The Independent Contractor-Employee Conundrum

Are Uber and Lyft drivers employees or independent contractors?

Here we are again, with the Burning Question: Are Uber and Lyft drivers employees or independent contractors? That depends on who you ask. A state court in California has ruled that they are employees and has issued a temporary injunction ordering Uber to re-classify its drivers as such. Uber received a 10-day stay and plans to file an emergency appeal. This case is one of the latest installments in the independent contractor-employee conundrum in which Uber and Lyft (and other businesses) have found themselves. Is the injunction likely to withstand an appeal?

Let’s do a (somewhat) deep dive and see what we find… The name of the case is People of the State of California v Uber Technologies et al No. CGC-20-584402 (Calif. Superior Ct., Aug. 10, 2020).  Here’s a bare-bones version of what went down:
 
The State of California sued Uber and Lyft under its law known as AB-5, which took effect on January 1, 2020. The law assumes workers are employees unless they meet strict criteria, and, as you can guess the State alleges Uber and Lyft do not meet them. As you likely already know, Uber and Lyft classify their drivers as independent contractors.  Uber made a number of technical arguments that I won’t bore you with now (but you can read the court’s decision here for a deeper dive). Uber’s main argument seems to be that it is exempt from the law. 

The court however, wasn’t buying it. Since Uber previously attempted first to overturn the law and then supported a ballot initiative to add an exemption, the court found that Uber’s previous actions undercut its argument. The judge also cited “conflicting claims in federal litigation” by Uber that similarly undercut this argument. Since the judge found that the State was likely to prevail on the ultimate merits of the case, he issued a temporary injunction.

Let’s step back a minute and look at AB-5. It says that a person providing labor or services for remuneration “shall be considered an employee rather than an independent contractor” unless the “hiring entity” can satisfy the following three conditions:
 

Per the court “Because the defendants cannot possibly satisfy the “B” prong of that test, the likelihood is that the People will prevail on their claims that Defendants have misclassified their drivers is overwhelming; there is no need to address the other two prongs of the test”.

FYI, the statute was in no way a surprise in California, as it codified a California Supreme Court unanimous ruling in Dynamex Operations West, Inc v. Superior Court (2018) 5th Cal. 5th 903. The court in this case, therefore, reasoned that Uber and Lyft had already had 2 years to make the appropriate changes regarding worker classification.

Now, I know that most of you out there are not Uber or Lyft. What would be the takeaways for you, then? Well, here’s a big one: Look at and comply with the laws in each state where you have employees working. Yes, you have to comply with federal law, but states can pass their own laws that impose additional requirements. In other words, the federal laws are your floor. As long as State laws don’t attempt to reduce your minimum requirements they are valid and you will have to comply if you do business in any of those states. 

As of now, about 35 States have some version of the “ABC test” that you see above. California is one of the stricter ones. What if you do business in more than one State and the ABC test is not exactly the same in each one? In general, if you adhere to the strictest test –and reach out to friendly employment counsel in each State– you should be OK.