This Monday, a California judge ordered Uber and Lyft to classify drivers as employees. The preliminary injunction comes after officials sued the two ride-hailing companies over their refusal to follow a state law. If upheld, the ruling could pose a huge financial threat to Uber and Lyft, who up until now have avoided paying for worker benefits.
Assembly Bill 5
The “gig workers bill,” or Assembly Bill 5, is an expansion of a California Supreme Court 2018 ruling. In that decision, the court compelled companies to use a three-pronged test in determining the classification of a worker. Assembly Bill 5 codifies that ruling. But even if they hadn’t put the law in writing, recent months have made the difference between gig workers and full-time employees strikingly clear.
COVID-19 shutdowns have impacted gig workers, particularly those who work for ride-hailing companies, which have paused and resumed operations multiple times amid the pandemic. Due to the casual nature of gig contracts, those workers struggle to secure unemployment and other benefits when their usual day job becomes unavailable. While most companies offer benefits to their full-time employees, independent contractors and gig workers do not receive any.
Uber and Lyft’s Refusal to Comply
Uber and Lyft have a business model that saved money over the years by not providing their drivers benefits. This is why both companies tried to block Assembly Bill 5 every step of the way, though unsuccessfully. The bill passed in January of this year.
Now, a California judge has ordered that under Assembly Bill 5, Uber and Lyft must begin classifying their workers as employees, with all the protections and benefits of employees. The ruling allows ten days for either company to appeal, which is likely.
For their part, Uber and Lyft are fearful for their bottomline. The companies will have to pay overtime pay, FICA taxes and health benefits if the ruling moves forward.
Forcing Their Hand
California Attorney General Xavier Becerra led the charge against the tech companies. City attorneys from San Francisco, Los Angeles, and San Diego also signed the motion. The suit alleges that Uber and Lyft both defied the court order, and owe their drivers restitution.
For now, they’ve accomplished their first goal. San Francisco Superior Court Judge Ethan Schulman granted a preliminary injunction this week. This ruling acts as kind of a time-out for the companies. At least until deliberation is complete, Uber and Lyft will have to classify their workers as employees.
Response to the Ruling
Uber and Lyft maintain that their drivers prefer being independent contractors. The ruling, they argue, will hurt those drivers who are unable to become full-time employees. Additionally, as a result of the ongoing pandemic, more people than ever want some part-time work to supplement their income. This ruling will deny part-timers the chance to drive for Uber or Lyft.
Judge Schluman did agree that certain drivers might be negatively affected in this way. But he also said that this negative impact had “only been exacerbated by Defendants’ prolonged and brazen refusal to comply with California law.”
In the end, Judge Schulman said that Uber and Lyft had to obey the law, even if it was inconvenient. “Defendants may not evade legislative mandates merely because their businesses are so large that they affect the lives of many thousands of people,” he said.