California Judge to Decide on Uber, Lyft Driver Classification

SAN FRANCISCO (CN) — The fate of more than 100,000 Uber and Lyft drivers lies in the hands of a state court judge, who after a nearly three-hour hearing Thursday lamented his inability to fully predict the ramifications of a potential court order extending employment benefits to California drivers.

“I feel a little like I’m being asked to jump into a body of water without knowing how deep it is, how cold the water is or what’s going to happen when I get in,” San Francisco Superior Court Judge Ethan Schulman said during a virtual court hearing Thursday.

Joined by the cities of San Francisco and San Diego, California Attorney General Xavier Becerra is asking Judge Schulman to issue a preliminary injunction that would require Uber and Lyft to comply with California’s Assembly Bill 5 and start classifying drivers as employees instead of independent contractors.

The state argues the worker misclassification has deprived drivers of crucial benefits, including minimum wage, overtime, sick pay, reimbursement for car and gas expenses, unemployment insurance, paid family leave and workers’ compensation.

Uber and Lyft say a preliminary injunction would force thousands of drivers to lose earning potential and federal benefits, eliminate scheduling flexibility for workers and require the companies to spend hundreds of millions of dollars on restructuring.

“A sweeping injunction as we have here raises questions on what will be the effect on drivers’ ability to earn income, hours they can work, eligibility for state and federal benefits,” Schulman said.

Attorneys for Uber and Lyft were quick to point out that Judge Schulman and a federal judge previously rejected efforts to make Lyft reclassify drivers as employees in a class action seeking emergency sick pay for drivers.

Both judges found that making Lyft provide a mere three days of sick leave as required by California law to a small portion of eligible drivers would put drivers at risk of losing emergency federal benefits for independent contractors.

But this lawsuit is different, San Francisco Deputy City Attorney Matthew Goldberg told the judge, because it would make drivers eligible for a more comprehensive panoply of state employment benefits, including up to 59 weeks of unemployment pay, up to 52 weeks of disability insurance and up to eight weeks of paid family leave.

“The full range of California benefits is substantial,” Goldberg said.

Representing Lyft, attorney Rohit Singla of Munger Tolles & Olson said drivers would earn less money if classified as employees. He cited a study showing the average Lyft driver makes $20 per hour after car and gas expenses, far more than California’s $13 hourly minimum wage for large businesses.

“They’re asking for this massive injunction that would lead to hundreds of thousands of people losing earning opportunities without evidence of harm,” Singla said.

Singla further insisted that drivers will lose flexibility if classified as employees, but nothing in California’s labor laws prevents companies from letting workers set their own schedules.

The Lyft lawyer also argued that his client could not maintain the same number of drivers if required to provide employment benefits. Goldberg called that claim bogus.

“Whether they reclassify employees or not, there will be precisely the number of drivers to meet the demand of riders,” Goldberg said. “There’s no reason to expect there will be less demand for these services.”

Despite clear evidence that state legislators specifically intended for AB5 to apply to gig companies, Uber attorney Theane Evangelis of Gibson Dunn & Crutcher steadfastly contended that her client is exempt from the law.

Evangelis said Uber is not the “hiring entity” of drivers that is subject to the law. Uber does not employ drivers but rather provides a technology platform that connects drivers to riders, she argued.

She cited recent changes to Uber’s platform that gives California drivers the power to set their own rates for rides. She added that a monthly subscription service for riders means Uber is not dependent on drivers to generate revenue, a concept Judge Schulman had some difficulty accepting.

“You just said Uber is not financially dependent on drivers providing rides,” Schulman said.

Evangelis replied that Uber, like Airbnb and eBay, is merely dependent on users using its platform.

Uber and Lyft also insisted that the balance of harms weighs in their favor because they would have to spend hundreds of millions of dollars hiring new supervisors, creating new procedures and expanding its human resources and payroll systems to reclassify drivers as employees.

Countering that argument, Goldberg noted that both companies have a combined $11 billion in cash reserves and maintain large white-collar work forces to support their platforms. Each of their software developers and white-collar workers get unemployment benefits, disability insurance, paid family leave and other perks, he said.

“Extending this set of benefits to more workers I think administratively is not as difficult as they allege given that they already do this for thousands of workers,” Goldberg told the judge.

After three hours of debate, Judge Schulman took the arguments under submission and said he would issue a written ruling “in matter of days, not weeks.”

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