California Sues Uber and Lyft for Misclassifying Workers

The state of California, along with city attorneys from Los Angeles, San Diego, and San Francisco, are suing Uber and Lyft for misclassifying hundreds of thousands of drivers as independent contractors under Assembly Bill 5.

Written by Assemblywoman Lorena Gonzalez, AB5 codified a decision by the California Supreme Court that required a company to treat its workers as employees, not independent contractors, if it failed to: (A) prove the worker is free from the company's control and; (B) performed work outside of the company's core business and; (C) able to regularly do the same work independent of the company.

In a press conference today, California Attorney General Xavier Becerra said the lawsuit also “asserts that Uber and Lyft gain an unfair and unlawful competitive advantage by inappropriately classifying…Uber and Lyft drivers as independent contractors." Los Angeles City Attorney Mike Feur added that the ride-hailing giants "exercise complete control over their drivers,” in violation of the ABC test of worker classification.

This lawsuit affirms what has long been obvious: inside and outside of California, ride-hail drivers are not only tightly controlled by algorithmic overseers and regularly unable to work independent of the company, but employees of the “core business” for Uber and Lyft.

Reclassification entitles workers to a minimum wage and benefits, an existential threat to the so-called gig economy’s business model that has spent years offloading costs onto workers in a desperate bid to achieve profitability. Unlike traditional taxi-cab or ride-hail providers, the innovation of the Uber/Lyft business model is that drivers assume all the costs (fuel, insurance, maintenance, depreciation, leasing, etc) while Uber's revenue primarily comes from cutting driver wages or hiking passenger fares.

For that reason, Uber and a coalition of app-based platforms have been fighting to kill the bill for nearly a year. Before the law went into effect on January 1st, the coalition tried and failed to privately lobby California to abandon AB5. Now, a $110 million ballot initiative funded by Uber, Lyft, DoorDash, and other platforms is hoping to succeed where months of private lobbying couldn’t.

App-based platforms have also taken to the courts to try and fight AB5 with mixed results. In January, one federal judge granted an injunction to indefinitely block the state law from applying to over 70,000 independent truckers citing concerns it undermined Congress’ authority on interstate commerce. In February, however, a San Diego judge granted an injunction suggesting Instacart has inappropriately classified its workers and another federal judge rejected a request by Uber and Postmates to block AB5 from affecting their workforces.

During the pandemic, app-based platforms, especially Uber, have come under fire for perpetually changing sick paid leave policies that inadequately cover perpetually falling sub-minimum wages. Ride-hailing demand has cratered—spending may have dropped as much as 83 percent—and driver income has evaporated even as Uber boasts of a multi-billion dollar cash position. And while some drivers have tried to claim unemployment benefits, Uber and Lyft have blocked them, in part seeking to block a dangerous precedent from emerging where the companies are then asked to contribute to state unemployment funds (as this lawsuit is seeking) or fork over unpaid wages (as this lawsuit is also seeking).

In New Jersey, Uber was handed a $650 million tax bill that it dodged by misclassifying its drivers as independent contractors. In California, more than 2,000 drivers filed wage claims against Uber and Lyft that amounted to over $630 million in lost wages, expenses, and damages. Allowing such developments to take hold nationwide may cost the companies billions of dollars—untenable given that neither company has ever made and likely never will earn a profit.

Uber has tried to preempt these developments by directly appealing to the federal government for a bailout that would push the federal government to provide unemployment benefits and employee benefits to its misclassified independent contractors. It seems to be working: the coronavirus relief bill allows Uber and Lyft drivers to claim federal unemployment insurance and saves the companies from expensive contributions to state funds. A coalition of labor groups and legal scholars warned in multiple letters to Congress that such a move could incentivize states to let misclassification slide in exchange for the federal government picking up the bill, making the exploitation of these platforms effectively permanent across the country.

"Californians who drive for Uber and Lyft lack basic worker protections — from paid sick leave to the right to overtime pay. Uber and Lyft claim their drivers aren't engaged in the companies’ core mission and cannot qualify for benefits," said Becerra in a statement. “These companies will take the workers’ labor, but they won’t accept the worker protections. California has ground rules with rights and protections for workers and their employers. We intend to make sure that Uber and Lyft play by the rules.”