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California Sues Uber and Lyft, Claiming Workers Are Misclassified

OAKLAND, Calif. — California’s attorney general and a coalition of city attorneys in the state sued Uber and Lyft on Tuesday, claiming the companies wrongfully classified their drivers as independent contractors in violation of a state law that makes them employees.

The law, known as Assembly Bill 5, requires companies to treat their workers as employees instead of contractors if they control how workers perform tasks or if the work is a routine part of a company’s business.

At least one million gig workers in the state are affected by the law, which is supposed to give them a path to benefits like a minimum wage and unemployment insurance that have been traditionally withheld from independent contractors.

Although A.B. 5 took effect on Jan. 1, Uber, Lyft and other gig economy companies that operate in California have resisted and are not taking steps to reclassify their drivers. Uber, Lyft and DoorDash have poured $90 million into a campaign for a ballot initiative that would exempt them from complying with the law. Uber has also argued that its core business is technology, not rides, and therefore drivers are not a key part of its business.

The lawsuit also claims the ride-hailing companies are engaging in an unfair business practice that harms other California companies that follow the law. The suit seeks civil penalties and back wages for workers that could add up to hundreds of millions of dollars.

“California has ground rules with rights and protections for workers and their employers. We intend to make sure that Uber or Lyft play by the rules,” Xavier Becerra, California’s attorney general, said in a statement.

Because ride-hailing companies and app-based food delivery services do not employ drivers, they avoid the costs of insurance and vehicle maintenance, sick leave and unemployment. But the coronavirus pandemic has exposed gaps in the gig economy, as drivers have abruptly lost their income and struggled to get unemployment insurance, or fallen sick without access to paid sick leave.

“Californians who drive for Uber and Lyft lack basic worker protections — from paid sick leave to the right to overtime pay,” Mr. Becerra said. “Sometimes it takes a pandemic to shake us into realizing what that really means and who suffers the consequences.”

Gig companies have responded to the outbreak by offering limited quarantine pay to drivers who receive a positive coronavirus diagnosis or a doctor’s recommendation to isolate themselves. The companies have also distributed hand sanitizer and other cleaning supplies to drivers.

Uber has worried that providing those things could expose it to misclassification claims from workers, and the company has asked lawmakers to shield it from lawsuits over how its drivers are classified if it provides the drivers with medical supplies or compensation. Its chief executive, Dara Khosrowshahi, wrote a letter to President Trump recently asking for a new classification for drivers that would make them neither employees nor contractors.

Mr. Khosrowshahi has called for a so-called third way of classifying workers, which would provide some health benefits to drivers without making them employees who could receive full employment benefits.

The lawsuit comes at a fraught moment for Uber and Lyft, as the businesses struggle to adapt to the sudden decline in demand caused by the pandemic. Consumer data suggests that spending on ride-hailing has dropped as much as 83 percent. Lyft is expected to report its first-quarter earnings on Wednesday, while Uber reports on Thursday.

California’ move could influence other states with similar laws to take action against gig companies, labor experts said.

“Uber and Lyft have lived a kind of charmed life in terms of escaping law enforcement generally, and particularly with regard to employment law,” said William B. Gould IV, a law professor at Stanford University and the former chairman of the National Labor Relations Board. “The attorney general’s action can’t help but have a positive influence on law enforcement generally against them.”

Noam Scheiber contributed reporting from Evanston, Ill.