May 7, 2020

Uber and Lyft in Hot Water Again

The California State Department of Justice, Office of the Attorney General has filed a misclassification lawsuit against Uber and Lyft. The lawsuit filed in the Superior Court of San Francisco (https://oag.ca.gov/system/files/attachments/press-docs/2020-05-05%20-%20Filed%20Complaint.pdf) argues Uber and Lyft misclassified workers as independent contractors as opposed to employees which, as a result, deprived the workers of the right to minimum wage, overtime, paid sick leave, and disability and unemployment insurance.  The lawsuit seeks to enforce California Assembly Bill 5 (AB 5) which took effect on January 1, 2020.  The California legislature through the enactment of AB 5 codified the existing “ABC” test established by the California Supreme Court in the landmark decision, Dynamex Operations W., Inc., v, Superior Court (2018) 4 Cal.5th 903, rehg. denied (June 20, 2018) (“Dynamex). Under the ABC test, the hiring party such as Uber and Lyft has the burden of establishing all of the following three conditions in order to characterize the worker as an independent contractor:  (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) the worker performs  work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. (Labor Code § 2750.3(a)(1); see generally Dynamex, supra, 4 Cal. 5th at p. 957.)  Failure to meet any one of the three conditions amounts to a violation of AB 5. The lawsuit seeks damages including penalties up to $2,500 for each violation under California law which, if successful, could result in Uber and Lyft owing hundreds of millions of dollars in civil penalties and back wages to drivers.

This is not the first time that Uber and Lyft have been sued over their business model. In March 2019, Uber agreed to pay $20 million to settle a class action misclassification lawsuit filed in California. (O’Connor v. Uber, 13-cv-03826 in the U.S. District Court for the Northern District of California (San Francisco).) As part of the settlement, Uber, without admitting liability, agreed to change its business model by making more transparent the way in which drivers are removed from service.  In January 2016, Lyft settled a misclassification class action lawsuit filed in California for $12.5 million and agreed to change the way in which it removed drivers from service.

This most recent lawsuit by the California Attorney General appears to be intended to alter the way Uber and Lyft fundamentally conduct business.  While Lyft has expressed a willingness to work with the Attorney General, Uber has indicated that it will fight the lawsuit tooth and nail: “At a time when California’s economy is in crisis with four million people out of work, we need to make it easier, not harder, for people to quickly start earning. We will contest this action in court, while at the same time pushing to raise the standard of independent work for drivers in California, including with guaranteed minimum earnings and new benefits.” – Uber spokesperson told TechCrunch [https://techcrunch.com/2020/05/05/uber-lyft-lawsuit-california-worker-misclassification/].

Misclassification lawsuits pit state labor laws, which are aimed to protect employees, against a free market economy in which businesses are afforded great latitude in defining how they conduct business.  There is no easy answer to the debate and, if there is one undeniable truth, it is that misclassification lawsuits cost money for employers.  Employers should be proactive in ensuring their workers are properly classified and AB-5, as written, may make it difficult for certain businesses to classify their workers as independent contractors as opposed to employees.

The Employment Team at Anderson, McPharlin and Conners appreciates the difficulties faced by employers in navigating the ever-changing state and federal labor laws.  We provide proactive advice to employers to diminish the risk of lawsuits and in the event of an individual or class action lawsuit is filed, effectively litigate the case to achieve the best outcome. Please contact us if we can be of assistance.