California has sued Uber and Lyft for driver misclassification. Here’s what rideshare and delivery drivers need to know

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If you work as a driver, delivery person, or shopper for any of the giants in the gig economy, you already know what the big deal is: These companies classify their workers as independent contractors. Because of that classification, the companies aren’t required to pay for benefits, nor do they have to accept responsibility for what happens to their workers in situations that produce unusual hardship … such as, the COVID-19 pandemic.

Being classified as contractors, without benefits or any kind of safety net, has led many drivers and other gig workers to appeal to Uber, Lyft, and other companies for better treatment. Demonstrations and walkouts have been held in cities throughout the world. Yet even these efforts haven’t produced much progress toward getting a fair shake for gig worker—until now.

The Gridwise team at a LA driver protest

California goes to bat for gig workers

In California, recent court decisions and a new law will make it very difficult for companies to continue to classify their workers as contractors. New legislation, Assembly Bill 5 (AB5) solidified a 2018 court ruling and made it the law. The new bill states that workers who are a core part of the business must be treated as employees, not contractors.

Uber and Lyft have both rejected the idea that drivers are a core part of their business. And it probably won’t surprise you to hear that the companies put $60 million toward a 2020 ballot initiative that would let them maintain the status quo, as they defiantly stated their intention to keep classifying their workers as contractors rather than employees.

Like all California companies, Uber and Lyft were expected to abide by the new law and reclassify their workers as employees on January 1, 2020—but neither company has complied. That’s why Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Diego and San Francisco filed the lawsuit on May 5th.

Why is the government getting involved?

There’s no doubt that Uber and Lyft are in violation of the new law. And unlike other companies that can still legally classify some workers as contractors, they don’t qualify for such an exemption.

The big question is, how can Uber and Lyft even try to say drivers are not a core part of their business? Although autonomous cars may someday eliminate the need for real, live human drivers, right now that’s not a reality. The rideshare companies still need drivers, so who could argue that drivers are a core part of their business? They can, and they do.

The California attorney general and three city attorneys are definitely on the side of drivers and other gig workers, and the state has additional concerns. Now that COVID-19 is widespread, and the federal government created the Pandemic Unemployment Assistance (PUA) program, states now have to pay unemployment to independent contractors. 

Why is this a concern? Well, companies who call their workers “employees” contribute to the Unemployment Insurance Program, whereas those who call their workers “independent contractors” do not.

With the PUA program, states and the federal government pick up the tab for unemployment—even though the companies that used to pay workers (like Uber and Lyft) haven’t paid anything into the fund. That’s not fair to the drivers or to the government—which ultimately means taxpayers.

San Diego City Attorney Mara Elliot put it this way: “[Uber and Lyft are] thumbing their noses at the California Legislature and the officials charged with enforcing these laws … It’s time for Uber and Lyft to respect the law, their employees and taxpayers, and it’s time for them to pay their own bills.” 

Making Uber and Lyft play fair

What makes this dispute especially interesting is that both Uber and Lyft call California their home state—which means they have to abide by its regulations. They may also have to do what California requires in all the other states where they operate. 

At any rate, the rideshare companies are wary of any precedent-setting action that forbids them to (ab)use drivers without giving them the same benefits as employees. Other states and countries where they operate could begin to make the same demands. That may be one reason why Uber and Lyft are fighting so hard.

It’s game on

This lawsuit will definitely bring Uber and Lyft to the field of battle, and even California governor Gavin Newsom is throwing down the gauntlet. During a May 5 press conference, Newsom noted that the issue of how to classify workers “didn’t just jump into the consciousness of these companies.” He went on to say: “The letter of the law has to be applied. We as a state have a responsibility to do what we said we were going to do.”

The response from Uber and Lyft has been predictable. Like others who oppose the California law, they believe any requirement to give gig workers employee status will make it hard for people to make money at a time (the COVID-19 crisis) when it’s already very difficult. 

Responses from Uber and Lyft

In response to the lawsuit, Uber issued a statement saying the law would make it harder to let people start earning money quickly. The statement also said Uber would fight the court action, while also “Pushing to raise the standard of independent work for drivers in California, including with guaranteed minimum earnings and new benefits.”

Those familiar with what “benefits” might mean in Uber’s world can expect a 10% discount on their next oil change.

Lyft’s response wasn’t much more encouraging. In a statement, Lyft spokesman C.J. Macklin conveyed how the company is “looking forward to working with the Attorney General and mayors across the state to bring all the benefits of California’s innovation economy to as many workers as possible, especially during this time when the creation of good jobs with access to affordable healthcare and other benefits is more important than ever.”

Support from labor for drivers

The California Labor Federation has championed the cause of drivers for a few years, and was largely responsible for pushing AB5 through and into law. They say it’s the perfect time for this lawsuit to be filed, as COVID-19 exposes what happens when drivers are classified as contractors and not employees. 

As Uber and Lyft continue to get away with violating AB5, failing to pay their fair share of unemployment, disability, and other programs, the taxpayers end up paying for the consequences, and the company executives keep getting richer. 

If it’s game on, do you think Uber and Lyft will win? It isn’t likely. San Diego’s Mara Elliot sued Instacart in 2019 for violating the new law, and the court ruled against the company.

What does this lawsuit mean for drivers in sunny Cali and elsewhere?

If and when the state of California wins this lawsuit, the companies will pay—big time. Not only will they have to change the way they treat drivers, awarding them the benefits to which they’re entitled according to AB5, they’ll have to pay hefty fines for not doing it since January 1, 2020. 

How big are those fines? The law allows violators to be charged as much as $2,500 per violation. There are a lot of drivers in California … and elsewhere. Uber and Lyft’s refusal to abide by the law could cost them a whole boatload of cash.

Given the enormous amount of penalties the companies would have to pay, it only makes sense for them to change their policies, at least in California. This might also mean they begin to see the value of allowing drivers to be classified as employees, and extend this same kind of practice in other areas where they operate. That way, they could avoid duplicating the expensive California brouhaha in more locations than they can count, including right there where you live.

If it works out that way, drivers everywhere can expect to achieve the kind of dignity and protection you deserve, because there is no question: drivers ARE the core of the rideshare business. It’s about time you’re treated like it.

What do you think?

At Gridwise, we’re always looking out for drivers. We’d love to hear how you feel about this subject and all the other issues that affect you and the rideshare and delivery business. Leave a comment below, and if you haven’t done so already, download the Gridwise app so we can keep you up to date on all the hot topics that help your business continue to thrive.

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