In last month’s article, I detailed the status of the lawsuit brought by the California Attorney General against Uber and Lyft to prohibit them from classifying their drivers as independent contractors. I noted that on May 5, 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 the companies willfully misclassify their drivers. I also noted that on August 10, 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. Finally, I noted that on August 20, the California Court of Appeals issued an order temporarily staying Judge Schulman’s August 10 order.
Here’s the rub: The California Court of Appeals essentially held that the appeal would be heard in short order, but as a precondition to staying the issuance of the appellate court’s order temporarily staying Judge Schulman August 10 order, the CEO of both Uber and Lyft would have to confirm by September 4 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.
The Appellate Court has now spoken. On October 22, only nine days after oral arguments were heard, the Court found no legal error in Judge Schulman August 10 order. The California Appellate Court stated the “trial court acted within its discretion and accordingly affirm the order, as issued.”
The Court rejected Uber’s claim that its platform is a two-sided market app that provides services by matching drivers and riders, and that both riders and drivers “are customers of – rather than employees working on behalf of – the platform.” The Court also rejected Lyft’s argument that its business is operating software tools and a platform that connects riders and drivers where drivers as users of its platform, and that Lyft does not receive services from them. Rather, it allows drivers to use their spare time and unused seat capacity to earn extra money.
The court stated that despite the changes in the traditional workplace enabled by modern technology, the fact remains that drivers for Uber and Lyft provide the services necessary for the defendants’ businesses to prosper. As such, Uber and Lyft cannot pass the “B Prong” of the “ABC Test” used in California to determine if a worker is an employee or an independent contractor.
Uber and Lyft claimed they will sustain substantial harm if they are required to change their business models. Each claimed it would have to reduce the number of drivers who use its platform, rather than allowing an unlimited number of drivers to use its app.
Converting drivers to employee status would impose additional costs on Uber and Lyft, and might force them to respond by increasing prices, costing them goodwill with riders. Areas with lower demand, such as outlying suburbs or smaller towns, might have fewer drivers available. Drivers might look for other opportunities.
Neither company is prepared or desirous of a complete change in their organizational structure, including changing their hiring processes, software tools and management systems, and company culture.
The Court rejected Uber and Lyft ‘s cries because, what was more important was that drivers be properly classified as employees and obtain the protections of applicable labor laws and regulations – including payment of Social Security and payroll taxes, unemployment insurance taxes, workers’ compensation insurance, and enactments governing wages, hours, and working conditions. An independent contractor, on the other hand, gains none of the numerous labor law benefits, and the public may be required to assume additional financial burdens. By misclassifying employees as independent contractors, Uber and Lyft have been able to obtain a competitive advantage over others that classify their workers properly; moreover, misclassification is a very serious problem as it deprives the federal and state governments of billions of dollars in tax revenue.
To the extent Uber and Lyft based their claim of harm on the plea that the necessary changes cannot be made “on the flick of a switch,” the court notes that Uber and Lyft have had more than two years – since Dynamex was decided – to make the necessary adjustments. The court noted that one could not reasonably read the April 2018 decision in Dynamex and not come away with an expectation that, without legislative relief, the foundation of the Uber and Lyft ride-sharing business model – to the extent it was based on treating drivers as independent contractors – would highly likely have to change. The passage of AB5 by the California Legislature in October 2019, obviously, should have heightened the importance of an urgent contingency planning for an employment-based model.
In essence, Uber and Lyft claimed they are “too big to be enjoined”, but ultimately, that argument cut against them by confirming the extent of the harm being inflicted by virtue of their undisputed failure to provide the benefits of employment to many thousands of ride-share drivers across the state. The harms to the drivers are not mere abstractions; they represent real harms to real working people – consisting for instance of receiving low pay for long hours, having no overtime pay, breaks, health insurance, or sick leave, and being forced to pay business expenses.
In the end the court found that although the scale of today’s technology-driven commerce is huge, so too is the scale of Uber and Lyft’s violations of the law.
In last month’s article, I stated my legal opinion that “Uber and Lyft don’t have a chance in hell at winning the appeal.” So, now it all comes down to a public referendum (known as “Proposition 22”) that will be on the ballot in November’s election. Uber, and Lyft, along with their gig economy counterparts in food delivery such as DoorDash and Postmates, have spent over $200 Million dollars to garner support for Proposition 22. That’s a lot of zeros.
The purpose of Proposition 22 is to have the people of the State of California decide if gig companies like Uber and Lyft should be exempt from the California law requiring them to treat drivers as employees. Other than the race for president, the political battle over California’s Proposition 22 could end up being the most expensive campaign in the nation. Led by money from a consortium of app-based companies, total contributions have now surged past $218 million – the most cash raised for any ballot measure campaign in California history. Even the money spent on this year’s heated U.S. Senate elections pales in comparison.
Check out this astounding statistic: The campaign in support of Proposition 22 spent an average of $628,854 a day by mid-October. The Yes on Proposition 22 campaign has outspent opponents by almost 10 to 1 in the fight to determine whether drivers for the companies are independent contractors or subject to existing California law.
So far, in every poll I have reviewed, neither the “Yes on 22” nor the “No on 22” has garnered a plurality of the vote. Approximately 12% of those surveyed remain undecided. As such, there is no clear hint at the outcome as election day nears. For Uber and Lyft to win, Proposition 22 must meet the 50% plus one voter threshold it needs to pass. It will surely be a nail biter to the very end.
I understand that the survival of Uber and Lyft’s businesses is on the line. One may think that if you were in their shoes you would pull no punches and do all that can be done to win, but there does come a time when the public has to realize that Uber and Lyft have pulled the wool over the eyes of their drivers by trying to convince them that Proposition 22 is to their benefit. Uber and Lyft have used scare tactics, such as the threat of less work, less money and possibly even no work if they lose Proposition 22 and stop doing business in California.
What Uber and Lyft do not tell their drivers is that they can be employees and still have flexible hours and independence. There is nothing in the law or the court’s decision that prevents Uber and Lyft from allowing drivers to maintain their flexibility rather than assigning rigid shifts. Any business has the right to allow workers to set their own hours and to accept or decline a particular assignment all while treating them as employees. Uber and Lyft’s argument that classifying drivers as employees is inconsistent with flexible schedules is nothing but a “red herring.” Uber and Lyft simply want their cake and to eat it, too.
I do believe money can’t buy you everything. It can’t buy you love or happiness. Whether or not it can buy “compliance” with the law has yet to be seen. To me, it is all about fairness. It is about making companies comply with the law and not giving an unfair advantage to another. That is exactly what Uber and Lyft have enjoyed for the past 10 years.
I am happy to see that the California Appeal Court affirmed that the rule of law has no exceptions for wealthy corporations. Like it or not, the People will get the last word in the State of California. But regardless of what happens in California, there are 49 other states that are watching very closely, keeping in mind that not all states permit a referendum where the people get the last word.
Though Uber and Lyft are publicly traded companies with a combined worth of approximately $70.5 billion, they have never been profitable. They lose billions of dollars each year, and the COVID-19 pandemic has made turning a profit even more difficult. Analysts estimate that complying with a law such as California’s gig-worker law could cost Uber, which lost $1.8 billion in its most recent quarter, as much as $500 million a year.
No matter what happens in November, Uber and Lyft still face an uphill battle. As far as fighting 49 other states, Uber and Lyft must still climb Mt. Everest in their underwear. I for one am hoping that Uber and Lyft get brought to task and that they lose Proposition 22. The time has come for Uber and Lyft to play by the same rules as everyone else. The people must now affirm that wealthy corporations can’t buy themselves out of the trouble that they brought on themselves.