California Rules Uber/Lyft Must Reclassify Drivers

Matt Posky
by Matt Posky

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]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • HotPotato HotPotato on Oct 24, 2020

    Assembly Bill 5 was a response to a problem across a wide range of industries: intentional misclassification of employees in order to avoid paying them overtime and benefits. While it did crack down on those abuses, it also had some unintended consequences. So the fake-taxi lobby (that's Uber & Lyft, you perverts) put Proposition 22 on the ballot to say "AB 5 doesn't apply to app-based vehicle services." And then they said "hey voters, if you don't vote for this, Uber and DoorDash and all the rest will vanish from the face of the state." On the plus side, 22 offers a little better deal for drivers than they get now. The more hours they have passengers in the car, the more the company will contribute toward optional benefits. So in theory, a driver could have benefits without having to give up control of their working hours. On the minus side, it contains provisions that make it essentially impossible to ever change the law once passed, so if it turns out to be a bad deal for drivers -- oh well, it's locked in that way forever. I didn't notice that poison pill at first, so I voted for it. In retrospect, I may have been bamboozled.

  • Brn Brn on Oct 25, 2020

    Do people really drive for Lyft / Uber as a career? Every single driver I've known does it as a side gig to earn a few extra bucks.

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