Labor & Employment Law Daily California AG, city attorneys sue Uber and Lyft for misclassification
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Thursday, May 7, 2020

California AG, city attorneys sue Uber and Lyft for misclassification

By Pamela Wolf, J.D.

The rideshare companies cannot meet A.B. 5’s “ABC” test, the plaintiffs contend.

California Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Diego, and San Francisco have sued Uber and Lyft for misclassifying drivers as independent contractors in violation of high-profile Assembly Bill 5 of 2019 (California Labor Code section 2750.3) and California’s Unfair Competition Law. The two-count complaint, filed in the Superior Court of San Francisco, seeks injunctive relief, restitution, and penalties against the rideshare companies.

The state’s lawyers allege that Uber’s and Lyft’s driver misclassification deprives workers of critical workplace protections, such as the right to minimum wage and overtime, and access to paid sick leave, disability insurance, and unemployment insurance. They seek civil penalties that could reach hundreds of millions of dollars.

A.B. 5 and the “ABC” test. On September 18, 2019, California Governor Gavin Newsom signed A.B. 5, which codified the California Supreme Court’s Dynamex “ABC” test under the California Labor Code, creating a rebuttable presumption that a worker is an “employee” unless the test is met, and explicitly exempting certain trades and professions. Rideshare drivers and companies were not among those exemptions.

Under Dynamex, companies must meet the three-prong “ABC” test in order to lawfully classify someone as an independent contractor for purposes of Wage Order claims. That test requires an employer to prove the following to justify “independent contractor” classification:

A. the worker is free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact;
B. the worker performs work that is outside the usual course of the hiring entity’s business; and
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

The complaint takes the court through all the ways in which the two rideshare companies fall short of meeting the “ABC” test.

Consistent misclassification. From their inception, Uber and Lyft have consistently refused to classify their drivers as employees in violation of California law, according to the plaintiffs. Instead, the companies ignore the fact that California law allows for drivers to choose when and how much to work and still be classified as employees.

The AG and city attorneys say that nothing prevents Uber and Lyft from providing flexibility to their drivers and properly classifying them as employees. By allegedly misclassifying hundreds of thousands of drivers as independent contractors, Uber and Lyft “rob workers of critical protections in order to benefit their own bottom lines and create billions of dollars in private wealth for their venture capital investors.”

Workers and public both harmed. Misclassification harms workers by depriving them of basic labor standards and employee social safety net protections that serve as lifelines during times of social and economic crisis, while at the same time hurting taxpayers—because they are the ones who carry the load for funding social safety net services that out-of-luck workers without protections turn to in times of need, the lawyer coalition contends.

Pandemic highlights the problem. With jobless claims skyrocketing during the COVID-19 public health crisis, the vulnerability of Uber’s and Lyft’s drivers has become more apparent than ever, according to the plaintiffs. The companies deny that their drivers are entitled to state unemployment insurance, as well as state-mandated paid sick leave and other employee benefits, thereby shirking their obligations to their workforce and shifting the burden onto drivers and taxpayers at a time when they are most vulnerable, the plaintiffs argue.

Unfair advantage. Further, Uber and Lyft gain an unfair and unlawful competitive advantage by inappropriately classifying huge numbers of California drivers. As a result, the companies each avoid hundreds of millions of dollars in social safety net obligations, skipping out on contributing to state payroll taxes that are used to fund general health and welfare programs that benefit all Californians.

Notably, the lawsuit seeks up to $2,500 for each violation of the California Unfair Competition Law and up to another $2,500 for violations perpetrated against senior citizens or individuals with disabilities.

“Californians who drive for Uber and Lyft lack basic worker protections—from paid sick leave to the right to overtime pay,” AG Becerra said in a release. “Uber and Lyft claim their drivers aren’t engaged in the companies’ core mission and cannot qualify for benefits. Sometimes it takes a pandemic to shake us into realizing what that really means and who suffers the consequences. Uber and Lyft drivers who contract the coronavirus or lose their job quickly realize what they’re missing. But it’s not just these workers who lose. American taxpayers end up having to help carry the load that Uber and Lyft don’t want to accept.”

“These companies will take the workers’ labor, but they won’t accept the worker protections,” Becerra continued. “California has ground rules with rights and protections for workers and their employers. We intend to make sure that Uber and Lyft play by the rules.”

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