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Aug. 12, 2020, 8:05 a.m. EDT

Uber and Lyft must make drivers employees because California law has ‘overwhelming’ edge, judge says

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By Levi Sumagaysay

A California judge ruled Monday that Uber Technologies Inc. and Lyft Inc. must classify their drivers as employees due to a new state law, a decision that threatens the business models of the ride-hailing giants and other gig-economy companies.

California Attorney General Xavier Becerra and the city attorneys of San Francisco, Los Angeles and San Diego sued the companies earlier this year, asking a judge for a mandatory injunction ordering the companies to comply immediately with a new state law over worker classification, which became effective Jan. 1. Uber /zigman2/quotes/211348248/composite UBER +0.16% is challenging the constitutionality of the law, known as Assembly Bill 5, or AB 5, and in a hearing last week argued against an immediate injunction pending a trial in that lawsuit, which may not happen for months.

The two San Francisco-based ride-hailing rivals have built their multibillion-dollar companies on treating drivers as independent contractors instead of employees, pitching themselves as online platforms that simply connect drivers and riders. A 2018 California Supreme Court ruling adopted a new standard for employee classification in the state, which was codified by AB 5 and cited by the judge Monday to force a big change on ride-hailing companies that operate in California.

Judge Ethan Schulman of the California Superior Court in San Francisco struck at the heart of the gig economy in granting the injunction, calling the drivers “central, not tangential” to the ride-hailing giants’ business. Schulman also alluded to the companies’ ability to avoid such a ruling as they grew rapidly and faced several legal challenges in recent years.

“Defendants are not entitled to an indefinite postponement of their day of reckoning,” he wrote.

Schulman gave Uber and Lyft 10 days before having to make the change, pending an appeal that Uber and Lyft LYFT representatives said the companies plan to file.

“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 Thursday’s hearing 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. “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.” 

Driver organizer Nicole Moore of Rideshare Drivers United in Los Angeles disagreed in an interview Monday

“This is absolutely the best-case scenario,” she said. “It shows that the state of California is behind drivers.”

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 a former chief of the National Labor Relations Board. “Their sky-will-fall arguments are more appropriately addressed to the legislature than the judiciary.”

Uber, Lyft and other gig-economy companies see another road to success. They placed an initiative on the state ballot in November that offers worker concessions but would exempt the companies from having to comply with the new California law. Uber, Lyft and other gig companies say 76,000 drivers support Prop. 22, and often tout the flexibility they offer drivers and delivery workers as a reason for not wanting to classify them as employees.

That argument “presents a false choice,” Gould said, maintaining that gig companies can choose to employ drivers and delivery workers as part-timers, for example.

“Employees can be flexible —much of the last quarter-century has been given over to making employees more flexible in deciding how and when work is done in manufacturing.” 

/zigman2/quotes/211348248/composite
US : U.S.: NYSE
$ 37.12
+0.06 +0.16%
Volume: 68.43M
Sept. 18, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
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Market Cap
$65.06 billion
Rev. per Employee
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