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Battle on Classification of Gig Workers Surges Forward

August 10, 2020

On August 10, 2020, Uber Technologies, Inc. and Lyft, Inc. were dealt a blow to their fight against re-classification of their California drivers from independent contractors to employees. California's attorney general brought a case against the two companies and requested a preliminary injunction to enforce Assembly Bill (AB) 5. The City Attorneys of San Francisco, Los Angeles and San Diego also joined the lawsuit against the companies.

Under AB 5, which was signed into law, employers must classify workers as employees unless they meet all conditions of the following ABC test: 

A. The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

B. The person performs work that is outside the usual course of the hiring entity's business. 

C. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

While San Francisco Superior Court Judge Ethan Schulman ruled against Uber and Lyft, the injunction will not go into effect for 10 days to allow the companies to appeal the decision.  

Not surprisingly, Uber and Lyft opposed the motion for a preliminary injunction as well as bringing a number of motions themselves. San Francisco Superior Court Judge Ethan Schulman found the defense motions to be "groundless." Judge Schulman specifically noted that the motions all "have in common an attempt to delay or avoid a determination whether, as the People allege, they are engaged in ongoing and widespread violations of AB5…" Judge Schulman went on to state that "Defendants are not entitled to an indefinite postponement of their day of reckoning."

In his Order, Judge Schulman wrote, "It's this simple: Defendants' drivers do not perform work that is 'outside the usual course' of their business. Defendants' insistence that their businesses are 'multi-sided platforms' rather than transportation companies is flatly inconsistent with the statutory provisions that govern their business as transportation network companies, which are defined as companies that 'engage in the transportation of persons by motor vehicle for compensation. It also flies in the face of economic reality and common sense." Judge Schulman went on to state, "To state the obvious, drivers are central, not tangential, to Uber and Lyft's entire ride-hailing business." While Judge Schulman ruled against Uber and Lyft, the injunction will not go into effect for 10 days to allow the companies to appeal the decision.

This ruling has potentially devastating implications for California gig economy companies that utilize independent contractors. Many gig companies with business models built around the flexibility of its workers have been watching the ride-hailing companies fight this issue and some have held off on implementing AB5. If Uber and Lyft lose their appeal, companies will need to be prepared to take swift action to properly classify their workers or their exposure to claims related to overtime and other wage and hour issues will continue to grow.

Email Heidi Quan for more information or any other questions.