For many years I have detailed my displeasure and outright disgust over how Uber and Lyft have been operating outside the law. Busting into a market without permission or authority is one thing but ignoring the clear letter of the law to the detriment of drivers is another. Every state has the right to make its own laws and every state has judges that interprets and applies the law.
The ongoing issue for Uber and Lyft throughout the country is this: Are Uber/Lyft driver’s employees or independent contractors? It is not a distinction without a difference. Employee drivers are provided with benefits and protections. Independent contractors get nothing.
Since their inception, Uber/Lyft have claimed that their drivers are independent contractors. They have fought this issue and continue to do so in ways that borders on what is known in the legal world to be frivolous litigation.
Allow me to explain…
Each state generally uses one of two tests to determine if a worker is an employee or an independent contractor. One test is called the “ABC test”. The other is what I call “all the surrounding circumstances test”. The second test looks at all the circumstances surrounding a driver’s work and its relationship with the entity to determine if he/she is an employee or independent contractor. These circumstances include who chooses the hours and days of work, does the company have the right to discipline a driver, who provides the tools to do the trade, is the person in an independently established business, and does the driver have the right to engage in work with other companies. In other words, this test looks at all the circumstances and the ultimate determination comes down to how much autonomy the driver has. No one factor is controlling.
Under the first test, the “ABC test”, any person providing labor or services for remuneration shall be considered an employee, rather than an independent contractor, unless the “hiring entity” demonstrates that all of the following conditions are satisfied:
- The person is free from the 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.
- The person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
In comparison, under the first test, the “ABC test”, it is much harder for a company to prove a worker is an independent contractor. They are presumed to be an employee unless proven otherwise. All of this means very little until you apply it to real life.
Right now, the legal battle for Uber and Lyft is heating up in the State of California, and as it now stands, it may be getting a bit too hot in the kitchen for either.
Prior to April 2018, the California Supreme Court utilized what was known as the Borello & Sons, Inc. “control of details” standard when deciding whether workers should be considered employees or independent contractors for purposes of the variety of 20th century social welfare legislation that had been enacted for the protection of employees. This is the second standard detailed above, which is a multifactor standard that called for consideration of all potentially relevant factual distinctions in different employment arrangements on a case-by-case, totality-of-the-circumstances. This test was good for Uber and Lyft because there is no presumption of employment, as there is with the ABC test and they were able to fight each case on an individual basis without having any one case serve as a precedent against them if they lost.
On April 30, 2018, the California Supreme Court issued a landmark decision in Dynamex Operations W. v. Superior Court. The written decision of the Court can be found at https://www.manatt.com/Manatt/media/Documents/Articles/Dynamex-Operations-West,-Inc-v-Superior-Court.pdf. Dynamex, is a corporation that offered same-day courier and delivery services nationwide, including in California. Its customers ranged from members of the public to large businesses like Home Depot. Dynamex solicited customers and set the rates for its delivery services. Dynamex enlisted drivers to complete the pickups and deliveries at the core of its business. The company chose to classify all of its drivers as independent contractors in order to achieve cost savings associated with avoiding the obligations that those laws impose.
A class of drivers for Dynamex filed a lawsuit claiming that they were misclassified as independent contractors and were thus, unlawfully deprived of employment protections under California’s wage orders. Their claims raised the question of what the appropriate standard was to determine whether workers should be classified as employees or as independent contractors. In a unanimous opinion, the California Supreme Court held that workers are presumptively employees for the purpose of California’s employment law and that the burden is on the hiring entity to establish that a worker is an independent contractor not subject to wage order protections. The Court also held that in order to establish that a worker is an independent contractor, the hiring entity must prove each of the three parts of the “ABC test.
As stated above, under the ABC test, any person providing labor or services for remuneration shall be considered an employee, rather than an independent contractor, unless the “hiring entity” demonstrates that all of the above stated conditions are satisfied.
As a result of the Dynamex case, all of a sudden, Uber and Lyft had a huge problem. Despite claiming to be a technology company, the Courts were not buying that line of reasoning. Also, since the Courts found that Uber and Lyft’s business was transportation, they could not meet the second prong of the “ABC test”, namely, that the driver performs work that is outside the usual course of the hiring entity’s business. Of course, that did not cause Uber or Lyft to change their business operations in California. They simply continued to treat drivers like independent contractors. In essence, Uber and Lyft flaunted the law in the face of the elected officials and the regulators who are charged with enforcing the laws
Just to make sure Uber and Lyft understood where they stood as far as the status of the law was as it pertained to their drivers being employees, on September 11, 2019, the California Legislature passed Assembly bill (AB5). This law imposed the “ABC test” for all purposes under California’s wage orders (which govern, among other things, minimum wage payment, daily and weekly overtime pay, and meal and rest breaks). The law also applies the ABC test to the California Labor Code, which includes, among other things, penalties for willful misclassification as an independent contractor and a requirement that employees be reimbursed for necessary business expenses. The law also applies the ABC test to California’s Unemployment Insurance Code, and, finally, to the state’s workers’ compensation laws. California governor Newsom signed this bill into law, and it went into effect on January 1, 2020.
As is typical of Uber or Lyft, January 1, 2020 came and went, and Uber or Lyft did not change their business operations in California. They ignored the law and continued to treat drivers like independent contractors.
Then COVID-19 hit and drivers were in dire straits. Lyft drivers then filed a lawsuit seeking an order of the court declaring Lyft to have misclassified their drivers as independent contractors and to order Lyft to pay sick leave and other employee benefits as is required under California law. While U.S. District Court Judge Chhabria granted Lyft’s motion to compel arbitration, it should be noted what the Judge stated in his decision: “While the status of Lyft drivers was previously uncertain, it is now clear that drivers for companies like Lyft must be classified as employees… Lyft is ignoring an obvious legal obligation… But rather than comply with a clear legal obligation, companies like Lyft are thumbing their noses at the California Legislature, not to mention the public officials who have primary responsibility for enforcing A.B. 5… but the California Legislature has now spoken on the policy question, and it has decided that workers like those who drive for Lyft must be classified as employees. The policy question having been decided, the legal question is easy – A.B. 5 contains no exception for wealthy corporations that disagree with the Legislature’s policy judgment and would rather not spend money to effectuate that judgment.”
A copy of the Court’s decision can be found here: https://aboutblaw.com/QAp. While Uber AND Lyft blindly and foolishly tried to continue to avoid their legal obligation, the Executive Branch of government in California finally worked up and took action to enforce the laws.
On May 5, 2020, the Attorney General of California and the City Attorneys for Los Angeles, San Francisco, and San Diego filed a lawsuit against Uber and Lyft, alleging that the companies willfully misclassify their drivers. The suit accuses Uber and Lyft of making “the calculated business decision to misclassify their on-demand drivers as independent contractors.” According to the State of California, “[t]he time has come for Uber’s and Lyft’s massive, unlawful employee misclassification schemes to end.” The lawsuit seeks injunctive relief and penalties against the two companies for allegedly violating California’s unfair competition law and AB-5.
On August 10, 2020, Judge Ethan Schulman of the California Superior Court in San Francisco issued an order granting the state a preliminary injunction prohibiting Uber and Lyft from classifying their drivers as independent contractors. Judge Ethan Schulman issued the injunction and in doing so he made the following findings:
- The people have amply demonstrated likelihood of prevailing on the claim that Defendants are misclassifying their drivers.
- The undisputed reality is that is that Uber and Lyft hire and contract with drivers, drivers do not perform work that is outside the usual course of Ubers business and they are not a double-sided platform.
- People have shown that substantial harm will result if the court does not issue an injunction. Workers should not be deprived of their rights as it will have a ripple effect on law abiding competing businesses and on the public in general.
- They rejected Uber’s claim of grave harm if granted because of substantial costs. Court found that they will have to restructure their business and there will be costs but those costs are required to come into compliance with the law.
- They repeated Judge Chaabra when he stated “rather than comply with a clear legal obligation, Uber and Lyft are thumbing their noses at the Cal legislature as well as the public officials who have the responsibility to enforce AB5.
- They said defendant are not entitled to an indefinite postponement of their day of reckoning.
- While the court is mindful of the cost defendants will incur to comply with the law, those are costs defendants reasonably should have anticipated at least since April, 2018 when Dynamex was decided and certainly since Sept 2019 when AB5 was enacted and signed into law.
- AB5 contains no exceptions for wealthy corporations that disagree with the policy judgment of the legislature and would rather not spend money to effectuate that judgment.
Uber and Lyft immediately filed a petition to the California Court of Appeals to immediately stay the Order issued by Judge Schulman pending the outcome of the appeal. In the 10 days after August 10, 2020, Uber and Lyft threatened to shut down operations in California if they were forced to classify their drivers as employees. After all, keep in mind that Uber and Lyft have spent well over $100 million dollars on a public referendum (known as “Proposition 22”) that will be on the ballot in November’s election so the people and not the government can determine if Uber and Lyft’s drivers should be employees or independent contractors.
On August 20, 2020, the California Court of Appeals issued an order temporarily staying Judge Schulman August 10, 2020 order. The rub was this: The California Court of Appeals essentially held that the appeal would be heard in short order. All briefs would be due by September 25, 2020 and oral arguments would be held on October 13, 2020. Most importantly, as a condition of the issuance of the stay, the California Court of Appeals stated that the CEO of both Uber and Lyft must confirm by September 4, 2020 that it has developed implementation plans under which, if the appeals court affirms the preliminary injunction and if Proposition 22 on the November 2020 ballot fails to pass, Uber and Lyft will be prepared to comply with the preliminary injunction within no more than 30 days after issuance of the decision on appeal.
So, what does all this mean? It means that the California Court of Appeals played Solomon and split the proverbial baby. Uber and Lyft cried foul because they believe they should they have to revamp their business operations and pay benefits to drivers that they clearly cannot afford all while the people may vote in their favor in November. In other words, if Proposition 22 passes then the public will have legally decided Uber and Lyft driver should be independent contractors and not employees. On the other hand, if Uber and Lyft lose Proposition 22 and the California Court of Appeals rules against them, then the CEO of each company will have nowhere else to run and hide. Remember, the CEO’s of each company have sworn under the penalties of perjury that if the appeals court affirms the preliminary injunction and Proposition 22 on the November 2020 ballot fails to pass, they will already have a plan to comply with the preliminary injunction within no more than 30 days after issuance of the decision on appeal.
In my legal opinion, Uber and Lyft don’t have a chance in hell at winning the appeal. The law was written specifically against them so they cannot mistreat their drivers any longer. But in California, the people get the last word in a referendum. So, it all comes down to the November election. If Uber and Lyft lose Proposition 22, they will either have to comply with the law and make all drivers in California employees or they will have to stop doing business in the State of California.
I personally believe that Uber and Lyft would rather exit the State of California than treat their drivers as employees. First, Uber and Lyft do not have the capital to treat their drivers as employees all while paying employee benefits. Remember, they still have yet to turn a profit and we all know that COVID-19 has caused a massive downturn in travel and transportation.
The rest of the country is watching. If Uber and Lyft lose their appeal and lose Proposition 22, they will not treat their drivers as employees even if they wanted to because all other states will likely follow the same path as California. That is something that Uber and Lyft’s business model was never designed for and will never be able to financially support.
So, after 10 years, Uber and Lyft are still dragging their feet and using the slow process of the legal system to their advantage, all to the detriment of its drivers. But the end of the road is near. I believe if Uber and Lyft lose Proposition 22, the California Court of Appeals will have its decision ready to be issued denying their appeal and thus, making all Uber and Lyft drivers employees in that state. The time has come for Uber and Lyft to face the music and pay the proverbial piper. The time has come for the playing field to be level for all in the industry. The time has come for drivers to receive what the law entitles them to. But it is now up to the people of the State of California. What happens there in November will have a resounding effect around the country. If you know anyone who is a resident of the State of California, then call them up and tell them to vote “NO” on Proposition 22.
This is no longer just about getting benefits to drivers. It is about fairness to all, justice for all and making everyone play by the same rules. The rule of law has no exceptions for wealthy corporations. The People of the State of California get the last word here. I hope that the last word is that Uber and Lyft must play by the same rules as everyone else.