Shutdown Averted – Lyft And Uber’s AB-5 Battle With California Heats Up

Fox Rothschild LLP

Fox Rothschild LLP

The fate of rideshare companies in California has taken several dramatic twists today following last week’s preliminary injunction enjoining Lyft and Uber from classifying their drivers as independent contractors.

The trial court’s injunction, issued on August 10th, served as a considerable defeat for Lyft and Uber in their attempt to avoid a revamped employee classification test under AB-5 (the California statute codifying the ABC standard into widespread law).  Under the ABC test, employers must satisfy all three of the following prongs to establish independent contractor status for workers: (A) the company must not be able to control or direct what the worker does, either by contract or in actual practice; (B) the worker must perform tasks outside of the hiring entity’s usual course of business; and; (C) the worker must be engaged in an independently established trade, occupation or business.  The ABC test has a significant impact on California employers as there are steep penalties for misclassifying workers as independent contractors, including violations for unpaid wages, missed meal and rest breaks, and overtime.

The stay on the trial court’s injunction was set to expire today, requiring that Lyft and Uber begin compliance on August 21, 2020.  This morning, Lyft sent major shock waves across the “gig” economy when it announced that it would suspend all ride hailing operations across California as a result of the injunction.  Uber also announced that it would take similar drastic measures throughout the state.

However, on Thursday afternoon, the California Court of Appeals issued an order extending the deadline for Lyft and Uber to comply with the trial court’s injunction until Lyft’s and Uber’s appeals on the injunction are adjudicated.  As part of the Court of Appeals’ order extending time, Lyft and Uber’s appeals must be consolidated and both companies are required to submit statements from their chief executive officer confirming that they have developed implementation plans under which, if Proposition 22 on the November 2020 ballot fails to pass, the companies will be prepared to comply with the injunction.  Oral argument on the appeal is scheduled for October 13, 2020, and is set to be a monumental battle on AB-5.

As alluded to in today’s order by the Court of Appeals, Uber and Lyft, along with DoorDash, were successful in getting a proposition on California’s 2020 ballot known as “Proposition 22” that, if approved, would allow these companies to avoid AB-5 and continue to classify their workers as independent contractors.  Proposition 22 also stipulates that the companies provide more benefits to drivers, such as a minimum wage and access to health and workers’ compensation insurance.  It is a proposal for a hybrid status, as was suggested here many years ago.  Suffice it to say, Proposition 22 has massive implications for the future of California’s economy.

Stay tuned for more updates in California’s gig-economy battleground!  And in the meantime, you can still rely on Uber and Lyft to get you where you need to go.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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