State Appellate Court Classifies Uber and Lyft Drivers as Employees

Written by Taher Kameli & Chathan Vemuri

The rise of the gig economy has to new forms of work which face tremendous obstacles when it comes up against worker legislation like the NLRA. No job has become more symbolic of the gig economy than the ride share services known as Uber and Lyft. There has long been a debate about whether Uber and Lyft drivers were either employees or independent contractors. Being the latter would exempt Uber and Lyft from giving their drives their necessary protections and benefits under the National Labor Relations Act and other worker-based legislation. In a previous blogpost [insert link to blog post from October 7 on new definition of independent contractors], we noted how the Department of Labor’s new definition of “independent contractor” rooted in “economic dependence” impacted gig workers like Uber, Lyft, Postmates and other rideshare or delivery drivers and on account of how theoretical control over one’s driving shifts gave them “substantial control” over their work.[1] Yet this definition ignored how ride demand, accountability and evaluation by an automated system, the taking of fees and commissions on the drivers’ earnings by these companies, and increasing dependence on gig jobs for income challenge this simple definition.[2] This allows companies like Uber and Lyft to deny worker protections to millions of vulnerable workers based on the mere appearance of having a degree of control over their work that they do not really have.[3] This is actually a pretty disturbing proposition when one considers how important gig workers have become in contemporary American economy, especially in light of the pandemic when delivery is relied on more than ever, be it for food or groceries.[4] Yet these “essential workers” are not put at the same level as their peers in traditional forms of employment.

However, an Appellate Court in California has challenged this categorization. The First District Court of Appeal of California ruled that Uber and Lyft drivers were employees and therefore entitled to protection of state labor laws.[5] The Court ruled that Uber and Lyft drivers who work without basic workplace protections have experienced a broad scale of alleged violations of their rights under state labor laws, be it the lack of a set minimum wage, the lack of overtime, the lack of paid sick leave, and unemployment insurance.[1] The ruling came out of an appeal by Uber and Lyft of a lower court case where they were sued by State’s Attorney general and various city attorneys over their violation of Assembly Bill 5 (AB5), a law that provides basic protections to workers such as paid sick leave, overtime and fair wages.[2] The State argued that by treating their drivers as independent contractors, companies like Uber and Lyft were violating AB5 and enriching themselves at the expense of their workforce.[3] Uber and Lyft both feel that labeling their drivers employees would force them to raise their fares and rely on a smaller pool of drivers.[4] Both companies have not only threatened to shut down services in California but have also sponsored a state ballot initiative known as Proposition 22 that would exempt them from AB5 and continue to label their drivers as “independent contractors.”[5] They see themselves fundamentally as technology companies rather than transportation businesses and feel state labor laws like AB5 should not apply to them.[6] That the California Appeals Court ruled otherwise points to a growing legal consensus about that gig workers in general, not just Uber and Lyft drivers, cannot be labeled independent contractors and are entitled to worker protections. [7]

However, the ruling does not go into effect until after a grace period, during which they have 30 days to comply with AB5.[8] During that time, if the Proposition 22 vote is successful during election day, the ruling could be become potentially problematic.[9] In addition to their threats to withdraw from the state and their sponsoring of Proposition 22, both companies are likely to appeal to the Supreme Court of California but given that it set out a strict employment test that inspired AB5, they may not win in that forum.[10] They may potentially appeal to courts in the federal circuit and it would be anyone’s guess as to how far they would take it.

The Appellate Court ruling and the proposed Proposition 22 sponsored by Uber and Lyft come at the heels of the Trump Department of Labor’s efforts to crack down on worker’s rights by excluding large swathes of working people from their definition and promote labor policies that are favorable to business. Tying Proposition 22 to the election, puts companies like Uber and Lyft in the same situation as they struggle to maintain obligations to their drivers that are friendly to their business interests, pitting themselves against drivers[1] and working in tandem with the Trump Administration’s business-friendly policies. However, this would also put them increasingly at odds with not just their drives but also against a voting bloc that is more committed to providing protections for essential workers and ensuring stronger welfare policies in the wake of the COVID-19 pandemic and an increasingly uncertain economic future for people below the age of 35.

Yet overall, the ruling is an important one with much significance beyond its borders. Coming in the wake of the Trump Department of Labor’s definition of employee and independent contractor, a ruling like this can push drivers and their advocates in other states to try to fight for employee status. This could potentially help ensure broader worker protections for a large swathe of workers left out of the formal economy yet on whose services we rely on constantly in this time of need.

 

Please contact the Law Offices of Kameli and Associates at info@kameli.com or give us a call at +1 (312)-233-1000 if you have any questions as an employer about this new ruling and future developments in California re Proposition 22 and the wider debate over gig employers’ relationship with their workforce.

 

[1] Chris Mills Rodrigo, California Appeals Court Rules Uber, Lyft Must Comply with Labor Laws, The Hill (Oct. 22, 2020, 8:47 PM ET) available at https://thehill.com/policy/technology/522373-california-appeals-court-rules-uber-lyft-must-comply-with-labor-laws

[1] Sara Ashley O’Brien, Uber and Lyft Must Reclassify Drivers as Employees, Appeals Court Finds, CNN (Oct. 23, 2020, Updated 1:19 AM ET) available at https://www.cnn.com/2020/10/23/tech/uber-lyft-california-appeal/index.html

[2] Kate Conger, Appeals Court Says Uber and Lyft Must Treat California Drivers as Employees, N.Y. Times (Oct. 22, 2020) available at https://www.nytimes.com/2020/10/22/technology/uber-lyft-california.html

 

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Sara Ashley O’Brien, Uber and Lyft Must Reclassify Drivers as Employees, Appeals Court Finds, CNN (Oct. 23, 2020, Updated 1:19 AM ET) available at https://www.cnn.com/2020/10/23/tech/uber-lyft-california-appeal/index.html

[9] [9] Kate Conger, Appeals Court Says Uber and Lyft Must Treat California Drivers as Employees, N.Y. Times (Oct. 22, 2020) available at https://www.nytimes.com/2020/10/22/technology/uber-lyft-california.html

 

[10] Id.

[1] Daniel Wiessner, U.S. Labor Department Could Make It Easier to Treat Workers as Independent Contractors, Reuters (Sept. 22, 2020, 10:13 AM) available at https://uk.reuters.com/article/usa-labor-classification/u-s-labor-dept-could-make-it-easier-to-treat-workers-as-independent-contractors-idUSL2N2GJ0P0

[2] Alex Rosenblat, When Your Boss is an Algorithm, N.Y. Times, (Oct. 12, 2018) available at https://www.nytimes.com/2018/10/12/opinion/sunday/uber-driver-life.html

 

[3] Id.

[4] Alex Rosenblat, Gig Workers Are Here to Stay. It’s Time to Give Them Benefits, Harvard Bus. Rev. (Jul. 03, 2020) available at https://hbr.org/2020/07/gig-workers-are-here-to-stay-its-time-to-give-them-benefits

[5] Kate Conger, Appeals Court Says Uber and Lyft Must Treat California Drivers as Employees, N.Y. Times (Oct. 22, 2020) available at https://www.nytimes.com/2020/10/22/technology/uber-lyft-california.html