The State of California is suing the nation’s two biggest ride-share companies, asserting violations of a new state law against employee misclassification.
As our Los Angeles employee misclassification attorneys can explain, at issue is the fact that the firms are treating their workers as if they are independent contractors as opposed to employees. The state attorney general’s office filed the lawsuit, and is joined by several other city attorneys, including Los Angeles.
The law is California Assembly Bill 5, known as AB5 for short or “the gig worker law.” It was passed last fall and went into effect Jan. 1st.
California Employee Misclassification Cheats Workers
The problem with employee misclassification is that those classified as independent contractors are denied a long list of advantages and benefits that are owed by law to those classified as employees. These include things like workers’ compensation, unemployment, unionization rights, benefits, overtime, breaks, sick pay and more. Companies in California can shave millions off their costs each year by wrongly classifying workers.
The state statute codified into law the California Supreme Court’s landmark decision in Dynamex Operations West, Inc. v. Superior Court. In that case, the court adopted what’s now called the ABC test to determine whether a worker is an independent contractor or an employee. The test asks whether an employee:
- Is directed/controlled by the company in connection with the performance of their work.
- Performs work outside the company’s usual business.
- Engages in an independent business, trade, occupation or profession.
If the answer to these three questions is yes, the worker is an independent contractor. If the answer is no, the worker is an employee.
If a company classifies workers as independent contractors instead of employees and is challenged, the burden of proof is on the business to prove it. However, more than 50 professions and industries are exempt, including :
- Insurance agents
- Real estate agents
- Transportation businesses
- Business-to-business contractors (assuming they meet a set of 12 specific requirements)
- Referral agencies (assuming they meet 10 specific requirements)
App-based drivers aren’t on that list, but Uber and Lyft, along with Postmates, DoorDash and Instacart have collectively poured more than $100 million into a ballot initiative that would ask voters whether they should be granted an exemption. (Instacart is currently facing similar litigation brought by the San Diego city attorney.)
California isn’t the only place to grapple with this issue, and several other states are beginning to follow our lead.
The Case Against Uber and Lyft
In announcing the state’s lawsuit filed earlier this month against Uber and Lyft, California Attorney General Xavier Becerra called employee misclassification a “massive, unlawful … scheme” that he intends to bring to an end.
Tension on this issue had been brewing for some time, However, it was the companies’ denial of unemployment benefits to drivers during the pandemic – and the relief those drivers were able to secure through the Coronavirus Aid, Relief and Economic Security (CARES) Act – that served as evidence the companies are sidestepping their duty to workers and forcing taxpayers to foot the bill.
The rideshare companies insist, as they always have, that they are technology firms that simply connect independent drivers with people who need a ride. They insist drivers perform work outside of their typical course of business.
If the state wins its case, the firms say they’ll have no choice but to reduce worker flexibility, something they say is a major incentive for drivers. The San Francisco city attorney called this assertion “a lie,” noting there is nothing in AB5 that says companies have to give up flexible work schedules. The ballot initiative they’ve proposed would concede a health care subsidy, minimum earning guarantees, occupational accident insurance and reimbursement for vehicle-related expenses. It does not, however, allow for unionization/collective bargaining.
As it is, pay out-of-pocket for a host of work-related expenses, such as gas, vehicle maintenance and insurance. Several academic studies have concluded rideshare drivers consistently make less than minimum wage, which in California is $13 hourly. In some cities, like Los Angeles, it’s even higher.
If you believe your employer engaged in employee misclassification, employment attorneys at Nassiri Law Group, practicing in Orange County, Riverside and Los Angeles. Call 949-375-4734.
Uber and Lyft face landmark lawsuit over gig worker classification, May 5, 2020, By Cyrus Farivar and Olivia Solon, NBC News