The legal drama began last year when California’s legislature signed Assembly Bill 5 (also known as AB5) into law. The intent of the law was to force gig economy companies such as Uber, Lyft and Doordash to reclassify their workers as employees so that they can get benefits like minimum wage, overtime, paid leave and healthcare — the latter of which has become even more important during the pandemic.
The reason this law affects companies like Uber and Lyft is that they are reliant on independent contractors, but AB5 has pushed to explicitly define what that term means. It’s a result of a landmark 2018 California Supreme Court ruling which required the so-called “ABC test’ (which is already used by the US Department of Labor and over 30 states) to determine whether a worker is an independent contractor. Someone can only be considered an independent contractor if they meet three criteria: they have control over how the work is done, they’re doing work that’s not in the usual course of the hiring entity’s business and they’re running the same type of business on their own.
“Uber and Lyft can’t possibly pass this test,” Tia Koonse, Legal and Policy Research Manager for the UCLA Labor Center told Report Door. For one thing, most drivers would not operate a cab service independently on their own; that would actually be illegal in most areas. Plus, while drivers might have control over their schedules, they don’t decide what routes to take or what rates to charge. “[The companies], through their algorithms, pressure drivers into taking rides without discrimination. So, arguably, the drivers aren’t in control over how they do their business.”
The criteria that they definitely fail, according to Koonse, is that drivers are absolutely doing work that’s in “the usual course of business” for Uber and Lyft. “Lyft and Uber don’t provide any other service! All they provide is this taxi company type service,” she said. Uber, for its part, has argued that it isn’t a transportation provider and that drivers aren’t core to its business, stating that it’s a “technology platform for several different types of digital marketplaces.”
“Be that as it may, the only thing they’re providing technology-wise is a ride with a person who has a car,” said Koonse. “Transportation is definitely their business.” Even if Uber does offer other services like food delivery, drivers are still a key part of its workforce; it’s just that instead of transporting people, they’re transporting food.
And even if Uber and Lyft don’t think of their drivers as employees, many drivers sure do. Uber and Lyft often claim that their drivers are mostly part-timers, looking for extra money on the side. But according to a 2018 survey of over 300 drivers in Los Angeles County, two out of three drivers depend on rides as their main source of income. One in two said it’s their only job and three in five drive more than five days a week. It also shows that most drivers want reimbursement for car maintenance as well as access to worker’s compensation and health insurance.
The law has so far been on the drivers’ side. After Uber and Lyft refused to comply with the AB5 law that went into effect in January 2020, State Attorney General Xavier Becerra and City Attorneys for Los Angeles, San Diego and San Francisco sued both companies in May. On August 10th, Judge Ethan Schulman of San Francisco’s Superior Court ruled in favor of the injunction that would block Uber and Lyft from classifying drivers as independent contractors.
In response, Uber and Lyft have cried foul, claiming that they’re simply unable to abide by the law. It would have a “catastrophic impact” on their businesses, would force them to raise fares and hire fewer people. They said they would suspend their operations rather than comply. Uber CEO Dara Khosrowshahi even said that his company can’t employ all of its drivers in California. “We can’t go out and hire 50,000 people overnight,” he said in an interview with the Pivot School podcast
Except, of course, they had more than 24 hours. “Uber and Lyft had two freaking years to change their business practices, but they’re acting like they’re so shocked,” said Koonse.
“The companies have had years and multiple invitations to obey the law and grant workers the employee status and benefits they are legally owed,” said Edan Alva, a driver and organizer with Gig Workers Rising, a collective of ride-hailing drivers and gig workers fighting for employee recognition and worker rights.
“In spite of multiple court rulings and a deadly pandemic, multimillionaire CEOs at Uber and Lyft are choosing to continue to break the law,” he said in a statement. Alva added that shutting down operations in the middle of a pandemic casts the companies in an even worse light. “Eliminating thousands of drivers’ income during a pandemic to avoid following labor law is cruel.”
Khosrowshahi did come up with a possible solution, which calls on governments to create a third kind of classification for gig workers. “Our current system is binary,” he wrote in an op-ed for the New York Times. “[Each] time a company provides additional benefits to independent workers, the less independent they become.” He said that “we need new laws” and that they couldn’t act on their own. He also proposed a general benefits fund that workers can draw on for specific things like paid time off or health care, while still maintaining their independence.
But coming up with this proposal now, almost a year after the passing of AB5, is really far too late. And as Koonse points out, Uber could have implemented such a benefits fund on their own without government assistance. “I don’t know why they’re not already providing these benefits,” she said. “I don’t know why they haven’t already classified people as employees. They had two years. They should already be providing benefits as required under the Affordable Care Act. Period.”
Another alternative that Uber and Lyft floated is to implement a franchise-like model, where they would license their brands to operators of vehicle fleets in California so that they would not be entirely responsible for hiring employees or paying benefits. But that’s not entirely the case either. “That’s not going to get them out of liability in California,” said Koonse. “In California, the franchisor is liable for wage and hour law just as much as the franchisee. We have very strong joint liability and joint employer laws here.”
Instead of complying with the law, Uber and Lyft have decided to partner with DoorDash to raise nearly $100 million to fund Proposition 22, a ballot initiative that would essentially roll back AB5 and permanently classify ride-hailing drivers as independent contractors. In response to the temporary reprieve today, Lyft sent the following statement in support of it:
“While we won’t have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers. That’s the solution on the ballot in November, and it’s the solution drivers want because it preserves their ability to earn and to use the platform as they do now — whenever they want — while also getting historic new benefits. Without it, 80-90% of Californians who earn on app-based platforms will lose that opportunity.”
But while Proposition 22 does promise certain healthcare benefits plus paid time off, they fall far short of those of traditional employment. According to Koonse, Proposition 22 would walk back the ABC test mentioned earlier so that they wouldn’t have to provide minimum wage as well as proper benefits.
“They wouldn’t have to provide all of these hard-won rights that employees are entitled to,” she said. “It’ll even amend the state Constitution to make it such that the legislature and local governments can’t undo it. It’s super creepy.”
Alva of Gig Workers Rising believes that by threatening to shut down, companies are attempting to frighten politicians and workers into voting for Proposition 22. He said in a statement:
“The shutdown is an attempt to scare politicians away from regulating abusive companies and scare workers and other voters into supporting the companies’ undemocratic ballot initiative, Prop 22. This childish behavior is unacceptable and we demand that Uber and Lyft obey the law and grant workers the employee status and benefits we are owed. Doing so will save lives during this pandemic. We also ask that voters vote no on Prop 22, which has been entirely financed by gig companies hoping to legalize their exploitation of workers.”
Meanwhile, if Uber and Lyft aren’t able to appeal their case in court, they’ll be back to square one. John Cote, a spokesman for the San Francisco city attorney, told the New York Times: “These companies may have bought themselves a little more time, but the price is that they have to demonstrate — under oath — that they have an implementation plan that complies with the law […] The court of appeal is calling Uber and Lyft’s bluff.”
As for Uber and Lyft’s claim that it simply isn’t possible to operate in California without independent contractors, Koonse said that, yes, they would likely have to raise prices and change the way they work, but that’s part of their responsibility.
“If their business model is entirely contingent upon not paying minimum wage, overtime, providing required meal and rest breaks, reimbursements for expenses, [is] predicated on wage theft and they can’t turn a profit by treating their staff as employees, then that’s their problem,” she said. “It’s on them to figure it out.”