SAN FRANCISCO (CN) — A state appeals court granted an eleventh-hour stay Thursday to delay enforcement of an injunction that would have required Uber and Lyft to start classifying California drivers as employees instead of independent contractors starting Friday.
The stay was granted mere hours after Lyft announced it would suspend operations in California to avoid complying with the court order. Uber had threatened to do the same two days earlier.
“We are glad that the court of appeals recognized the important questions raised in this case, and that access to these critical services won’t be cut off while we continue to advocate for drivers’ ability to work with the freedom they want,” Uber said in an emailed statement Thursday.
Friday was the deadline imposed by San Francisco Superior Court Judge Ethan Schulman for Uber and Lyft to comply with an Aug. 10 preliminary injunction. The injunction was requested in a lawsuit brought by California Attorney General Xavier Becerra and the cities of San Francisco, Los Angeles and San Diego.
Lawyers with the state and city governments argued Uber and Lyft were violating a state law — Assembly Bill 5, which took effect this year — by misclassifying drivers as independent contractors and denying them employment benefits, including minimum wage, overtime and unemployment insurance.
Under the threat of Uber and Lyft putting more than 100,000 California drivers out of work, the First Appellate District stayed Judge Schulman’s order Thursday but also imposed certain conditions on the stay.
By Sept. 4, Uber and Lyft must submit sworn statements by their CEOs confirming they have developed plans to comply with Assembly Bill 5 within 30 days if the court affirms the injunction and voters reject a November ballot measure aimed at exempting app-based gig companies from the law.
The companies must also agree to an expedited briefing schedule for the appeal in which oral arguments would be held Oct. 13.
In an emailed statement, Becerra’s office said it looks forward to continuing the fight to enforce the state’s labor law.
“We're confident in the facts of our case and we look forward to continuing our fight to defend the rights of workers across the state,” Becerra’s office said in an emailed statement.
In a blog post Thursday, Lyft said reclassifying California drivers as employees would require a complete overhaul of its business model.
“It’s not a switch that can be flipped overnight,” Lyft wrote in its blog post.
Schulman had rejected that argument in his ruling last week, finding both companies had years to come into compliance with the labor standard established by the California Supreme Court in an April 2018 decision and later codified in Assembly Bill 5, passed by the Legislature this past fall.
Uber and Lyft maintain they are not subject to the law because they are not “hiring entities” that employ drivers. Rather, they insist, they merely provide technology platforms that connect drivers and riders.
Schulman tossed that argument aside in his 33-page opinion, finding drivers are “central, not tangential” to each company’s ride-hailing business. He gave them 10 days to comply with the injunction and start reclassifying more than 100,000 drivers as employees.
In its announcement Thursday, Lyft said the “new model that politicians are pushing” would lead to less affordable fares and reduced service, especially in suburban and rural areas. Lyft says 80% of its drivers would lose work. Another 20% would have scheduled shifts with capped hourly earnings.
Lawyers for the cities and state say nothing in California’s labor laws prevents Uber and Lyft from continuing to offer scheduling flexibility to drivers. But the companies say they cannot let drivers maintain that flexibility as employees.
During an Aug. 6 hearing, an attorney for Lyft argued drivers will make less money as employees. The average Lyft driver earns $20 per hour as an independent contractor after car and gas expenses, far more than California’s $13 hourly minimum wage for large businesses, according to Lyft.
Despite that argument, the city and state attorneys say drivers would become eligible for a panoply of valuable benefits as employees, including overtime, workers’ compensation, paid sick leave, paid family leave, unemployment insurance, and reimbursement for work-related expenses, including car, gas and phone expenses.
Assemblywoman Lorena Gonzalez, D-San Diego, who introduced Assembly Bill 5 last year, has said the companies’ business models essentially force taxpayers to subsidize them by providing public assistance to their low-paid workers.
Citing a 2020 nationwide survey of 734 drivers, Lyft argues that four out of five Uber and Lyft drivers prefer to be independent contractors. The survey does not say how many drivers in California prefer to be employees or independent contractors.
Steve Smith, of the California Labor Federation which supports employee status for gig workers, said he’s heard a different story from drivers on the ground who say they “want the basic protections that go along with being an employee.”
Uber, Lyft and other gig companies have poured $110 million into a November 2020 ballot measure, Proposition 22, that would exempt them and other app-based services from complying with Assembly Bill 5.
The ballot measure proposes keeping drivers as independent contractors but also entitling them to certain benefits, including guaranteed earnings of 120% of minimum wage, $0.30 reimbursement per mile for gas expenses, quarterly health care subsidies for drivers that work 15 hours per week or more, occupational accident insurance for on-the-job injuries, and anti-discrimination and sexual harassment prevention protections.
In an emailed statement, Lyft spokeswoman Julie Wood said the company will keep fighting to ensure its California drivers can remain independent contractors.
“While we won’t have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers,” Wood said. “That’s the solution on the ballot in November, and it’s the solution drivers want because it preserves their ability to earn and to use the platform as they do now — whenever they want — while also getting historic new benefits.”
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