Uber and Lyft to Stay in California … for Now

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Consumers in California will still be able to utilize the rideshare services of Uber and Lyft, at least for the time being. The rideshare companies recently lost their attempt to delay a preliminary injunction that will compel them to reclassify their drivers as “employees.” In response to the order, the companies announced that they would leave their home state of California. The Court of Appeal recently granted a temporary stay in favor of the rideshare companies while the matter is under appeal, enabling them to continue to operate without having to immediately reclassify their drivers.

Background

On August 10, 2020, a San Francisco Superior Court judge found that Uber Technologies, Inc. (“Uber”) and Lyft, Inc. (“Lyft”) are in violation of Assembly Bill 5 (“AB 5”) ordered them to classify their drivers as “employees” within 10 days of the Order. Classifying the drivers as “employees” attaches obligations, such as providing the drivers with unemployment insurance, workers' compensation, and overtime.

AB 5

AB 5 was signed into law in September 2019 and became effective on January 1, 2020. The legislature declared its intent to codify the decision in Dynamex Operations West, Inc., v. Superior Court of Los Angeles Ct. App 2/7 B249546.

The decision in Dynamex established the “ABC test” for determining whether a person will be considered to be an employee or an independent contractor. Under the ABC test, a worker will be deemed to have “suffered or permitted to work” and considered an “employee,” unless the putative employer satisfies all of the following conditions:

  • The person is free from 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;
  • The person performs work that is outside the usual course of the hiring entity’s business; and
  • The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

(Labor Code §2750.3(a)(1)).

In the Uber and Lyft matter, the Superior Court rejected the companies’ claim that they were not hiring entities.

The rideshare companies have classified their drivers as independent contractors, which they argued provides those drivers with flexibility. The Court disagreed and ordered that the companies were unlawfully misclassifying those employees. The Court recognized that it was, “under no illusion that implementation of its injunction will be costless or easy. There can be no question that in order for Defendants to comply with AB 5, they will have to change the nature of their business practices in significant ways, such as by hiring human resources staff to hire and manage their driver workforces.”

The companies are appealing the Superior Court decision. In addition, Uber and Lyft also claimed publicly in response to the August 10th order that they would cease operations in California.

Proposition 22

The rideshare companies are further hoping to delay the enforcement of the Superior Court decision until California residents vote on Proposition 22 in November. Prop 22, as it is called, is a ballot measure which would exempt Uber and Lyft, as well as others such as, Instacart, DoorDash, and Postmates from paying their drivers the additional benefits that employees earn, meanwhile requiring the companies to pay, inter alia, 120% of the minimum wage, medical and disability coverage, health care contributions.

Prop 22 is promoted and backed by these companies. Lyft has written that if passed, Prop 22 “proposed the necessary changes to give drivers benefits and flexibility while maintaining the rideshare model.”

The Court of Appeal is scheduled to hear the matter on October 13, 2020. If the Court of Appeal affirms the Superior Court decision, the companies will either be obligated to implement the changes and alter their business model or possibly withdraw from California.

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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