SAN FRANCISCO – A California Superior Court Judge in San Francisco issued an injunction Monday that ordered ride-hailing companies Uber and Lyft to convert their California drivers from independent contractors to employees with benefits. Some observers see the injunction as an early loss in the protracted court battles that the gig economy in California cannot afford to lose.
Judge Ethan Schulman, calling the drivers “central, not tangential” to the business, also granted a pause for 10 days so the companies can appeal his decision. However, Schulman cautioned in his written order “Defendants are not entitled to an indefinite postponement of their day of reckoning.”
“The court’s ruling is stayed for a minimum of 10 days, and we plan to file an immediate emergency appeal on behalf of California drivers,” an Uber spokesman told MarketWatch in an email.
Uber and Lyft argued in a hearing last week that an injunction would be unprecedented and affect hundreds of thousands of drivers.
“Drivers do not want to be employees, full stop,” a Lyft spokesman wrote to MarketWatch. “We’ll immediately appeal this ruling and continue to fight for their independence. Ultimately, we believe this issue will be decided by California voters and that they will side with drivers.”
The case, California v. Uber Technologies Inc. and Lyft Inc., CGC-20-584402, was brought by California’s Attorney General Xavier Becerra to enforce the state labor law known as Assembly Bill 5 (AB5) which has had far-reaching effects beyond the ride-hailing services. AB5 workers “can generally only be considered contractors if they perform duties outside the usual course of a company’s business.”
Should Uber and Lyft be forced to reclassify their California drivers as employees, they would be obligated by law to pay for overtime, health care, and other benefits.
Legal experts said Monday afternoon the companies are likely to ask for an extension to the 10-day period, but that the appeal could be a longshot.
“I would think the companies have a big mountain to climb,” said William Gould, emeritus professor at Stanford Law School and former chief of the National Labor Relations Board told MarketWatch. “Their sky-will-fall arguments are more appropriately addressed to the legislature than the judiciary.”
AB5 was authored by Assemblymember Lorena Gonzalez of San Diego intended to stop large employers such as Uber and Lyft from denying worker rights and benefits to their gig employees and had an unintended consequence that has created chaos in the state’s gig economy. It also grossly limited work for freelancers and independent contractors.
A serious revolt ensued with the range of workers in the service, entertainment, and hospitality industries coalescing with freelancer writers and photographers to agitate to repeal AB5.
“They were right. I was wrong,” Fred Topel of California Freelance Writers United noted that Gonzalez tweeted last May as saying as she introduced AB2257, a carve-out for writers, musicians, and others. AB2257 and AB1850, a bill with exemptions for other professions, both passed the Labor Committee and are headed to Appropriations where obstacles await.
In the meantime, as the COVID19 pandemic continues to stifle the state’s economy, AB5 still is having a negative impact on the gig economy outside of the ride-sharing companies.
The worker-classification issue has long been controversial. In 2018, a California Supreme Court decision, called Dynamex, established a new “ABC test” for when a worker can be classified an independent contractor: if A: They control their work; B: If their duties fall outside the scope of a company’s normal business; and C: If they are “engaged in an independently established trade, occupation or business.”
Schulman wrote that the gig-economy companies cannot pass the second prong of that law, and therefore “the likelihood that the People will prevail on their claim that Defendants have misclassified their drivers is overwhelming.”
In Washington late Monday afternoon, U.S. Chamber of Commerce Executive Vice President and Chief Policy Officer Neil Bradley in an emailed statement to the Los Angeles Blade wrote;
“This is an erroneous decision that allows politicians to tell thousands of individuals that they can’t support themselves and their families in the manner they chose. Unless overturned, the decision threatens to cause significant disruptions for individuals, families, and the economy. It is wrong and should not stand.”
Additional reporting by MarketWatch and Karen Ocamb