On Thursday, a California appeals court unanimously ruled that Uber and Lyft must reclassify their drivers in the state as employees.
The companies have 30 days to comply with the decision, which is part of a pitched battle over the future of the gig economy in California and the latest in a long line of global developments that could renew longstanding concerns about Uber’s viability. It also makes November 3rd, the day when Californians will vote on a ballot initiative that would exempt gig economy companies from reclassifying their workers, even more of a critical moment for Uber, Lyft, and others such as Postmates and Instacart.
The stakes are high for gig economy companies, which have achieved massively inflated valuations and market dominance chiefly through misclassification, depriving workers of benefits or other protections.
The saga began with the passing of Assembly Bill 5 (AB5), a California law which went into effect in January and codified an “ABC test” to determine if a worker was independently contracted or employed by a firm. Uber and Lyft refused to comply, and so in May, California's Attorney General, as well as the city attorneys of Los Angeles, San Francisco, and San Diego, sued the ride-hailing companies.
Uber and Lyft lost in August, with the San Francisco Superior Court ruling that drivers must be classified within two weeks. The companies appealed the decision and filed for a delay in the meantime, even threatening to leave the state until a stay was granted at the last minute.
Meanwhile, Uber organized Lyft, Postmates, DoorDash, and Instacart to support Proposition 22—a ballot measure that would exempt them all from Assembly Bill 5 and significantly undermine the state’s argument. So far, the companies have spent $200 million to push the Yes on Proposition 22 campaign.
“The Court of Appeal’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 in a statement to Motherboard. “We’re considering our appeal options, but the stakes couldn’t be higher for drivers—72% of whom support Prop 22—and for the California economy, where millions of people are jobless and another 158,000 just sought unemployment support this week.”
The court was not convinced by Uber’s argument that drivers support Proposition 22, and therefore that the lawsuit had no merit.
"The governing ABC test is not decided by plebiscite," San Francisco’s First District Court of Appeals wrote in its decision. "And if there is a segment of drivers—even a large one—who do not need, wish to have, or even understand they are entitled to employment benefits, that does not strip others of rights the People seek to ensure may be claimed by all."
Despite an industry alliance, a bursting war chest, an unprecedented propaganda campaign, and an intense lobbying operation, one week before the election the numbers are far from decisive; in a recent Berkley IGS poll, 46 percent of respondents supported Prop 22, 42 percent opposed it, and 12 percent were undecided.
Victory for Yes on Proposition 22 would likely make misclassification permanent (the fine print requires a seven-eighths majority in California’s legislature to overturn the ballot measure, if it’s passed). And whereas victory would be hard to reverse for the sake of the workers, defeat would likely prove even more difficult to reverse for Uber’s sake.
Even if the gig economy companies were to exit California, or even if they got their way, it would be hard to stop the coming flood from just about every other direction.
New York and New Jersey are flirting with their own AB5s, while Massachusetts’ Attorney General has sued Uber and Lyft to reclassify drivers in the state. Despite objections from Uber’s and Lyft’s impressive lobbying operations, the PRO Act—which would grant gig workers the right to collectively bargain, as part of a massive overhaul of labor law—has passed in the House and promises to make the threats to the gig economy national.
Outside of the U.S., worker strikes are on the rise since the global 2019 strike on the day of its public offering. Over the summer, thousands of delivery workers organized militant strikes and protests in Brazil, Mexico, Chile, Argentina, and Ecuador targeting Uber Eats and other exploitative food delivery apps. These have been joined by even more strikes and protests in Nigeria, France, and India. At the same time, Uber finds itself losing legal challenges in France, Britain, Canada, Italy, where high courts have either outright ruled Uber drivers are employees or have opened the door to lawsuits reclassifying them as such.
Governments across the world are also beginning to push Uber to pay billions in taxes it has evaded over the past decade of its operation. In Britain, Uber will have to pay £1.5 billion ($1.9 billion) in unpaid value-added taxes it avoided by exploiting a legal loophole. In the U.S., Uber has dodged billions in taxes through misclassification. Uber owes New Jersey $650 million and Uber and Lyft owe California another $413 million in unpaid taxes thanks to misclassification. In August, the California Labor Commission announced a lawsuit to secure $1.3 billion in wage claims for Uber and Lyft drivers in the state.
It’s not clear if Uber, which has never turned a profit, can afford all this. Last quarter, it reported to have some $7.8 billion cash on hand after a $1.8 billion loss. The pandemic has hurt both its Rides and Eats business, the latter of which is even more unprofitable than the former, so it's safe to assume its cash reserves will likely drain further.
Make no mistake: if Prop 22 wins in California, it will allow the gig economy to limp along for years to come. Even so, it won’t do anything to change a business model that spawns strikes, protests, and regulatory battles everywhere it exists. And it won’t deter the numerous challenges from workers continually rising up globally, or lawmakers and regulators taking on the companies both here and abroad.