Uber and Lyft have lost their bid to delay a preliminary injunction that will force the two ride-hailing app companies to reclassify drivers as employees. A California superior court judge denied Thursday the companies request to delay the order from going into effect August 20.
The decision sets the stage for a legal fight and will most certainly require both companies to suspend operations temporarily in California if they fail to get the stay extended. Uber confirmed with TechCrunch it plans to file an appeal as soon as possible. Lyft said in an email that it will immediately seek a further stay from the appellate court and will file that motion by the end of this week.
On Monday, California Superior Court Judge Ethan Schulman granted a preliminary injunction forcing Uber and Lyft to reclassify their drivers as employees. This order is set to go into effect August 20. The judge acknowledged that the order would change the nature of Uber and Lyft’s business practices in “significant ways,” and implementing the injunction would be “costly.” However, those hardships weren’t enough to sway the court from classifying drivers as employees, a decision that would force Uber and Lyft to provide unemployment insurance and other benefits.
California Attorney General Xavier Becerra, along with city attorneys from Los Angeles, San Diego and San Francisco, brought the lawsuit against Uber and Lyft to force the companies to comply with AB 5.
Uber’s attorneys requested in a motion that an injunction should be stayed while the Court of Appeals makes its decision over whether the ruling should stand. The attorneys argued that “Uber will almost certainly be forced to shut off the Rides platform in California if the injunction goes into effect, which would irreparably harm Uber and all who rely on its Rides app to generate income for them and their families — particularly in the midst of a pandemic.”
Both companies have made comments this week that if the stay isn’t extended, operations will need to be suspended. It could lead to a more dramatic move — at least from Uber, which has threatened to leave California for good.
As this legal wrangling plays out, Uber and Lyft are also aiming to build support for Prop 22, a measure that voters will have a chance to approve or reject in the November elections.
Prop 22 would require companies like Uber and Lyft to provide a number of protections laid out in AB 5. The measure says drivers must receive an earnings guarantee of at least 120% of minimum wage while on the job, 30 cents per mile for expenses, a healthcare stipend, occupational accident insurance for on-the-job injuries, protection against discrimination and sexual harassment and automobile accident and liability insurance.
There is one key difference that makes it appealing to Uber and Lyft: Prop 22 would keep drivers classified as independent contractors.
California Superior Court Judge Ethan P. Schulman heard arguments from Uber and Lyft, as well as lawyers representing the people of California, regarding the request for a preliminary injunction that seeks to force Uber and Lyft to immediately reclassify their drivers as employees. Schulman did not make a ruling today but said we could all likely expect one to come within a matter of days, rather than weeks.
In the hearing, Schulman expressed how hard it is to determine the impact of a preliminary injunction in this case. For example, how Uber and Lyft would comply with the injunction is unknown, as are the economic effects on drivers, such as their ability to earn income, the hours they would be able to work and their eligibility for state benefits, Schulman said.
“I feel a little bit like I’m being asked to jump into a body of water without really knowing how deep it is, how cold the water is and what’s going to happen when I get in,” Schulman said.
The new law codifies the 2018 ruling established in Dynamex Operations West, Inc. v Superior Court of Los Angeles. In that case, the court applied the ABC test (more on that a bit later) and decided Dynamex wrongfully classified its workers as independent contractors based on the presumption that “a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits…”
In the hearing today, lawyers on behalf of the people of the state of California, and Uber and Lyft, discussed the classification of workers as independent contractors versus employees, gig worker protections bill AB 5, the definition of a “hiring entity,” unemployment benefits, paid sick leave, workers’ compensation insurance and more.
Uber and Lyft maintained that an injunction would require them to restructure their businesses in such a material way that it would prevent them from being able to employ many drivers on either a full-time or part-time basis. Uber and Lyft’s argument, effectively, is that classifying drivers as employees would result in job loss.
“The proposed injunction would cause irreparable injury to Lyft and Uber, and would actually cause massive harm to drivers and harm to riders,” Rohit Singla, counsel for Lyft, said at the hearing. For example, Lyft estimates it would cost hundreds of millions of dollars simply to process the I-9 forms, which verify employment eligibility. It doesn’t cost anything to file that form, but it would require Uber and Lyft to further invest in their human resources and payroll processes.
Additionally, Singla argued that a preliminary injunction at this stage of the case would be drastic. His argument resonated with the judge.
“It’s not every day that a judge is asked to issue an injunction on a preliminary basis, as he emphasizes, that could potentially affect hundreds of thousands of people. And that’s what we’re dealing with here.”
But the plaintiffs disagreed. That vast number of people affected is a key reason to issue the injunction, Matthew Goldberg, deputy San Francisco city attorney argued. Additionally, Goldberg argued it would be quite feasible for Uber and Lyft to reclassify its drivers.
“It’s very doable,” he said. “[…] Both of these businesses already have very large, white-collar workforces at their corporations. I can assure you that every one of those workers is getting workers’ compensation insurance” and other benefits.
He added, “extending this set of benefits to more workers, administratively, is not as difficult as they allege, given they already do this for thousands of workers.”
Additionally, there are elements of Uber and Lyft-backed Prop 22 (details below) that are similar to what AB 5 requires, so plaintiffs argue there would not be irreparable harm for Uber and Lyft to comply with AB 5. Uber and Lyft, however, disagree.
In Uber’s opening arguments, Uber counsel Theane Evangelis pointed to a number of product changes that should remove “any doubt about the compliance and demonstrate Uber is a technology platform” that operates a multi-sided marketplace she said. For example, Uber began allowing drivers in June to set their own prices.
Still, Judge Schulman pressed on Uber’s ability to satisfy Prong B of the ABC test. 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.”
“If you look at Uber or Lyft, they’re not in the business of maintaining an online app by itself,” Schulman said. “That’s the technology by which they perform. Their business is providing rides to people for compensation. In plain English, that’s what they do? Isn’t it?”
Evangelis quickly replied, “No.” She argued that what Uber and Lyft do is simply connect drivers and riders through their technology platform. She also pointed to the variety of services Uber offers, such as Uber Eats and Freight. Evangelis went on to ask the judge if he would put this on pause until November, when Californians will vote on Prop 22, which is backed by Uber, Lyft and others.
The ballot measure looks to implement an earnings guarantee of at least 120% of minimum wage while on the job, 30 cents per mile for expenses, a healthcare stipend, occupational accident insurance for on-the-job injuries, protection against discrimination and sexual harassment and automobile accident and liability insurance. Most notably, however, it would keep drivers classified as independent contractors.
Judge Schulman, however, seemed flummoxed by the basis of the argument to wait until November to see what voters decide.
“It seems to me that’s not my role,” he said. “And more significantly, it seems to me, if any of us learned anything from the 2016 election, is many of us are unable to predict the outcome of elections…I just wonder about the legitimacy of an argument like that.”
Evangelis closed her time by saying that Uber believes it passes the ABC test today.
The motion for a preliminary junction was filed as part of the suit filed in May, which asserted Uber and Lyft gain an unfair and unlawful competitive advantage by misclassifying workers as independent contractors. The suit argues Uber and Lyft are depriving workers of the right to minimum wage, overtime, access to paid sick leave, disability insurance and unemployment insurance. The lawsuit, filed in the Superior Court of San Francisco, seeks $2,500 in penalties for each violation, possibly per driver, under the California Unfair Competition Law, and another $2,500 for violations against senior citizens or people with disabilities.
“The Uber and Lyft business model rests on the misclassification of drivers as independent contractors,” California Labor Commissioner Lilia García-Brower said in a statement. “This leaves workers without protections such as paid sick leave and reimbursement of drivers’ expenses, as well as overtime and minimum wages.”
The goals of the separate suits are to recover the money that is allegedly owed to these drivers. By classifying drivers as independent contractors rather than employees, both Uber and Lyft have not been required to pay minimum wage, overtime compensation, nor have they been required to offer paid breaks or reimburse drivers for the costs of driving.
AB 5, which went into law earlier this year, outlines what type of worker can and cannot be classified as an independent contractor. The law codifies the ruling established in Dynamex Operations West, Inc. v Superior Court of Los Angeles. In that case, the court applied the ABC test and decided Dynamex wrongfully classified its workers as independent contractors.
According to the ABC test, in order for a hiring entity to legally classify a worker as an independent contractor, it must prove the worker is free from the control and direction of the hiring entity, performs work outside the scope of the entity’s business and is regularly engaged in work of some independently established trade or other similar business.
These suits are seeking for the court to order Uber and Lyft to classify their drivers as employees and provide them with all the protections that come with being a W-2 employee.
“For years Uber and Lyft have been stealing wages and exploiting every legal loophole they can to avoid paying drivers what they deserve,” Transport Workers Union President John Samuelsen said in a statement. “It was shameful before and it is even more shameful now, during the middle of a pandemic, that we have allowed wealthy companies to get away with this. This lawsuit is an essential part of holding these companies accountable and protecting drivers’ rights.”
These new lawsuits come just months before Californians are set to vote on Prop 22, a ballot measure backed by Uber, Lyft and others. The ballot measure looks to implement an earnings guarantee of at least 120% of minimum wage while on the job, 30 cents per mile for expenses, a healthcare stipend, occupational accident insurance for on-the-job injuries, protection against discrimination and sexual harassment and automobile accident and liability insurance. Most notably, however, it would keep drivers classified as independent contractors.
“[…]as this lawsuit clearly demonstrates, Sacramento politicians are more interested in the wishes of their special interest donors than the will of the vast majority of drivers and are intent on stripping drivers of the freedom to choose independent work,” the Yes on 22 campaign said in a statement. “This coordinated effort by all levels of government to run a politically motivated campaign will hurt the state at the worst possible time.”
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