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By: Ryan Greenspan
On May 5, 2020, California Attorney General Xavier Becerra announced that the State of California will be suing Uber and Lyft for misclassifying their drivers as independent contractors. The precise details of the suit are not presently known, but it is being reported that Uber and Lyft are being accused of violating Assembly Bill 5, went into effect on January 1, 2020 and dramatically changed the legal requirements in California to qualify as an independent contractor.
In Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court established a 3-factor test employers must satisfy to prove that a worker is properly classified as an independent contractor. Employers must prove the following:
1) that the worker has freedom from control over how to perform the services they provide;
2) that the services provided are outside the business’s normal variety; and
3) that the worker is engaged in an independently established role.
Assembly Bill 5 codified the Dynamex decision while carving out limited exceptions. Assembly Bill 5 was expected to significantly impact several of the app-based companies based in California, particularly those commonly known as being part of the “gig economy.” Companies such as Uber and Lyft have always classified their drivers as independent contractors, which afforded workers the opportunity to set their own hours and work for multiple companies, but also meant those workers did not receive various benefits afforded to employees, such as healthcare, workers’ compensation, expense reimbursements, and a guarantee that they would be paid at least the minimum wage.
Enforcement litigation does not come as a surprise. Shortly after Assembly Bill 5 went into effect, Uber and Lyft announced that they would refuse to reclassify their drivers as employees. In February 2020, a federal judge denied a request from Uber and food delivery company Postmates for a preliminary injunction that would have exempted them from the new law.
Prior to Assembly Bill 5 going into effect, Uber and Lyft assisted in the funding of a statewide ballot measure known as the Protect App-Based Drivers & Services Act. The Act is expected to be voted upon in the November 2020 election. If passed, companies such as Uber and Lyft would continue to be permitted to classify their drivers as independent contractors while providing several benefits to their workers, such as a guarantee of at least 120% of the minimum wage, 30 cents per mile for expenses, and a healthcare stipend.
Uber and Lyft have largely been able to defend or settle a series of class action lawsuits over the issue of worker classification. However, an enforcement lawsuit from the state presents a unique challenge to the app-based companies because there is less opportunity to reach a settlement than there is with a private plaintiffs’ attorney.
While this case is in its infancy, the outcome will have a tremendous impact on the approximately 500,000 drivers working for Uber and Lyft in California, as well as thousands more who work for companies such as Doordash. If you have any questions or would like more information on this lawsuit or Assembly Bill 5, please contact Ryan Greenspan at [email protected].