Court of Appeal Affirms Order Requiring Uber and Lyft to Treat California Drivers as Employees
Today, in a 70 page decision, the California Court of Appeal affirmed a trial court's August 10, 2020 order enjoining Uber and Lyft to stop treating drivers in California as independent contractors. Today’s decision reflects the reality that drivers for these app-based companies are clearly employees under California's ABC test. Uber and Lyft drivers could start receiving the benefits of employment imminently (30 days after issuance of the remittitur in the appeal).
In recent years, the state’s highest court and legislature have addressed the widespread practice of misclassifying workers in California as independent contractors, rather than treating them as employees. In Dynamex Operations W. Inc. v. Superior Court, 4 Cal.5th 903 (2018), the California Supreme Court clarified that the legal standards for determining whether a worker is properly classified as an independent contractor include the ABC test. For further clarity, the state legislature codified the ABC test with a 2019 bill called AB5. AB5 took effect on January 1, 2020, and was amended later this year by AB2257. AB5 and AB2257 provide exceptions to the application of the ABC test, but none for the ride-hailing industry, despite aggressive lobbying.
The ABC test states that “a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor” unless all of the following conditions apply:
(A) the worker is free from the hiring entity’s control and direction in performing of the work, both under the contract for the performance of the work and in fact;
(B) the person performs work outside the usual course of the hiring entity’s business; and
(C) the person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Because Uber’s and Lyft’s ride-hailing services would not exist without drivers, the company’s drivers are clearly employees based on prong B of the ABC test. However, to date, these companies continue to treat their drivers like independent contractors for the purpose of compensation, benefits, and legal protections.
On May 5, 2020, the Attorney General of California, and several city attorneys brought a civil enforcement action on behalf of the People of California against Uber and Lyft, alleging harm to misclassified drivers, to competitor businesses, and to members of the public who bear the burden of lost tax revenues and increased social-safety-net expenditures.
The Attorney General moved for interim injunctive relief. To secure a preliminary injunction, the moving party must establish a likelihood of success on the merits of the legal claims, the likelihood of irreparable harm in the absence of preliminary relief, that the balance of equities weighs in the moving parties’ favor, and, especially where public harm is implicated, “that an injunction is in the public interest.” The trial court concluded the Attorney General had shown “a reasonable probability (indeed, an overwhelming likelihood)” of prevailing on the claim that Uber and Lyft were misclassifying drivers in violation of AB 5; that substantial public harm would result absent an injunction; and that harm to companies from an erroneous injunction would not be grave, irreparable, or outweigh the harm to drivers, businesses, and the general public absent an injunction. By this reasoning, on August 10, 2020, the trial court granted the injunction restraining the companies from “classifying their Drivers as independent contractors in violation of [AB 5].”
Uber and Lyft appealed. Today, the Court of Appeal, ruled that the trail court did not abuse its discretion and affirmed the lower court’s order. Among other conclusions, the Court recognized:
that a party suffers no grave or irreparable harm by being prohibited from violating the law (see People ex rel. Reisig v. Acuna (2010) 182 Cal.App.4th 866, 882 [no harm from restrictions on activities that constitute public nuisance]) and that defendants’ financial burdens do not rise to the level of irreparable harm (see IT Corp. supra, 35 Cal.3d at p. 75 [although party would suffer substantial loss of waste disposal and transportation revenues, no showing of grave or irreparable injury because it could still process wastes]) [; m]oreover, . . . nothing in the preliminary injunction prevents defendants from allowing drivers to maintain their flexibility rather than assigning rigid shifts. (See Dynamex, supra, 4 Cal.5th at p. 961, fn. 28 [business may allow workers to set own hours and to accept or decline a particular assignment while treating them as employees for purposes of wage order]; Cunningham, supra, 2020 U.S. Dist. Lexis 90333, at p. *33 [describing as “red herring” argument that classifying drivers as employees was inconsistent with flexible schedules].)
Uber, Lyft, and other gig companies’ efforts to lobby in Sacramento to change the law have thus far failed, so these companies have poured millions into introducing and promoting Proposition 22, which is a vehicle to weaken worker protections. (See Terp Law’s earlier blogpost here.) Hopefully, California voters will reject Prop. 22, allowing Uber and Lyft drivers to finally enjoy the full benefits of employee status.