On August 10, 2020, the California Superior Court in People v. Uber Tech., Inc., held that both Uber and Lyft have misclassified their ride-hailing drivers as independent contractors rather than employees in violation of California’s Assembly Bill 5.[1] This ruling has only exacerbated the long-standing debate centered around whether ride-hailing companies, Uber and Lyft, correctly classify their drivers as independent contractors or employees.[2] This lawsuit was filed by California Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Diego, and San Francisco under a new California law, Assembly Bill 5, that indicates that companies “can only classify workers as contractors if they perform work outside the usual course of their business.”[3] California brought this lawsuit against Uber and Lyft, claiming that the decision to classify drivers as contractors has “deprived [drivers]of rights such as paid sick leave and unemployment insurance.”[4] Assembly Bill 5, cites the harm to
misclassified workers who lose significant workplace protections, the unfairness to employers who must compete with companies that misclassify, and the loss to the state of needed revenue from companies that use misclassification to avoid obligations such as payment of payroll, taxes, payment of premium for workers’ compensation, Social Security, unemployment, and disability insurance.[5]
To address the ruling in California, both Uber and Lyft seek exemptions from California’s Assembly Bill 5, urging that their drivers are correctly classified as independent contractors.[6] Uber has over 200,000 drivers in California and Lyft has approximately 325,000 drivers in California.[7] The California court’s “ruling is on hold until the companies have a chance to appeal” the decision, which they both plan on doing.[8]
This blog post compares and contrasts the positions and rationale for Uber and Lyft in advocating not to classify their drivers as employees with the underlying position embodied in California’s legislation and upheld in Judge Schulman’s decision, stating why drivers should not be classified as independent contractors. However, the ultimate goal is to shed light on what the drivers themselves believe is in their best interest and consequently want. This blog post reveals the clear need for a solution; a blanket reclassification neither resolves the inherent issues for the drivers nor the broader inadequacies of the decision on the ‘GIG economy.’[9]
Both the State of California and Judge Schulman in his decision, argue that classifying Uber and Lyft drivers as independent contractors “deprived [the drivers]of rights such as paid sick leave and unemployment insurance.”[10] Judge Schulman indicates that misclassifying drivers as independent contractors, “deprives them of the panoply of basic rights and protections to which employees are entitled under California law.”[11] These rights include, “minimum wage, workers’ compensation, unemployment insurance, paid sick leave, and paid family leave.”[12] Advocates of classifying drivers as employees praise the California court decision on being a “milestone in their fight to apply traditional worker protection.”[13] Asif Hanif, a full time Uber driver, said, “I am not self-employed. I follow the app, and the app gives me access to the job, and I do not get paid, Uber gets paid and controls all these things. They enjoy all the benefits, and I am left all alone just to fulfill the responsibility.”[14] Asif maintains that with this responsibility comes rights, which include holiday pay and pension.[15] Principally this is because Uber and Lyft drivers report making only a “handful of dollars on trips.”[16] Moreover, the drivers are burdened with the responsibility of paying for their own gas, maintenance and other expenses.[17] Uber and Lyft take more than 70% of fares on driver’s trips.[18]
Conversely, drivers do derive apparent benefits from being classified as independent contractors.[19] As both Uber and Lyft argue, classifying drivers as employees will strip driver flexibility and force drivers to work prescheduled shifts.[20] An Uber spokesperson said, “the vast majority of drivers want to work independently, and we’ve made significant changes to our app to ensure that remains the case under California law.”[21] The companies argue that the reclassification to employees not only threatens to shut down their companies but, more importantly, negatively impacts drivers who have lost their jobs during the COVID-19 pandemic and who have turned to these ride-hailing companies to make money.[22] According to a study conducted in 2018, “Uber drivers have high turnover and, on average, work only part of the year (an average of three months) and part time (an average of 17 hours per week).”[23] When combined, this data indicates that Uber drivers work only 12.5% of the total hours in a year, compared to a full-time, year round employee.[24] Further, under the new employment model, “drivers would be forced to comply with a 40-hour work week, which is the standard for a fulltime employee.”[25]
Victor Nyics, a part-time Uber driver who primarily runs a technology start-up, said, “[s]ometimes I cannot drive four days a week. But sometimes all week I will drive for Uber and make some cash.”[26] Nycis continues, “I do not want to be owned by a company. I do not want to be ruled by a company. I want to be of my own business, and when I go away, I do not need to ask for permission.”[27] In May 2020, an online survey was taken from 734 Uber and Lyft drivers nationwide.[28] Of these 734 ride-hailing drivers, 71% indicated that they want to be classified as independent contractors.[29] In an online survey conducted prior to the COVID-19 pandemic, 81% of approximately 1,000 drivers indicated that they preferred to be classified as independent drivers.[30] To address both California centric issues and driver concerns, Uber has been proactive by creating changes to benefit their drivers more.[31] Earlier this past year, Uber began testing a new feature in California, which allowed their drivers to set their own fares in an effort to strengthen its case that “drivers operate with some degree of independence.”[32]
If these ride share apps were forced to reclassify their drivers as employees, the autonomy and flexibility of the drivers’ ability to choose when and where they will work will be stripped from them.[33] Following this decision, Lyft sent a message to their drivers indicating that they “may soon be required to drive specific shifts, stick to specific areas, and drive for only a single platform.”[34] Further, both Uber and Lyft have maintained that they would be forced to suspend their services in order to shape their companies around California’s new model.[35] Upon their return, Uber and Lyft would “likely only be able to hire a fraction of their workforce under more rigid schedules.”[36] As previously mentioned, Judge Schulman’s concern with misclassifying drivers as independent contractors deprives these drivers of the “panoply of basic rights.”[37] However, contrary to the State of California’s claims, Assembly Bill 5 does not “provide drivers with benefits nor does it allow drivers the right to organize. In fact, the bill currently says nothing about ride-share drivers.”[38] Therefore, neither the current legislation nor the court ruling provides clarity as to what, if any, benefits are to be derived by the drivers to the potential detriment to these same drivers.[39]
Lastly, consumers benefit tremendously from classifying drivers as independent contractors. Judge Schulman held that Uber and Lyft will not suffer “grave or irreparable harm from the issuance of an injunction.”[40] He notes that although Uber and Lyft will undoubtedly incur costs in reconstructing their business, “the costs are only those required in order for them to bring their businesses into compliance with California law.”[41] However, the adverse impact this ruling has on consumers is clearly missing. Allowing Uber and Lyft to classify their drivers as independent contractors rather than employees, provides a platform for the two companies to maximize the number of drivers in their offering, in turn allowing them to offer quick, low-cost rides to consumers.[42] Further, if this legislation is to be applied to Uber and Lyft, the companies would be forced to mitigate any employee related increase in costs by raising prices for consumers.[43] Analysts predict that this would result in “as much as a 30% increase on average for riders.”[44] Raising fares would be detrimental to the consumer need for lower cost publicly accessible, but not public, transportation. This is especially evident during the COVID-19 pandemic, where riders are opting to take Uber and Lyft rather than public transportation due to both safety and health concerns.[45] Raising prices would cause further detriment drivers because consumers will be less inclined to use their services, due to the increase in cost.
As previously stated, the California legislation and the court’s ruling have not only left the fundamental issue regarding drivers unresolved but does not provide clarity as to how ride-share drivers should be treated. It is blatantly clear that an imposed reclassification of Uber and Lyft drivers as employees full stop is detrimental to both companies, a majority of drivers, and consumers.[46] Moreover, this classification fundamentally alters the concept of the GIG economy[47] in providing an independent, flexible, and self-indulgent workforce that has proven beneficial to both the contractor and consumer. For the drivers who use Uber and Lyft as their full-time employment, it is imperative that the two companies address several of the issues posed including the need to be better compensated for their labor.[48] What is apparent from this blog post, is that it may be best for both the legislature and courts to allow the private sector to deal with issues that cannot be universally addressed without being detrimental to those they seek to protect. Although the classification of drivers as employees may have a more detrimental impact rather than helpful, what is best for these drivers is for Uber and Lyft to address the weaknesses of their independent contractor model before legislatures nationwide do it for them.
[1] People v. Uber Tech., Inc., No. CGC-20-584402, 2020 WL 5440308, at *1 (Cal. Super. Ct. Aug. 10, 2020).
[2] See Adam Beam, California Judge Rules Uber, Lyft Drivers are Employees, Wash. Post (Aug. 10, 2020, 7:53 PM), https://www.washingtonpost.com/business/california-judge-rules-uber-lyft-drivers-are-employees/2020/08/10/a563636c-db64-11ea-b4f1-25b762cdbbf4_story.html.
[3] Id.
[4] Sarah E. Needleman, Uber, Lyft Ordered to Classify Drivers as Employees, Wall St. J. (Aug. 10, 2020, 8:39 PM), https://www.wsj.com/articles/uber-lyft-ordered-to-classify-drivers-as-employees-11597106349.
[5] Assemb. B. 5, 2019 Leg., Reg. Sess. (Cal. 2019).
[6] See, e.g., Alejandro Lazo & Sebastian Herrera, Uber Vows to Fight California Legislation on Gig Economy, Wall St. J. (Sept. 11, 2019, 7:36 PM), https://www.wsj.com/articles/california-governor-still-in-talks-with-uber-lyft-over-gig-workers-law-11568212014.
[7] See Needleman, supra note 4.
[8] Id.
[9] Jim Chappelow, Gig Economy, Investopedia (Apr. 13, 2020), https://www.investopedia.com/terms/g/gig-economy.asp (explaining that in a GIG economy, “temporary, flexible jobs are commonplace and companies tend toward hiring independent contractors and freelancers instead of full-time employees. A gig economy undermines traditional economy of full-time workers who rarely change positions and instead focus on a lifetime career.”).
[10] See Needleman, supra note 4.
[11] People v. Uber Tech., Inc., No. CGC-20-584402, 2020 WL 5440308, at *3 (Cal. Super. Ct. Aug. 10, 2020).
[12] Id.
[13] Beam, supra note 2.
[14] Uber and Lyft drivers are employees, says US judge, BBC News (Aug. 11, 2020), https://www.bbc.com/news/technology-53737398 (referring to a video interview conducted of Uber drivers).
[15] Id.
[16] See Lazo & Herrera, supra note 6.
[17] See id.
[18] Id.
[19] See Needleman, supra note 4.
[20] See Needleman, supra note 4; but see Lazo & Herrera, supra note 6 (indicating that if Lyft is forced to reclassify drivers as employees, those drivers would be forced to drive specific shifts and only drive in specific areas).
[21] See Needleman, supra note 4.
[22] See Beam, supra note 2.
[23] Lawrence Mishel, Uber and the labor market, Econ. Pol’y Inst. (May 15, 2018), https://www.epi.org/publication/uber-and-the-labor-market-uber-drivers-compensation-wages-and-the-scale-of-uber-and-the-gig-economy/; but see Lazo & Herrera, supra note 6 (describing a message Lyft sent out to their drivers, indicating that drivers may be forced to drive specific shifts throughout the year).
[24] Mishel, supra note 23.
[25] 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, 9:29 AM), https://www.cnbc.com/2020/08/14/uber-lyft-threaten-to-suspend-service-in-california-that-may-backfire.html.
[26] See Uber and Lyft drivers are employees, says US judge, supra note 14.
[27] Id.
[28] Needleman, supra note 4.
[29] Id.
[30] See Feiner, supra note 25.
[31] See Needleman, supra note 4.
[32] Id.
[33] See generally Lazo & Herrera, supra note 6.
[34] Id.
[35] See Feiner, supra note 25.
[36] Id.
[37] See generally People v. Uber Tech., Inc., No. CGC-20-584402, 2020 WL 5440308, at *3 (Cal. Super. Ct. Aug. 10, 2020).
[38] See Lazo & Herrera, supra note 6.
[39] See id.
[40] Uber Tech., Inc., 2020 WL 5440308, at *2.
[41] Id. at *3.
[42] Faiz Siddiqui, Uber and Lyft must make their drivers in California full employees, judge rules, Wash. Post (Aug. 10, 2020, 6:46 PM), https://www.washingtonpost.com/technology/2020/08/10/uber-lyft-ab5/.
[43] See Lazo & Herrera, supra note 6.
[44] Id.
[45] See Needleman, supra note 4 (noting that “Uber reported steep declines in the first quarter, as stay-at-home orders prompted consumers to scale back on local travel.”).
[46] See Lazo & Herrera, supra note 6.
[47] See Chappelow, Gig Economy, supra note 9.
[48] See Lazo & Herrera, supra note 6.
