Is the Gig Up?
Since Mateo Garnica wrote on this blog in 2019, there have been a few more developments in the fight for the gig economy.[1] Most recently, the 1st District Court of Appeal for California granted Uber and Lyft’s emergency stay on the preliminary injunction that would’ve forced the two companies to reclassify their workers as full employees.[2] Classifying previous independent contractors as full-time employees would force these employers to provide workers with a “minimum wage, workers’ compensation, unemployment insurance, paid sick leave, and paid family leave.”[3]
The court order only came after the companies threatened to cease business operations in California due to the economic infeasibility of operating under the new regulations.[4] For example, Uber Chief Executive Officer Dara Khosrowshahi recently told the New York Times: “Uber would only have full-time jobs for a small fraction of our current drivers and only be able to operate in many fewer cities than today. Rides would be more expensive, which would significantly reduce the number of rides people could take and, in turn, the number of drivers needed to provide those trips.”[5]
Given these events, it is again worthwhile to delve into the details of the battle for the gig economy. This post will recap Assembly Bill 5’s affect, explore the difficulty Uber and Lyft will face trying to defeat the bill—if passed—through the judiciary, and discuss the future of the gig economy in the United States.
Recapping the Law & Subsequent Judicial Proceedings
Assembly Bill 5 went into effect in California in January 2020.[6] The bill aims to classify gig-economy workers as full employees by utilizing the three-part ABC test specified in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.[7]
According to the ruling in Dynamex, to classify a worker as an independent contractor, an employer has to prove:
(A) that 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) that the worker performs work that is outside the usual course of the hiring entity’s business, and (C) that the worker is customarily engaged in an independently established trade, occupation, or business.[8]
Failure to prove any of these criteria is sufficient to establish the worker as a full-time employee.[9] AB5 codifies this test.[10]
To answer whether or not the ride-sharing companies will have success proving themselves exempt from AB5, note the similarities between Dynamex’s business model and the ride-sharing model.[11] Dynamex is a nation-wide delivery service that utilizes drivers, classified as independent contractors, to complete its jobs.[12] The drivers are “required to provide their own vehicles and pay for all of their transportation expenses, including fuel, tolls, [and]vehicle maintenance . . . .”[13] Dynamex obtains its customers itself and sets the rate customers will be charged.[14] Finally, drivers are generally asked to display the Dynamex decal on their vehicles while making deliveries.[15] It is hard not to see the similarities between Dynamex and Uber or Lyft. From the fact pattern alone, it seems Uber and Lyft may have difficulty proving their exemption to the ABC test. However, the companies are still trying.[16]
The companies assert that their drivers are not “actual employees” of the company, but rather their primary business consists of employees who work in “engineering, product development, marketing, and operations . . . .”[17] Therefore, the “work performed by drivers —transporting riders—is thus outside the ordinary course of Uber’s business. . . .”[18]
Unfortunately, there is a slim chance this legal strategy will succeed. As the Superior Court bluntly stated: “Because Defendants cannot possibly satisfy the “B” prong of that test, the likelihood that the People [the plaintiffs]will prevail on their claim that Defendants have misclassified their drivers is overwhelming. . . .”[19]
The court stated that the companies’ argument fails for two reasons. First, the businesses are classified as transportation network companies, which are regulated by the California Public Utilities Commission.[20] The court stated that because this commission governs the businesses, without objection from the companies, this fact is “dispositive as to the nature of those businesses: they are ‘engaged in the transportation of persons by motor vehicle for compensation.’”[21] Secondly, the court stated that “Uber does not simply sell software; it sells rides.”[22] “Uber simply would not be a viable business without its drivers.”[23] Numerous other courts have reached the same conclusion.[24]
Given the agreement amongst courts, it seems unlikely that Uber and Lyft have a remedy through the judiciary — at least when asserting the argument that their drivers perform work outside the usual course of business.
Nonetheless, the legal fight regarding AB5’s constitutionality is still ongoing in Olson v. California.[25] In essence, the plaintiffs contend that AB5 “violates the U.S. and California Constitutions . . . .”[26] The plaintiffs assert that AB5 violates the Fourteenth Amendment,[27] AB5 violates an individual’s right to “life, liberty, or property without due process of law,”[28] and AB5 violates the Contract Clause of the Constitution.[29] While the plaintiffs failed to convince the trial court, an appeal was filed to the Ninth Circuit.[30]
Can ‘The People’ Save the Gig Economy?
The highest likelihood of success to defeat AB5 is through the referendum process. Proposition 22 is on the ballot in California in November.[31] The proposition, titled the Protect App-Based Drivers and Services Act, “would provide that app-based rideshare and delivery drivers are independent contractors . . . .”[32] Uber and Lyft have already poured millions of dollars into the campaign to boost support for Prop 22.[33] Even without the lobbying effort, the ride-share companies may find some public support. Given that ~70% of drivers prefer their alternative arrangement status as independent contractors[34] and the fact that AB5 has adversely affected other industries,[35] new polls suggest a plurality of voters support the ballot measure.[36] If the proposition passes, the gig economy throughout the United States may survive. However, if it fails, AB5-type legislation may gain momentum across the nation and the gig economy as we know it may be reshaped forever.[37]
[1] Mateo Garnica, Gig-Economy Disruption, Fordham J. of Corp. & Fin. Law Blog (Nov. 11, 2019), https://news.law.fordham.edu/jcfl/2019/11/11/gig-economy-disruption.
[2] Megan Rose Dickey, Judge grants Uber and Lyft temporary stay in driver reclassification case, TechCrunch (Aug. 20, 2020), https://techcrunch.com/2020/08/20/uber-lyft-emergency-stay-california/#:~:text=A%20California%20appeals%20court%20judge,overturn%20the%20trial%20court’s%20ruling.
[3] People v. Uber Tech., Inc., No. CGC-20-584402, 2020 WL 5440308, at *3 (Cal. Super. Ct. Aug. 10, 2020).
[4] Lauren Feiner, Uber and Lyft are threatening to suspend service in California if they have to classify drivers as employees – that tactic may backfire, CNBC (Aug. 14, 2020), https://www.cnbc.com/2020/08/14/uber-lyft-threaten-to-suspend-service-in-california-that-may-backfire.html.
[5] Dara Khosrowshahi, I Am the C.E.O. of Uber. Gig Workers Deserve Better., N.Y. Times (Aug. 10, 2020), https://www.nytimes.com/2020/08/10/opinion/uber-ceo-dara-khosrowshahi-gig-workers-deserve-better.html.
[6] Flora Adamian, New laws for 2020, Malibu Times (Jan. 2, 2020), http://www.malibutimes.com/news/article_f6880e2c-2d7d-11ea-8bd6-8fa59695af0a.html.
[7] Dynamex Operations W., Inc. v. Superior Court, 416 P.3d 1, 7 (Cal. 2018); see also Garnica, supra note 1.
[8] Dynamex, 416 P.3d at 40.
[9] Id.
[10] A.B. 5, 2019 Assemb., Reg. Sess. (Cal. 2019).
[11] Compare How much can drivers make with Uber?, Uber (Sept. 27, 2020), https://www.uber.com/us/en/drive/how-much-drivers-make/ (showing that Uber sets a standard fare for rides and wages), and Nicole Arata, 5 ways to get a car you need to drive for Uber or Lyft, USA Today (Jan. 8, 2017), https://www.usatoday.com/story/money/personalfinance/2017/01/08/5-ways-get-car-you-need-drive-uber-lyft/96214312/ (exemplifying the fact that Uber and Lyft drivers must supply their own car), with Dynamex, 416 P.3d at 8 (displaying the nature of Dyanmex’s business and the similarities to Uber and Lyft).
[12] Dynamex, 416 P.3d at 8.
[13] Id.
[14] Id.
[15] Id.
[16] Lauren Feiner, Uber and Lyft’s California labor law battle is far from over, CNBC (Aug. 21, 2020), https://www.cnbc.com/2020/08/21/uber-and-lyfts-california-labor-law-battle-is-far-from-over.html#:~:text=The%20case%20involves%20a%20lawsuit,misclassifying%20rideshare%20drivers%20as%20contractors.
[17] People v. Uber Tech., Inc., No. CGC-20-584402, 2020 WL 5440308, at *12 (Cal. Super. Ct. Aug. 10, 2020).
[18] Id.
[19] Id. at *3.
[20] Id. at *12.
[21] Id.
[22] Id. at *13.
[23] Id.
[24] Id. (showcasing three courts who held that the primary business is transportation).
[25] See generally Olson v. California, No. CV 19-10956-DMG (RAOx), 2020 WL 905572 (C.D. Cal. Feb. 10, 2020).
[26] Id. at *2
[27] Id. at *5.
[28] Id. at *10.
[29] Id. at *11.
[30] Linda Chiem, Uber, Postmates Ask 9th Circ. For AB 5 Injunction, Law360 (May 8, 2020), https://www.law360.com/articles/1271791/uber-postmates-ask-9th-circ-for-ab-5-injunction.
[31] California propositions: A voter’s guide to the 2020 ballot measures, ABC7 (Sept. 15, 2020), https://abc7.com/california-ballot-measures-november-2020-ca-props-propositions-guide-to/6419431/.
[32] People v. Uber Tech., Inc., No. CGC-20-584402, 2020 WL 5440308, at *4 n.5 (Cal. Super. Ct. Aug. 10, 2020).
[33] Carolyn Said, Uber, Lyft, others pour $70 million more for Yes on 22 ballot campaign, S.F. Chron. (Sept. 4, 2020), https://www.sfchronicle.com/business/article/Uber-Lyft-others-pour-70-million-more-for-Yes-15544702.php.
[34] Harry Campbell, Everything You Should Know About AB5 & Its Impact on Uber, Ride Share Guy (Aug. 27, 2020), https://therideshareguy.com/ab5-end-of-rideshare/.
[35] Suhauna Hussain, Vox Media cuts hundreds of freelance journalists as AB 5 changes loom, L.A. Times (Dec. 17, 2019), https://www.latimes.com/business/story/2019-12-17/vox-media-cuts-hundreds-freelancers-ab5; see also Andy Kessler, The Gig’s Up for Freelancers, Wall St. J. (Oct. 27, 2019), https://www.wsj.com/articles/the-gigs-up-for-freelancers-11572208945 (displaying the discontent freelance journalists have expressed with the arbitrary cap of 35 submissions per year before having to be classified as a full-time employee).
[36] Wayne Duggan, Uber Analyst Expects California’s Prop 22 To Pass Based on Latest Polling, Benzinga (Sept. 9, 2020), https://www.benzinga.com/analyst-ratings/analyst-color/20/09/17438376/uber-analyst-expects-californias-prop-22-to-pass-based-on-latest-polling.
[37] Eli Rosenberg, Gig economy bills move forward in other blue states, after California clears the way, Wash. Post (Jan. 17, 2020), https://www.washingtonpost.com/business/2020/01/17/gig-economy-bills-move-forward-other-blue-states-after-california-clears-way/.
