Judge Orders Uber, Lyft to Stop Classifying Drivers as Independent Contractors

Andrew Cummings
August 11, 2020

Given that the order won't go into effect for another ten days, Uber plans to file an immediate emergency appeal, an Uber spokesperson told TechCrunch.

The state is suing them, and on Monday afternoon Judge Ethan Schulman of San Francisco Superior Court ruled in favor of granting a preliminary injunction that would block the companies from classifying drivers as independent contractors.

Lyft's lawyer argued at an August 6 hearing that the injunction sought by Becerra would wreak havoc on the companies' services and cause "massive harm" to drivers and riders.The city of San Francisco, where both ride-hailing companies are based, joined Becerra's suit and argued drivers have suffered for years as Uber and Lyft had have grown into giants by violating state labor law. "Ultimately, we believe this issue will be decided by California voters and that they will side with drivers".

According to the ABC test, in order for a hiring entity to legally classify a worker as an independent contractor, it must prove (A) the worker is free from the control and direction of the hiring entity, (B) performs work outside the scope of the entity's business and (C) is regularly engaged in an "independently established trade, occupation, or business of the same nature as the work performed".

Schulman ordered the companies to stop referring to drivers as independent contractors and comply with unemployment and wage floor provisions for the workers.

"It's this simple: Defendants" drivers do not perform work that is "outside the usual course' of their business", Schulman wrote.

"If the pandemic has shown anything, it's that all workers deserve affordable health insurance, paid sick leave, a minimum wage, overtime pay, and access to a social safety net".

The US ride-hailing firm appealed again to the UK's Supreme Court, whose decision will be binding but has not been made yet, and could take months.

That law, known as AB5, took effect on 1 January and is the strictest of its kind in the United States, the Guardian reports.

"When over 3 million Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry during an economic depression", the representative told The Hill.

The order could have broad implications not only for ride-hailing but the tech industry which relies on gig work to stand up massive labour forces without providing them the traditional benefits of employment.

"Our state and workers shouldn't have to foot the bill when big businesses try to skip out on their responsibilities".

The business model for ride-hailing companies has been walloped by COVID-19.

Uber and Lyft chose to more or less sidestep key provisions of the law, and that brought us to today's ruling.

Analysts at Wedbush Securities estimated past year that AB5, a California law that reclassified drivers as employees, could translate into 30% higher labor costs for Uber and Lyft - an expense they can ill afford at a time when rides are down considerably. They've poured US$110 million into the effort, which is expected to be on the upcoming general election ballot.

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