The lawsuit alleges that, due to the purported violations of AB 5, Uber and Lyft failed to pay their employees minimum and overtime wages, reimbursements for business expenses, workers’ compensation coverage, unemployment insurance, paid family and sick leave, and wage replacement programs like disability insurance. The Attorney General and the city attorneys seek an injunction requiring Uber and Lyft to comply with AB 5, restitution in the form of unpaid minimum and overtime wages, meal and rest period premiums, unreimbursed business expenses, unpaid sick leave, and taxes and penalties.
This litigation marks a new battleground in a larger dispute surrounding gig companies and their classification of drivers and other gig workers, which has been raging in various courts and agencies for a number of years. While this case does not necessarily raise any novel issues, it does raise the stakes, as the Attorney General and the various city attorneys have powers and resources beyond those of a normal class-action litigant.
Almost since their inception, Uber and Lyft, as well as other technology companies involved in the gig economy, have been embroiled in lawsuits alleging that their business model (providing a technology platform for workers to provide their services to others) was, in reality, employment of those workers.
In California, the current standard for determining that fundamental question (the so-called ‘ABC test’) was established by the California Supreme Court in a landmark 2018 decision, discussed in detail here. The California Legislature later codified that decision in AB 5, which took effect January 1, 2020. (AB 5 is discussed further here.) Uber and Lyft lobbied extensively for an exemption to AB 5 prior to its enactment, without success.
Summary of the dispute
At the heart of the lawsuit is the question of whether Uber and Lyft drivers should be classified as employees or independent contractors. This fundamental question determines whether the drivers are entitled to many statutory protections for employees, such as those for minimum and overtime wages, meal and rest breaks, benefits, unemployment insurance, and workers’ compensation insurance.
The Attorney General and the city attorneys challenge the independent contractor classification through three main arguments. First, they allege that Uber and Lyft drivers were not free from Uber’s and Lyft’s direction and control in the performance of their work, because both companies allegedly:
Second, they allege that Uber and Lyft drivers are engaged in Uber’s and Lyft’s usual course of business of providing on-demand rides. Specifically, both Uber and Lyft allegedly advertise themselves to the public as providers of quality, on-demand rides and are reliant on the labour of their drivers to provide these services. The state and city attorneys further allege that even these companies’ respective technology applications are focused on the specific choreography and provision of these services, including but not limited to the collection of fees, managing incentives and prices, and monitoring the hours, movements, and quality of service of their drivers. Therefore, they allege that Uber and Lyft are engaged in the usual course of business of providing transportation.
Third, they claim that Lyft’s and Uber’s drivers are not engaged in an independently established trade, occupation, or business because drivers provide services and generate income for Lyft and Uber rather than for their own independent businesses. The drivers do not need to invest their own capital aside from a smartphone and a car, are restricted from freely declining and cancelling rides, accessing passenger information, or marketing themselves outside of the apps, and are controlled by the companies in setting earnings, incentives, and prices. Finally, the Attorney General and the city attorneys allege that drivers do not require any necessary trade or skill, an allegation that will likely ruffle the feathers of the same drivers the state and cities are purportedly looking to protect.
Potential Responses from Uber and Lyft
Uber, Lyft, and other entities engaged in the gig economy will continue to fight this and other lawsuits on the basis that gig workers do not qualify as employees under the ABC test. At the same time, they are affirmatively challenging the constitutionality of AB 5 as applied to them. In February 2020, Uber sought, without success, a preliminary injunction against enforcement of AB 5. In that case, Uber and Postmates sued the State of California, alleging that AB 5 violates the federal and state constitutions by unfairly singling out app-based technology platforms. The court denied Uber’s and Postmates’ request for a preliminary injunction, but the lawsuit remains, and Uber and Postmates will presumably continue to pursue that case on its merits. It is likely that we are still years away from any clear judicial resolution of these issues.
In the meantime, on the legislative front, Uber, Lyft, Doordash, and other gig economy companies are likely to continue their lobbying efforts for legislative changes. In fact, they qualified a popular ballot initiative for the November 2020 general election which, if approved by voters, would provide an exemption for ride-hailing companies from AB 5 by permitting the classification of drivers as independent contractors in exchange for increased worker protections such as guarantees in minimum earnings, expense reimbursements, healthcare subsidies and insurance coverage for on-the-job injuries.
Ultimately, the outcome of this new action by the California Attorney General, as well as the other previous lawsuits, could take years to come to fruition. In the meantime, it signals that the state and major cities in California are beginning to seek to enforce AB 5 on a wider scale. It remains to be seen if Uber and Lyft will be the only test cases, or if other lawsuits against other gig companies will follow.
Companies that engage independent contractors should continue to evaluate the viability of that classification under the ABC test. Any success achieved by Uber, Lyft, and other gig economy entities in challenging the application of AB 5 may or may not be retroactive, and may or not may not apply outside of the particular company or the gig economy. Therefore, liability could result from government enforcement and actions filed by purported employees, regardless of Uber’s and Lyft’s successes.
Developments in California’s litigation against Uber and Lyft will likely have a significant impact on employers and consumers in California, even apart from the gig economy. The impact may even extend nationwide, as other states tend to follow California’s lead.