Uber sues, changes practice, and funds ballot initiative over landmark misclassification law

Last September, California legislators passed a bill mandating companies like Uber and Lyft to treat drivers as employees if the companies exert control over how employees perform job duties, or if those duties are part of a company’s regular businesses. Following the passage of similar laws, as well as more than $600 million in fines and taxes levied against the company. Uber is pursuing courses of action to protect its business practices.  Following the passage of similar laws, coupled with hundreds of millions of dollars in fines and taxes levied against it, Uber is signaling a more aggressive plan to protect its business “model.”  Uber, joined by food delivery service, Postmates, sought an injunction to prevent the passage of the law on January 1, 2020.  Lawyers for the plaintiffs argued that the California law, known as AB5, targeted app-based workers, in violation of the Equal Protection Clause of the California and U.S. Constitutions – an argument that appears specious and facially frivolous on its face.  AB5 codifies an earlier California Supreme Court decision, Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903, 416 P.3d 1, 4 (2018), which established a presumption that all workers are employees unless the employing entity proves the appropriateness of classifying such workers as independent contractors.  The law was upheld as legal, thereby forcing a strategic maneuver by Uber to allow some drivers to control their fares, giving them more autonomy as Uber tries to circumvent AB5.  Allowing drivers to set their own fares strengthens one of the requirements set out in AB5: employees are free from the company’s control.  This move slightly supports Uber’s argument for drivers to be classified as independent contractors, but it is likely to test if the fare-setting practice is sustainable as a business model.  Furthermore, even with this change, Uber’s drivers are still likely employees under AB5.  As an additional measure, Uber, Postmates, and other companies have sunk millions of dollars into a ballot initiative which will give the decision to exclude the app-based drivers from AB5 up to the California voting public.

Uber claims that it is a technology company that merely links drivers with riders, rather than a transportation company that employs drivers directly.  Thus, it argues that employee classifications do not stand up to its business model and that Uber drivers are independent contractors.  It will likely continue to support this argument as it fights AB5, a direct threat to Uber’s profits and a source of potentially high expenses. The effect of AB5 on Uber alone could increase labor costs by $500 million per year in California alone.

Worker misclassification is considered a form of wage discrimination and prevents those misclassified as independent contractors the ability to earn overtime, obtain health insurance through their employment, workers’ compensation or unemployment benefits, and to be eligible for any type of medical or family leave.

The independent contractor misclassification lawyers at Shepherd, Finkelman, Miller & Shah, LLP fight for workers who contend with wage discrimination or worker misclassification and provide legal counsel to those individuals. To schedule a consultation at one of our nationwide offices including those located in New Jersey, California, Connecticut, and Pennsylvania as well as in New York and Florida, contact SFMS online or call for an appointment at 877-891-9880.

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