Uber, Lyft Ordered to Classify Drivers as Employees

 

A California judge said Monday that ride-hailing companies Uber Technologies Inc. UBER -1.91% and Lyft Inc. LYFT 2.85% shouldn’t classify their drivers as independent contractors, citing the state’s gig-worker law that went into effect this year. The ruling is on hold until the companies have a chance to appeal.

California sued the companies in May in California Superior Court, saying the decision to classify drivers as contractors had deprived them of rights such as paid sick leave and unemployment insurance. Uber and Lyft have asserted that the law could take away flexibility for drivers and force them to work prescheduled shifts.

Uber and Lyft, both based in San Francisco, said they plan to appeal.

The so-called gig-economy law was one of the most significant challenges facing Uber and Lyft when the year began, as governments started to demand many of the same labor protections and other regulatory requirements that the companies avoided in devising their business models.

The companies’ woes extend beyond the ruling, with the coronavirus pandemic having hurt their core ride-hailing businesses. Uber reported steep declines in the first quarter, as stay-at-home orders prompted consumers to scale back on local travel. It posted another big loss last week. Both companies cut costs, including staff, to try to ride out the crisis.

Uber and Lyft have argued that they are platforms that facilitate transactions between drivers and passengers, not transportation companies.

“Uber goes even farther,” the judge said in his ruling, “asserting that the platform itself—the smartphone app—is Uber’s business and that its actual employees work in engineering, product development, marketing, and operations.”

“Were this reasoning to be accepted, the rapidly expanding majority of industries that rely heavily on technology could with impunity deprive legions of workers of the basic protections afforded to employees by state labor and employment laws,” San Francisco Superior Court Judge Ethan P. Schulman wrote.

The companies had asked the judge to postpone the litigation, citing among other reasons a proposed ballot initiative for November that would exempt them from the California law, known as Assembly Bill 5.

“The vast majority of drivers want to work independently, and we’ve already made significant changes to our app to ensure that remains the case under California law,” said Uber spokesman Noah Edwardsen.

Earlier this year, the ride-hailing giant capped commissions on rides across California and started testing a new feature that allowed some drivers to set their fares in an effort to strengthen its case that its drivers operate with some degree of independence.

“Drivers do not want to be employees, full stop,” said Lyft spokeswoman Julie Wood. “Ultimately, we believe this issue will be decided by California voters and that they will side with drivers.”

Lyft has said it has 325,000 drivers in California. Uber has said it has more than 200,000.

In a May online survey drawing responses from 734 Uber and Lyft drivers nationwide, 71% said they wanted to be independent contractors, according to Harry Campbell, a former Uber driver and author of the Rideshare Guy blog.

The city attorneys of San Francisco, Los Angeles, and San Diego joined the state in its lawsuit asking the court to force the companies to reclassify drivers as employees. California also said in its suit that Uber and Lyft haven’t contributed state payroll taxes used to fund general health welfare programs.

California Attorney General Xavier Becerra praised the ruling.

“While this fight still has a long way to go, we’re pushing ahead to make sure the people of California get the workplace protections they deserve,” he said in a statement.