Judge Orders Uber and Lyft to Classify Drivers as Employees

In this 2019 photo, Uber and Lyft drivers carry signs during a demonstration outside of Uber headquarters in San Francisco. (AP Photo/Eric Risberg, File)

SAN FRANCISCO (CN) — Uber and Lyft must start classifying more than 100,000 California drivers as employees instead of independent contractors and give them full employment benefits, including overtime and unemployment insurance, a state court judge ruled Monday.

Joined by the cities of Los Angeles, San Francisco and San Diego, California Attorney General Xavier Becerra sued Uber and Lyft in state court in May. He claimed the ride-hail giants were violating state law by misclassifying drivers as contractors, and he sought an injunction to force a change in the drivers’ employment status.

During a nearly three-hour hearing Friday, an Uber lawyer argued her client is exempt from the law — Assembly Bill 5, which took effect this year — because it is not the “hiring entity” that employs drivers. She said Uber merely provides a technology platform that connects drivers and riders.

In a 33-page opinion issued Monday, San Francisco Superior Court Judge Ethan Schulman flatly rejected that argument, finding drivers qualify as employees because they do not perform work that is “outside the usual course” of the companies’ business.

“To state the obvious, drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business,” Schulman wrote.

Schulman stayed his ruling for 10 days to give Uber and Lyft a chance to appeal, an avenue Lyft said it would pursue immediately.

“Drivers do not want to be employees, full stop,” Lyft said in a statement Monday. “We’ll immediately appeal this ruling and continue to fight for their independence.”

Uber, Lyft and other gig companies have poured $110 million into a November 2020 ballot measure, Proposition 22, aimed at overturning the game-changing state labor law passed by the legislature last year.

“Ultimately, we believe this issue will be decided by California voters and that they will side with drivers,” Lyft said in its statement.

Assembly Bill 5, signed into law by Governor Gavin Newsom on Sept. 19, 2019, sought to codify the labor standard established by the California Supreme Court in its 2018 ruling in Dynamex v. Superior Court.

To classify workers as independent contractors under that standard, companies must show they do not directly control the worker, the work done falls outside the company’s usual course of business and the worker is “customarily engaged in an independently established trade.”

During oral arguments Friday, an attorney for Lyft argued an injunction would do more harm than good by potentially making drivers lose earnings potential and federal benefits. He said it would force the companies to spend hundreds of millions of dollars restructuring their systems to accommodate the change.

In his ruling Monday, Schulman said Uber and Lyft should have started making those changes long ago to come into compliance with California law.

“These are costs that defendants should have begun incurring more than two years ago, when the Supreme Court handed down its unanimous Dynamex decision,” Schulman wrote.

The judge also concluded that greater harm would result without an injunction because both the Legislature and the state Supreme Court found the misclassification of workers as independent contractors deprives them of crucial rights and benefits, including minimum wage, overtime, workers’ compensation, paid sick leave, paid family leave and unemployment insurance.

“The controlling legal standard creates a presumption of harm where, as here, the party is violating a statute that was enacted to protect the public,” Schulman wrote.

Attorney General Becerra praised Judge Schulman’s decision in a statement Monday, but acknowledged the preliminary injunction is only the first step at an early stage of the litigation.

“While this fight still has a long way to go, we’re pushing ahead to make sure the people of California get the workplace protections they deserve,” Becerra said. “Our state and workers shouldn’t have to foot the bill when big businesses try to skip out on their responsibilities. We’re going to keep working to make sure Uber and Lyft play by the rules.”

Assemblywoman Lorena Gonzalez, D-San Diego, who introduced Assembly Bill 5 last year, said this ruling helps ensure California taxpayers don’t have to financially prop up companies like Uber and Lyft by providing public assistance to their workers.

“They have enriched their executives and their bottom line, while leaving taxpayers on the hook to subsidize the wages and benefits of their drivers,” Gonzalez said in a statement. “Today, the court sided with the people of California.”

More than 5,000 Uber and Lyft drivers have filed wage complaints with California’s Department of Industrial Relations, according to the state Labor Commissioner’s Office. Last week, the California Labor Commissioner filed two separate lawsuits against Uber and Lyft in Alameda County Superior Court seeking back wages for drivers going back to April 16, 2017.

Uber did not immediately respond to a request for comment Monday.

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