California Rules Uber/Lyft Must Reclassify Drivers

A California appeals court unanimously ruled against ride-hailing giants Uber and Lyft on Thursday, mandating that they would indeed need to reclassify drivers operating within the state as employees.

The duo have been pushing against Assembly Bill 5, which seeks to reclassify contracted, gig-economy workers as fully fledged employees entitled to all the associated benefits, all year. California even sued Uber and Lyft in May for refusing to comply with with the order but they’ve claimed AB5 will severely hinder (if not eliminate) their ability to operate within the state and have backed a measure called Proposition 22 that would grant them special exceptions.

Prop 22 now serves as their last line of defense against making employment changes. Voters will decide its fate in November, with ride-hailing firms doing their utmost to promote the ballot measure ahead of time. But Thursday’s ruling remains a major blow and was accompanied by some rather severe condemnation, according to Reuters.

Appeals judges said in a 74-page ruling that Uber’s and Lyft’s classifications of drivers as contractors caused irreparable harm by denying them of employee benefits they should have been entitled to as full-time workers. While ride-hailing outfits often suggest drivers like the freedom that comes with contracted work, many don’t meet the legal definition and would normally be entitled to benefits. At a minimum, the companies would need to give operators more autonomy over fare pricing. But that would be at odds with their current business models — which remain unprofitable for anyone without a stock option.

From Reuters:

Remedying those harms more strongly served the public interest than “protecting Uber, Lyft, their shareholders, and all of those who have come to rely on the advantages of online ride-sharing,” the ruling said.

Lyft and Uber in a statement said they were considering all legal options, including an appeal.

“This ruling makes it more urgent than ever for voters to stand with drivers and vote yes on Prop. 22,” Lyft said, referring to the Nov. 3 ballot measure, which would repeal AB5 and provide drivers with more limited benefits.

“Today’s ruling means that if the voters don’t say Yes on Proposition 22, rideshare drivers will be prevented from continuing to work as independent contractors, putting hundreds of thousands of Californians out of work and likely shutting down ridesharing throughout much of the state,” Uber said.

Uber CEO Dara Khosrowshahi previously estimated roughly 158,000 drivers would be out of work if AB5 goes through, adding that it might totally nullify the company’s ability to do business within the state. The company (along with Lyft, DoorDash and many similar services) will only have a month to comply with AB5 if Prop 22 fails to pass. Then again, they could just continue refusing to comply and trying their luck in the courts. But after the appeals ruling, that might not be a sound strategy anymore.

[Image: Jonathan Weiss/Shutterstock]