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Uber and Lyft California re-classification of drivers as employees temporarily on hold: what’s next?

Written by
FordHarrison LLP, nationwide U.S. law firm with a singular focus on HR law.
Authors
Jack Schaedel
FordHarrison LLP
Jamin Xu
FordHarrison LLP
United States
02.09.20
3
The California Court of Appeal has stayed the recent injunction requiring Uber and Lyft to reclassify drivers as employees. This article sets out next steps.  

On 10 August 2020 the San Francisco Superior Court granted a preliminary injunction ordering Uber and Lyft to re-classify their California drivers from independent contractors to employees and to comply with the California Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission wage orders, reported here. The superior court stayed the injunction for ten days to provide Uber and Lyft an opportunity to appeal. Due to this order, Lyft previously indicated that it would cease its California operations on August 20 at 23:59 local time instead of reclassifying its drivers as employees.

However, just when the ten-day stay was about to expire, on 20 August 2020, the First Appellate District of the California Court of Appeal granted Uber’s and Lyft’s petitions (for writ of supersedeas, suspending the trial court’s authority to execute its judgement) which now stays the trial court’s preliminary injunction until 25 August 2020.

The stay will remain in place pending Uber’s and Lyft’s appeal of the Superior Court’s order on the condition that they both agree, by 25 August 2020 at 17:00, to the following:

  • A consolidation of their appeals;
  • An expedited briefing schedule with oral arguments to be scheduled for October 13, 2020; and
  • Both companies’ CEOs will submit sworn statements by 4 September 2020 confirming that they have developed plans to comply with the Superior Court order if the appellate court affirms the preliminary injunction and Proposition 22, the company-sponsored ballot initiative, is rejected by the California electorate.

 

It is currently unknown whether Uber and Lyft will consent to these conditions, as it would require them to quickly develop an implementation plan by 4 September 2020, which would require a level of commitment to reclassifying drivers as employees. However, if they do not consent to these conditions they would be likely to be required to comply immediately with the preliminary injunction or cease operations as Lyft originally intended to do.

Ultimately, regardless of Uber’s and Lyft’s intentions and ability to operate in California in the short term, even if the companies successfully appeal the preliminary injunction, they are likely to face a long battle in superior court, where California Attorney General Xavier Becerra and the city attorneys of San Francisco, Los Angeles, and San Diego filed a lawsuit against Uber and Lyft on 5 May 2020, seeking to require them to reclassify their drivers as employees. See California v. Uber Technologies Inc. and Lyft Inc., San Francisco (Superior Court Case No. CGC-20-584402).

Therefore, Uber’s and Lyft’s ability to operate in California in the long term is largely dependent on the success of Proposition 22, which, if approved by voters, will provide an exemption from AB 5 for ride-hailing companies. Specifically, the Proposition would permit 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. The approval of this ballot measure would also largely preserve many of the attributes of Uber’s and Lyft’s business models that make them attractive to drivers in the first place, like the ability for drivers to work largely on their own schedules, while providing some of the benefits that AB 5 was intended to provide to workers by reclassifying them as employees.

Even if Proposition 22 provides some relief for ride-sharing businesses, it may not necessarily provide similar benefits to other companies that utilise independent contractors. Therefore, companies that utilise independent contractors in California should continue to evaluate the viability of that classification under the ABC test, particularly because any ‘relaxing’ changes in the law, whether through a ballot initiative or other challenges presented by Uber, Lyft, and/or other gig economy entities are unlikely to be retroactive. Otherwise, such entities may risk being exposed to legal liability through government enforcement mechanisms and/or class and representative Private Attorneys General Act (PAGA) actions.