People of the State of California v. Uber / Lyft – filed August 10, 2020, case number CGC-20-584402, in the California Superior Court – San Francisco
The gig-economy was dealt a major blow in a recent court ruling against Uber and Lyft. The State of California filed an action seeking injunctive relief, restitution, and penalties against Defendants Uber Technologies, Inc. (Uber) and Lyft, Inc. (Lyft). The complaint asserted that Uber and Lyft have misclassified their ride-hailing drivers as independent contractors rather than employees in violation of Assembly Bill No. 5 (AB 5), which took effect on January 1, 2020.
On June 25, 2020, the State moved for a preliminary injunction enjoining defendants from classifying their drivers as independent contractors, and from violating any provisions of the various statutes in place to protect employees.
On August 10, 2020, the California Superior Court, County of San Francisco, granted the State’s motion and enjoined and restrained both Uber and Lyft from continuing to classify their drivers as independent contractors in violation of Labor Code section 2570.3.
In finding a preliminary injunction appropriate, the court analyzed the defendants’ likelihood of ultimately prevailing on the merits. The court applied the ABC test, as codified by AB 5, to Uber and Lyft’s business. Under that test, a person providing labor or services for remuneration shall be considered an employee rather than independent contractor unless the hiring entity demonstrates that three conditions are satisfied:
(A) The person is free from control and direction of the hiring
entity in connection with the performance of the work, both
under the contract for the performance of the work and in
(B) The person performs work that is outside the usual course of
the hiring entity’s business, and;
(C) The person is customarily engaged in an independently
established trade, occupation, or business of the same
nature as that involved in the work performed.
The Court found that the defendants could not possibly satisfy the “B” prong of that test, and thus the likelihood that the State would prevail on their claim that defendants have misclassified their drivers was overwhelming.
In line with several other court decisions both inside and outside of California, the court found the issue simple: defendants’ drivers do not perform work that is “outside the usual course” of their business. The court found that defendants’ insistence that their businesses are “multi-sided platforms” rather than transportation companies is inconsistent with the statutory provisions that govern their business and flies in the face of economic reality and common sense.
The court’s order was set to go into effect on August 20, 2020. On August 12, 2020, both Uber and Lyft announced that they would suspend services of California. However, on August 20, 2020, the Court of Appeals granted defendants’ request to stay the lower court’s order until the issue is decided on appeal. The Court also required the CEOs of both companies to submit sworn statements saying they have developed a plan to comply with the preliminary injunction in the event the injunction is upheld and Proposition 22 fails to pass.
Uber and Lyft continue to fight the classification of their drivers as employees under AB 5 both in the courts and on the ballot. In November, Californians will vote on Prop. 22, a ballot measure almost entirely funded by Uber, Lyft and DoorDash. Prop. 22 creates a third class of workers for app-based drivers who meet certain conditions. These quasi-employees would be granted certain employment-like protections, but would not go so far as to grant them all the protections provided to employees.
However, even if Prop. 22 passed, it applies only to app-based “drivers” and would not work to protect other gig-economy workers.
It has also been reported that the Uber and Lyft are in serious discussions to license their brands to operators of vehicle fleets in California. The arrangement appears to be similar to a franchise model and would still require the independently operated franchises to bear to burden of employing the drivers.
The ultimate effect of AB 5 on the gig-economy as a whole remains to be seen. However, given the outcome of several court decisions, it appears that courts are making it extremely difficult for companies to satisfy the ABC test in order to classify workers as independent contractors.
If you have any questions about the classification of your company’s workers in light of AB 5, please contact Drew Pomerance at (818) 992-9999, ext. 212, Michael Adreani, at ext. 234, Marina Vitek, at ext. 236, or Trevor Witt, at ext. 224.
In the meantime, please stay safe, stay healthy and be close to your friends and families.