Labor & Employment Law Daily Lyft and Uber get last minute stay of injunction before pulling out of California rideshare market
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Monday, August 24, 2020

Lyft and Uber get last minute stay of injunction before pulling out of California rideshare market

By Pamela Wolf, J.D.

But the stay comes with conditions, including sworn statements by CEOs that the companies have developed plans to implement the injunction requiring them to treat drivers as “employees” rather than “independent contractors.”

In the aftermath of an August 10 California state court ruling that granted a preliminary injunction barring Uber and Lyft from classifying their drivers as independent contractors and requiring the ridesharing companies to comply with the state’s labor, unemployment insurance, and wage laws, both companies were prepared to suspend operations in the state, with Lyft saying on August 20 that it would suspend its rideshare operations that night at 11:59 p.m. But the California Court of Appeals the same afternoon granted a stay of the injunction, with conditions aimed at ensuring an expedited schedule and requiring that both companies develop implementation plans to comply with the injunction should both the appeal and Proposition 22 fail.

Implementation of the lower court’s injunction order had been stayed for 10 days, giving the rideshare companies an opportunity to appeal.

Lower court refused to stay lawsuit. In California v. Uber Technologies, Inc., brought by California Attorney General Xavier Becerra, the court denied the ridesharing companies’ motions to stay the action for a variety of reasons. It rejected the companies’ argument that the court should await the appeal pending before the Ninth Circuit, or other cases in which Uber raises constitutional challenges to A.B. 5.

As Uber acknowledged, the district court in Olson v. State of California denied its request for preliminary injunctive relief, finding it did not show a likelihood of success on the merits or that serious questions exist as to any of their claims. “This court will not duck its obligation to rule on a matter properly before it based on speculation that current law may be struck down or modified in the future.”

It’s all about A.B. 5. The controversial A.B. 5 codified in the California Labor Code and the California Unemployment Insurance Code the three-factor “ABC” test for determining whether a worker is an independent contractor or employee. Under the test, established by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court, a worker should be considered an employee, unless the hiring entity establishes the following three factors: (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business.

Uber and Lyft drivers. Along the way to granting the preliminary injunction, the court applied the ABC test to the ridesharing companies, finding that their drivers do not perform work that is outside the usual course of their businesses. California statutes governing their businesses are dispositive as to the nature of those businesses: They are “engaged in the transportation of persons by motor vehicle for compensation.” A number of courts have found that Uber’s drivers render service to Uber and thus are Uber’s presumptive employees. The court found the drivers’ work—the work of transporting customers for compensation—is an integral part of the ridesharing companies’ transportation network businesses. Their entire business is that of transporting passengers for compensation.

Overhauling the business model. In its August 20 blog posting, Lyft said that suspending operations “is not something we wanted to do, as we know millions of Californians depend on Lyft for daily, essential trips.” According to Lyft, Sacramento politicians are pushing an employment model that 4 out of 5 drivers do not support. “This change would also necessitate an overhaul of the entire business model—it’s not a switch that can be flipped overnight,” Lyft explained.

For its part, Uber said earlier, on August 18, that it may temporarily suspend ridesharing in California starting this week. “The California Attorney General obtained a court order that requires rideshare companies to hire drivers as employees—immediately—or else shut down.” Uber said that it had appealed the decision, but if unsuccessful, would temporarily shut down by Thursday night.Proposition 22. In case the litigation front proves unsuccessful, both rideshare companies are pushing Proposition 22, an initiative sponsored by Uber and Lyft to exempt them from A.B. 5. If passed, the November ballot initiative would effectively undo the court’s ruling.

Saved by last-minute stay. Both rideshare companies have been saved, at least for the time being, by the state appeals court stay entered on August 20. However, whether they will halt plans to pull out of the California market was unknown at the time of press. The appellate panel consolidated Uber’s and Lyft’s appeals and requests for stay. By 5:00 p.m. on August 25, both rideshare companies must file written consents to specified expedited procedures or the stay will expire. The court laid out a briefing schedule, with oral argument to be held on October 13.

On or before September 4, Uber and Lyft also must submit sworn statements from their CEOs confirming that they have “developed implementation plans under which, if this court affirms the preliminary injunction and Proposition 22 on the November 2020 ballot fails to pass, the compan[ies] will be prepared to comply with the preliminary injunction within no more than 30 days after issuance of the remittitur in the appeal.”

Brewing controversy. The question of whether rideshare drivers are truly “independent contractors” or more akin to “employees” has been brewing for a long time, largely fueled by the absence of worker protections that seem one-sided in light of the multi-billion dollar net worth of both Uber and Lyft. Indeed, some observers see the rideshare model as one that is built around avoidance of state and federal laws and regulations that apply to employees—a huge cut in the cost of doing business for Uber and Lyft. For the companies to pull out of the California market rather than comply with A.B. 5 enforces that viewpoint.

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