California to Sue Rideshare Firms over Employee Classification

Rideshare pickup zone GettyImages-1144439958

The state of California announced Tuesday that it would attempt to bring rideshare companies Uber and Lyft to heel, suing them for refusing to classify their drivers as employees rather than contractors under the state’s new law, AB-5. The Golden State’s regulators could not have picked a worse time, as the current crisis has left so many people without jobs.

Yet, a state lawsuit was probably inevitable. AB-5 went into effect at the beginning of the year, but Uber and Lyft, the main targets of the law, chose to defy it. They stated they still believed their drivers were merely contractors and therefore they could continue to treat them as such.

In the intervening period, Californians have had an opportunity to see the darker side of AB-5. It was supposedly meant to protect employees from the threat of “misclassification”—not getting all of the benefits owed to them under state and federal law. To accomplish this, the law severely restricts what contract work can be done.

That created a problem for many people who elect to do contract work or whose professions involve contract work by their very nature—musicians, writers, independent filmmakers, translators, and tradesmen of all stripes.

It only got worse after the coronavirus crisis hit, as people who could have opted to work from home found that they couldn’t. All throughout the state, gig work delivery services like UberEats have been a lifeline for struggling restaurants and people stranded at home. Even the law’s author is scrambling to carve new exceptions into it, most recently for musicians.

Meanwhile, the misclassification of rideshare drivers, AB-5’s main target, has receded as an issue as people simply aren’t using those services. Spending on Uber and Lyft rides declined by 83 percent during the week of April 20 compared with the same period last year. Even before that, it was unclear that forcing Uber and Lyft to classify drivers as workers would benefit them all, since it created an incentive for the company to limit driver hours to avoid paying overtime, among other perverse incentives.

The state could well win in court, though the case that the drivers are employees even under AB-5 isn’t as clear-cut as it might seem. The companies argue they function in a manner similar to a classified ad website that allows sellers and buyers to meet and conduct business, and it has had some success making the claim in arbitration court.

Still, these might be the worst possible circumstances for the state to test the law. Public sentiment that the state overreached with AB5 is growing, and most Californians have more pressing concerns right now.

Come next fall, Californians might get a chance to rethink it, as a petition to repeal AB-5 has begun gathering signatures to get on the ballot in November (assuming the COVID-19 crisis doesn’t disrupt the fall election or AB-5’s supporters find some way to keep the matter off the ballot).