Another Nail in the Coffin for Uber and Lyft in California

Update 11-5-20: California voters rejected the efforts and passed Proposition 22, which defines these drivers as independent contractors. It appears that Uber and Lyft are safe for now in California.

Uber and Lyft recently suffered another set-back in California as a result of an appeals court there upholding a preliminary injunction requiring them to classify their drivers as employees. Remember that earlier in the year California passed the controversial bill AB5 (which, itself, codified prior California Supreme Court caselaw), which established that a person providing services for remuneration shall be considered an employee rather than an independent contractor unless all of the following conditions are satisfied (commonly referred to as the ABC test):

(A) The person 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) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The obvious import of this is that if Uber and Lyft designated their drivers as employees, they would be entitled to the attendant benefits and protections mandated in California (i.e. minimum wage, overtime, unemployment insurance, etc.).

California filed suit against Uber and Lyft seeking restitution, penalties and injunctive relief compelling the reclassification. Uber and Lyft made several arguments that were ultimately rejected.  First, they argued that they were not the hiring entities because the drivers provided services to the passengers, not them.  The Court noted that the drivers provided services to both. 

The Court ultimately analyzed and relied on the second prong of the ABC test. Uber and Lyft argued that they provided a technological platform and did not engage in the business of transporting passengers. The Court disagreed, noting that they solicited riders, screened drivers, set standards for vehicles, and were paid by passengers through their apps: “Viewing the conduct of defendants’ businesses as a whole, we conclude the trial court properly found—based on prong B alone—that there is more than a reasonable probability the People will prevail on the merits at trial.”

While Lyft and Uber submitted evidence of the significant costs they will incur to classify their drivers as employees, it looks like California voters will ultimately decide the issue when they vote on Proposition 22, which would exempt app-based transportation and delivery companies from providing employee benefits.

The case is The People of California v. Uber Technologies, Inc., et al., and can be found here.