August 11, 2020
On Monday, August 10th, in the case of the People of the State of California v. Uber Technologies Inc. (“Uber”), the State of California won a preliminary injunction against Uber and Lyft, requiring the ride share companies to reclassify their California based drivers as employees. This ruling is a key victory for the state and worker’s advocates and will provide these drivers with certain job related protections including paid sick leave, rest breaks, a guaranteed minimum wage and a variety of other employee benefits. Up until that time, these drivers were classified as independent contractors and were not afforded many workplace protections that traditional employees often take for granted. However, on August 20th, a stay was issued by the California’s First District Court of Appeals. This means everything goes back to how it was until the appeal on this case is decided. Despite this major reprieve for employers, everyone should know what this initial decision meant. See California Court of Appeal.
In Uber, the State successfully argued the work performed by these drivers did not satisfy all of the elements of the three part test required under the recently passed California Assembly Bill 5 (“AB 5”), which is necessary for workers to be considered independent contractors. As a result, Uber and Lyft were required to reclassify their drivers as employees. AB 5 is commonly referred to as the “Gig Worker Bill” as it is designed to provide greater protections to this growing class of workers. AB 5 was passed last year, went into effect the beginning of 2020 and is designed to expand upon the Superior Court of California ruling in Dynamex Operations West v. Superior Court which stated the test for independent contractors.
AB 5’s three part test assumes workers are employees, and not independent contractors, unless the company can prove each of the following:
- The worker is free to perform services without the control or direction of the company;
- The worker is performing work tasks that are outside the usual course of the company’s business activities; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Lyft and Uber failed to prove the second element of the test, that the work tasks being performed by the drivers are outside the usual course of the company’s business activities. This is why the court granted the State a preliminary injunction requiring Uber and Lyft to reclassify their drivers as employees.
While AB 5 supposedly creates a level playing field between gig economy workers and traditional employee, it comes with a cost. Many gig workers like the independence and the entrepreneurial experience that comes with an independent contractor job, most notably the flexibility of choosing when to work and how much to work. It is very possible new standards will be placed on these newly minted employees that take away these freedoms.
This ruling will impact the over 325,000 Lyft and 200,000 Uber drivers operating in California. How this ruling may impact other gig based businesses in California and influence other states’ views on gig workers’ rights remains to be seen.
Stay tuned; the appeal has just begun. The final outcome will significantly impact the gig economy and Uber and Lyft’s business model, in California and possibly across the nation.
