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California Sues Uber and Lyft

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Lawsuit highlights public harm of wage theft

San Francisco, CAOn May 5, Attorney General Xavier Becerra  filed a lawsuit on behalf of the State of California alleging that Uber and Lyft have misclassified  on-demand drivers as independent contractors in violation of  the California Labor Code, Wage Orders and Unemployment Compensation laws.

Lawyers are now beginning to see a long-awaited surge in COVID-19 litigation throughout the United States. People v. Uber illustrates something that many now accept as a truism about the havoc wrecked by this disease.

Although the individual harm is individually suffered, it falls most heavily on those who are vulnerable – the old, the sick and the economically marginalized. The idea of “vulnerability” extends to those least protected by law. The lawsuit takes aim at rideshare giants whose drivers have few wage protections and less access to paid sick leave and health care expenditure allowances.

People v. Uber

The complaint characterizes Uber’s and Lyft’s basic business model as a “massive, unlawful employee misclassification scheme.” Rather than describing only the individual harm, as have many private lawsuits before, People v. Uber highlights the public harm:
  • Workers are deprived of their legal rights to minimum wages, overtime wages, business expenses, meal and rest periods, wage statements, paid sick leave and health benefits, and social insurance programs, contrary to California public policy;
  • Uber’s and Lyft’s unlawful treatment of the drivers confers an unfair advantage over law-abiding competitors. Uber and Lyft utilize the savings they gain to offer ride-hailing services at an artificially low cost, thus decimating competitors and transferring billions of dollars of wealth from vulnerable drivers to private investors. The result is a “race to the bottom” as businesses adopt substandard wages and unhealthy working conditions;
  • The tax-paying public is often called upon to assume responsibility for the ill effects to workers and their families of these exploitative working arrangements. Not the least of these expenses is the cost associated with uncompensated medical care and federal and state financial relief packages.
The complaint also explicitly links Uber’s and Lyft’s campaign to avoid the consequences of California labor law to the COVID-19 pandemic:

“And now, even amid a once-in-a-century pandemic, they have gone to extraordinary lengths to convince the public that their unlawful misclassification scheme is in the public interest. Both companies have launched an aggressive public relations campaign in the hopes of enshrining their ability to mistreat their workers, all while peddling the lie that driver flexibility and worker protections are somehow legally incompatible.”

As AG Becerra said during a press conference announcing the lawsuit, “At the end of the day, no business model should hang its success on mistreating its workers and not playing by the rules.”

California and class action bar work hand-in-glove

In California, class action lawsuits, reaching as far back as 2015, have sought damages for Uber and Lyft drivers misclassified as independent contractors. Like the long-running O’Connor v. Uber, many of these ultimately settle. The resolution may work well for the driver plaintiffs, but does nothing to define the shape of the law.

For the most part, the class action lawsuits, like California’s legal action, rest on the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In a game-changing decision, the California Supreme Court embraced the proposition that all workers are employees unless employers can support  their independent classification under the newly-adopted “ABC test.”

The three-part test permits classification of a worker as an independent contractor only if all of the following are true:
  • the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the terms of the contract and in fact; and
  • the worker performs work that is outside the usual course of the hiring entity’s business; and
  • the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
That test was codified in Assembly Bill 5 in 2019 and was scheduled to take effect on January 1, 2020.

In addition to the public policy argument, the People’s complaint argues that the arrangement between Uber and Lyft and the drivers fails to satisfy the second and third of these criteria.

Ridesharing giants respond

Since then, Uber and Lyft have unsuccessfully lobbied the California legislature for an exemption to AB 5. In an all-out effort to preserve their business model, the companies use driver contracts with mandatory arbitration and class action waiver provisions to stymie private enforcement of drivers’ rights.

The companies are also backing the California App-Based Drivers Regulations Initiative, which may appear on the California ballot in November 2020. The measure would create an exception to AB 5 for app-based drivers, allowing them to be classified as independent contractors in exchange for certain wage and labor policy concessions.

Advocacy on behalf of the ballot initiative reaches beyond the world of tech companies and labor advocates to engage the larger consuming public. Potential voters are asked whether they want to go back to the days before ride share and food delivery companies and whether they would be willing to pay more for those services than they do now.

The California Attorney General’s lawsuit occurs in this context. Battle, as they say, has been joined.

People v. Uber seeks a permanent injunction to prevent Uber and Lyft from engaging in future anti-competitive behavior, damages for the drivers affected, penalties of up to $2500 for each violation of the California Business and Professional Code and an additional $2500 for each violation of the BPC for each senior citizen or disabled person affected.

In a broader sense, it seeks to defend the California legislature’s determination that treating most workers as employees covered by the protections of California labor law is in the greater public interest.  It seems a point of increasing urgency in the midst of the pandemic.


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