Gig workers protest in favor of Assembly Bill 5 in San Francisco.
Megan Hernbroth/Business Insider
California lawmakers filed a lawsuit against Uber and Lyft on Tuesday.
A consortium of city attorneys from the state's largest cities accused the firms of misclassifying their workers as contractors in order to avoid paying some benefits.
In response, Uber said it would fight the action in court, while Lyft said it would work with the state to find a solution.
The state cited a law passed in September, which restricts which employees companies may classify as contractors.
California on Tuesday filed a lawsuit against Uber and Lyft, accusing the ride-hailing firms of misclassifying workers in violation of a law passed by state legislators in the fall.
The lawsuit, brought by a consortium of city attorneys from Los Angeles, San Francisco, and San Diego, accuses the companies of evading "workplace standards" to avoid the cost of providing benefits like minimum wage, paid sick leave, and health insurance benefits.
"Uber and Lyft owe their drivers these benefits and protections," the lawsuit claims.
A representative for Uber accused lawmakers of obstructing Californians' access to work amid record unemployment triggered by the coronavirus pandemic.
"At a time when California's economy is in crisis with four million people out of work, we need to make it easier, not harder, for people to quickly start earning," the company said. "We will contest this action in court, while at the same time pushing to raise the standard of independent work for drivers in California, including with guaranteed minimum earnings and new benefits."
A Lyft representative echoed those claims, and said it would work with lawmakers to find a solution.
"We are looking forward to working with the Attorney General and mayors across the state to bring all the benefits of California's innovation economy to as many workers as possible, especially during this time when the creation of good jobs with access to affordable healthcare and other benefits is more important than ever," the Lyft spokesperson said.
—Xavier Becerra (@AGBecerra) May 5, 2020
Signed into law in September 2019 by Gov. Gavin Newsom, Assembly Bill 5 codifies an existing legal framework, in the form of a three-part test, to determine if a worker can be classified as a contractor or not. If a company controls how a worker does the job, or if that job is a core of the company's business, they likely fall into the employee category.
In the months following Assembly Bill 5's passage, Uber, Lyft and other gig-economy startups like DoorDash vowed to fight the new law with a $90 million ballot drive. Protect App-Based Drivers and Services, an organization set up by the trio of companies to fight the law, did not immediately return a request for comment.
The organization has argued that a change in classification under the new law would strip workers of their flexibility, citing the overwhelming number of gig-workers who work less than full-time. They hope to gather enough signatures to force voters to decide in November if the law should stand.
"If successful, this lawsuit would force more Californians out of work and eliminate access to these essential services when millions are relying on them," the group said in a press release Tuesday.
Still, the state and other activists maintain that flexibility can still be offered if workers are considered employees.
"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," the lawsuit reads.
Read the full lawsuit at BUSINESS INSIDER
California sues Uber, Lyft over misclassifying drivers as contractors
(Reuters) - California and three of its largest cities on Tuesday sued Uber Technologies Inc and Lyft Inc, accusing them of classifying their drivers improperly as independent contractors instead of employees, evading workplace protections and withholding worker benefits.
The suit, joined by Los Angeles, San Francisco and San Diego, was brought under a new state law intended to protect workers in the so-called gig economy. It argued the companies’ misclassification harms workers, law-abiding businesses, taxpayers, and society more broadly.
The controversial law strikes at the heart of the business model of technology platforms like Uber, Lyft, Postmates, DoorDash and others who rely heavily on the state’s 450,000 contract workers, not full-time employees, to drive passengers or deliver food via app-based services.
“No business model should hang its success on mistreating workers and violating the law,” California Attorney General Xavier Becerra said during a virtual news conference with his city counterparts, adding that Uber and Lyft drivers lacked basic worker protections, including sick leave and overtime payment.
Shares in Uber and Lyft dropped briefly but recovered shortly after the lawsuit was announced.
Uber shares were up more than 2% and Lyft shares flat in a broadly positive market.
Uber in a statement said it will contest the action in court, while pushing for the implementation of its own proposal for additional driver benefits.
“At a time when California’s economy is in crisis with four million people out of work, we need to make it easier, not harder, for people to quickly start earning,” the company said.
Labor unions argue that Uber is trying to circumvent labor laws by creating a new “underclass” of worker entitled to significantly fewer benefits than traditional employees.
Lyft in a statement said it would work with the attorney general and mayors, “to bring all the benefits of California’s innovation economy to as many workers as possible.” The company declined to say whether it was pursuing a settlement or would fight the lawsuit in court.
Uber in December sued to block the new law, which is known as AB5, arguing that it punished app-based companies. The company on Tuesday said the new lawsuit was unfairly and arbitrarily singling out ride-hailing companies, but also posed a threat to independent workers across industries.
The companies in the past have said their drivers were properly classified as independent contractors, adding that the majority of them would not want to be considered employees, cherishing the flexibility of on-demand work.
The city attorneys on Tuesday did not say whether they had immediate plans to sue other gig economy companies.
The coronavirus crisis in particular has exposed gig workers’ lack of a safety net, with tens of thousands of them seeking sick leave and unemployment benefits.
“American taxpayers end up having to help carry the load that Uber and Lyft don’t want to accept. These companies will take the workers’ labor, but they won’t accept the worker protections,” Becerra said.
Becerra also referred to Uber’s and Lyft’s push to include its drivers in a federal coronavirus relief bill for unemployment benefits. Those benefits are generally reserved for workers whose employers pay into the unemployment insurance system, which Uber and Lyft do not.
California sues Uber, Lyft over alleged labor law violations
California sued ride-hailing companies Uber and Lyft on Tuesday, alleging they misclassified their drivers as independent contractors under the state's new labor law.
Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Diego and San Francisco announced the lawsuit Tuesday. The labor law, known as AB5 and considered the nation's strictest test, took effect Jan. 1 and makes it harder for companies to classify workers as independent contractors instead of employees who are entitled to minimum wage and benefits such as workers compensation.
California represents Uber and Lyft's largest source of revenue. The companies, as well as Doordash, are funding a ballot initiative campaign to exclude their drivers from the law while giving new benefits such as health care coverage. The initiative is likely to qualify for the November ballot.
Uber said in a statement it would contest the lawsuit in court "while at the same time pushing to raise the standard of independent work for drivers in California, including with guaranteed minimum earnings and new benefits."
"At a time when California's economy is in crisis with 4 million people out of work, we need to make it easier, not harder, for people to quickly start earning," the statement said.
Lyft, however, vowed to work with the attorney general and other officials to "bring all the benefits of California's innovation economy to as many workers as possible, especially during this time when the creation of good jobs with access to affordable health care and other benefits is more important than ever."
Becerra highlighted the coronavirus pandemic during Tuesday's virtual news conference, saying if drivers contract the virus or lose their jobs as a result they won't have access to health care coverage and other worker protections.
"They're the ones who would have to worry about how they'll pay their bills, what they'll do in the future, how they'll survive moving forward economically," Becerra said.
Jerome Gage, a Los Angeles Lyft driver, said in a statement that drivers haven't been given personal protective equipment during the pandemic.
"I am terrified of getting sick as passengers cough and sneeze in my car constantly. Uber and Lyft have abandoned drivers and passengers by failing to provide personal protective equipment," said Gage, who is also a leader of the Mobile Workers Alliance, a group of Southern California drivers urging the state to enforce the labor law against Uber and Lyft. "I am unable to stay home. If I don't drive, I have no income. I have no choice. If I don't risk my health, I won't have money to eat and pay my bills."
Democratic Gov. Gavin Newsom said his upcoming state budget will include more money for state and local attorneys to file enforcement actions against companies in the gig economy that are not complying with the state's law on worker classifications.
He said Tuesday that roughly 450,000 Californians who have filed for unemployment have done so under a program for workers in the gig economy. He said issues around how gig workers receive unemployment benefits are heightened amid the pandemic.
But members of the Protect App-Based Drivers & Services coalition said in a statement they opposed the state's lawsuit, arguing it moves to take away drivers' choices to work as independent contractors.
A federal judge in February denied Uber and Postmates' request for a preliminary injunction that would have exempted them from the law. But separately, a federal judge in January indefinitely blocked the law from applying to more than 70,000 independent truckers, deciding that it is preempted by federal rules on interstate commerce.
A state judge, however, ruled in February that Instacart, a grocery delivery company, is likely misclassifying some of its workers as independent contractors instead of employees and flouting the labor law.
The state Legislature is also considering amending the law, though lawmakers are split whether to broaden or narrow it as other groups—such as freelance writers and photographers—contend they have been hurt by it through unintended consequences.
The state's lawsuit, filed in San Francisco, alleges that Uber and Lyft haven't paid enough payroll taxes as a result of the misclassification. The suit seeks restitution for unpaid wages owed to drivers, civil penalties and a permanent ruling that would prohibit the companies from misclassifying drivers in the future.
New Jersey's labor department filed a $640 million tax assessment last year against Uber, saying the company misclassified its drivers
