settled the matter.

Buildings reflected in the windshield of a Lyft rideshare car

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When the clock ticked past midnight on December 31, California’s controversial Assembly Bill 5 went into effect. The bill, already the subject of sturm, drang, and a $110 million campaign for a state ballot initiative funded by the companies it targets, is meant to transform the hundreds of thousands of contractors in the state working for companies like Uber, Lyft, DoorDash, Instacart, and Postmates into employees. This reclassification would entitle them to benefits like hourly minimum wages, workers’ and expense compensation, and potentially, health care.

But the turning of the calendar did not automatically make Uber drivers or Postmates deliverers employees. According to the state’s Employment Development Department website, in the new year “workers will be considered employees unless proven otherwise.” But the companies are spending lots of time (and lawyers’ billable hours) to prove otherwise. The next phase of the fight will take place in the courts, as workers, and potentially California officials, seek to enforce the law, and the companies seek to evade it.

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To wit: This week, some 48 hours before the law went into effect, Uber, Postmates, and two workers for those companies filed suit against the state, seeking to stop the law. Using statements from the lawmakers behind the bill as evidence, lawyers for the plaintiffs argued that AB 5 targeted app-based workers and platforms, “treating them disparately from traditional workers.” Thus, they argued, the law violates the Equal Protection Clauses of both the California and US constitutions.

These sorts of equal protection claims can be difficult to prove, especially if the “protected class”—here, app companies and workers—is not one of those historically denied equal protection under the law because of their race, religion, or national origin.

While not unexpected, the suit was curious, because Uber has also argued that AB 5 doesn’t apply to its drivers anyway. The law codifies a 2018 California Supreme Court decision called Dynamex that established a three-part test to determine whether a worker is an independent contractor or an employee. According to the test, a worker is only considered a contractor if she is not under direct control or direction of the company while working, if she performs work that is “outside the usual course” of the company’s business, and if she’s “customarily engaged” in the same sort of contracted work she performs for the company.

The companies say that drivers perform work outside of their usual course of business because they aren’t transportation companies, but platforms that connect workers to customers. “Just because the test is hard doesn't mean we will not be able to pass it,” Tony West, Uber’s head lawyer, told reporters this fall. (CJ Macklin, a spokesperson for Lyft, declined to comment on new lawsuit.)

That argument has won over at least one state’s employment regulators. Vermont’s Department of Labor wrote in a 2017 bulletin that the “usual course of [Uber]’s business is the provision of a technology platform to its drivers, in exchange for a service fee.” But one federal judge in California called the distinction between technology and transportation company “fatally flawed.” (Uber settled that lawsuit by workers in March 2019, for $20 million.)

Armed with AB 5, some workers are preparing to wage their own legal battle against the “gig economy” companies. Shannon Liss-Riordan, a labor attorney who has represented drivers in lawsuits against the ride-hail companies, sought an injunction in October on behalf of a San Francisco Uber driver, and all other California Uber drivers, to force the company to treat them as employees. A judge denied the preliminary request because the law had not yet taken effect, but Liss-Riordan says AB 5 gives her clients room to argue that their fight is in the public interest, a distinction that allows them to escape the arbitration clauses they signed when they began driving for these companies, in which they agreed not to sue. “The main impediment to enforcing [labor laws] always has been arbitration clauses,” says Liss-Riordan, who is running for a US Senate seat in Massachusetts.

AB 5 also gives the attorney general of California and the city attorneys representing Los Angeles, San Diego, San Jose, and San Francisco authority to force companies to comply with the law. City attorneys in San Francisco and Los Angeles signaled this fall that they are ready and willing to take part in enforcement. Nicole Moore, a Lyft driver and organizer with the California-based drivers’ advocacy group Rideshare Drivers United, says a coalition of labor groups plans to meet with city officials in San Francisco, LA, and San Diego in coming weeks.

The tech platforms are prepping for another alternative, one that could sidestep the flurry of court action. Uber, Lyft, DoorDash, Instacart, and Postmates have collectively sunk $110 million into a ballot initiative that will ask California voters to create an exception to the law for app-based drivers. The companies argue that classifying drivers as employees instead of contractors will force them to cut down on workers’ scheduling flexibility—something that many cite as a huge perk of the job. The initiative also proposes a “compromise” for drivers, including a health care subsidy, new minimum earnings guarantees, occupational accident insurance, and compensation for vehicle expenses. The initiative does not include the right to collective bargaining, something for which some drivers’ groups have agitated.

It makes sense that that these companies are putting up a legal fight in California. According to Uber financial filings, the state is home to two of its biggest global markets, San Francisco and Los Angeles. One company executive told the Information that worker reclassification could spike Uber’s expenses by 20 percent if it were to take effect worldwide. A Barclays analysis suggested that the law might cost Uber and Lyft over $3,500 per California driver—more than $250 million for Lyft and $500 million for Uber per year. The companies would really like to keep their current business models. “We are focused on operating as we are,” Lyft president and cofounder John Zimmer said on an earnings call last year.

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