15 min read

    15 min read

    In May, California’s Attorney General Xavier Becerra and a coalition of city attorneys in California announced they would be suing Uber and Lyft, claiming the companies misclassified drivers as independent contractors. This has stirred a lot of debate, but lost in all of this is what it means to drivers.

    Then, on June 9, the California Public Utilities Commission (CPUC) announced rideshare companies must provide workers’ compensation coverage to drivers by July 1.


    Now drivers in California can look forward to another new lawsuit, announced the week of August 5. The California state Labor Commissioner announced in a press release that the office plans to file a lawsuit against the companies, alleging they are ‘committing wage theft by willfully misclassifying drivers as independent contractors instead of employees.’

    Below, senior RSG contributor Paula Gibbins provides an update on the status of AB5, Uber and Lyft’s involvement, and how legislation in California is rippling across the country.

    Recently, California regulators have ruled that drivers for Uber and Lyft (and other rideshare companies) are considered employees and therefore deserve the benefits and compensation as outlined by AB5 which went into effect January 1, 2020. 

    The California Public Utilities Commission (CPUC) has informed rideshare companies that the workers must receive workers’ compensation coverage by July 1, 2020. 

    This is obviously big news for drivers—whether they want to be considered employees or not—especially those considered “full-time” drivers. As a full-time driver for Uber or Lyft (not combined hours, mind you), I would be eligible for those added benefits that employees are guaranteed under the law in California. 

    However, all California employees would be guaranteed minimum earnings, and with this news, are owed back pay dating to the implementation of AB5.

    While the outcome of AB5 will only affect drivers in California for now, it’s undeniable that this will be precedent-setting

    Other cities and states are looking at this lawsuit carefully, and depending on its outcome and implementation, may try to pursue similar regulation.

    According to the Washington Post, legislators in three other states (New York, New Jersey and Illinois) are considering similar bills to AB5 – the bills they are considering would affect gig workers and janitors, construction workers, truckers and more. 

    New York is closest to passing something like AB5, with New Jersey close behind and Illinois in “the beginning stages.”

    What Could The Most Recent News Mean for Drivers?

    According to the Department of Labor, the current minimum wage for the state of California for a business the size of Uber and Lyft is $13/hour. This does not specify if Uber and Lyft would have to compensate for mileage or gas. Depending on how/if they pay those out, you may not then be able to claim the standard mileage deduction on your taxes since you’d already be receiving that added compensation. 

    According to the IRS website:

    “Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A.  Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions subject to the 2% floor.”

    But, if you’re a full-time driver, you’ll likely exceed the 2% floor and be able to claim those itemized deductions if Uber and Lyft do not compensate for your mileage. And bear in mind this is as an employee and is a change that was implemented as part of the Tax Cuts and Jobs Act. 

    From my understanding, only full-time drivers would qualify for all of the benefits of an employee. All employees would be guaranteed a minimum wage, but like health benefits would not be guaranteed for a part-time driver, just like with any hourly job.

    And under AB5, you wouldn’t be able to combine your hours between the apps to say you are a full-time employee. You would be a part-time employee working for both companies (if you work, say, 15 hours for each). 

    Status of Assembly Bill 5 (AB5)

    The fact that the Attorney General of California, Xavier Becerra, took part in filing a lawsuit to sue Uber and Lyft for not following the recently implemented AB5 shows that he truly believes the law is not being followed by those companies.

    The lawsuit addresses the misclassification of rideshare drivers and the compensation believed to be owed to those individuals.

    We have covered AB5 pretty extensively, but just for a quick recap, the idea behind AB5 is that several companies (including those utilizing rideshare drivers) have been misclassifying their workers as independent contractors instead of employees.

    If a company meets three criteria, it is allowed to classify its workers as independent contractors. The three criteria are:

    • (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact.
    • (B) that the worker performs work that is outside the usual course of the hiring entity’s business.
    • (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

    If these criteria is not met, the workers must be considered employees and allowed benefits as applicable, such as health insurance, minimum wage, sick pay and more.

    The lawsuit in question was filed in the Superior Court of San Francisco at the beginning of May this year. It seeks restitution for drivers of Uber and Lyft in the state of California, would stop Uber and Lyft from misclassifying their drivers as independent contractors and impose civil penalties.

    We reached out to our labor attorney, Mark Potter of Potter Handy LLP, regarding the lawsuit brought forward by California’s AG. He stated, “Uber/Lyft has been getting away with drastically under paying its drivers by misclassifying them because each driver has to retain an attorney and pursue their claims individually.”

    It’s because of this that many drivers, like our own Jay Cradeur, have decided to sue Uber and Lyft for back pay. You can read more about Jay’s experience at his article here: 600,000 Reasons Why I’m Suing Uber and Lyft.  

    What Can California Drivers Do If They Want to Receive Back Pay?

    If you’re concerned about receiving what’s owed to you, consider hiring a lawyer, as our RSG contributor Jay did, and see what more can be done for you. He hired Potter Handy, LLP to handle his case. 

    Potter Handy, LLP is an experienced San Diego law firm that represents gig economy rideshare drivers in California who want to pursue legal action against Uber and Lyft. 

    We’ve reached out to Potter Handy LLC for a comment on the latest news and will update this article when we hear back.

    Potter Handy is only representing drivers in California.  Law firms may only practice law in the states in which they are licensed to practice law, and Potter Handy is a California law firm.  Also, California has laws and statutes that support this type of claim. 

    If you are in another state, you should contact an employment attorney to consult on your particular case as Uber and Lyft are facing numerous similar legal challenges in states across the country.

    What Will Uber and Lyft Do?

    Since the regulators are only giving Uber and Lyft until July 1 to sort out the compensation of, at minimum, hundreds of thousands of drivers, it’s likely Uber and Lyft will be in a scramble in the meantime. The way I see it, they have two options: comply or bail. 

    If they comply, Uber and Lyft will need to start compensating their drivers with a minimum hourly wage in compliance with local and state laws. 

    If they bail, this would likely consist of Uber and Lyft leaving the state of California—at least as far as their drivers are concerned. They can continue headquartering there as long as all workers at the headquarters are considered employees or properly labeled as independent contractors according to the law. 

    Both would be expensive endeavors for the rideshare companies to endure, especially since they are headquartered in California and have an enormous driver-base and customer-base in its largest cities. 

    If they stop allowing drivers to operate in California, it would be the first time they’ve left an entire state, but not the first time they would stop their services in a large city.

    In 2016, Uber and Lyft pulled out of Austin, Texas over a background check dispute. Both companies returned to Austin about a year later due to legislation allowing the companies to conduct background checks without having to follow local regulations. 

    In the meantime, Uber and Lyft are still actively trying to pass new legislation that would exclude them from AB5 regulations, creating a new law specific to their situation, keeping drivers as independent contractors but implementing some benefits for their drivers as part of the Protect App-Based Drivers and Services Act (PABDASA).

    What Drivers Think of Becoming Employees

    We recently (5/6/20-5/11/20) sent out a survey to our e-mail list of 80,000 drivers across the country and posted on social media asking for responses to a simple 9-question survey and received 734 responses.

    The goal of the survey was to determine how Uber and Lyft drivers felt about employee vs independent contractor status in the wake of the coronavirus pandemic – have drivers’ attitudes toward becoming employees vs. independent contractors changed?

    It turns out that 71% of drivers surveyed still want to be independent contractors. Prior to COVID-19, 81% of drivers stated they wanted to remain independent contractors. So, no matter how you look at the info, most drivers would rather be independent contractors than employees.

    uber and lyft employee vs IC preferenceIn that vein, with the current state of the world in reference to the pandemic, drivers might be fearing what Uber and Lyft could do during times like these if they were employees instead of independent contractors. In recent news, Uber and Lyft have been laying off employees at alarming rates.

    When we shared the news on The Rideshare Guy Facebook page, the immediate reaction from drivers was also not pleased. 

    This driver expressed a common concern among drivers: loss of flexibility on when to drive. 

    For many drivers, flexibility and the opportunity to turn on your app whenever to earn money is one of the biggest perks of being an Uber or Lyft driver. If drivers become employees, this could potentially lead to the loss of this perk.

    This driver also expressed disappointment in potentially earning less. While there’s no evidence drivers will earn less if they are employees, it’s a common concern we’ve heard from drivers. Employees with paychecks often have other expenses associated with the protections of being an employee.

    We don’t yet know what an ‘Uber or Lyft driver employee’ could look like, but New York City gives us a glimpse into what this could look like. 

    In New York City, Uber and Lyft are required to pay minimum fares and they have completely overhauled the way drivers go online with schedule blocks and shifts.

    Under AB5, drivers would be allowed benefits as full-time employees, but there’s nothing to say that Uber or Lyft has to allow their drivers to be full-time drivers. 

    Uber and Lyft could literally cut drivers off from the app when they are nearing the minimum hours for a full-time employee, in essence ensuring they won’t have to pay those benefits because they have no full-time employees. 

    If you’re confused about the difference between becoming an employee vs remaining an independent contractor, take a look at the video below, where Harry discusses the differences and shares what he believes to be the best outcome for drivers:

    Arguments from Both Sides

    I spoke with Nicole Moore from Rideshare Drivers United (RDU) about the lawsuit and what it means for drivers. Harry actually interviewed Nicole about RDU last year – take a listen here: Nicole Moore on Fighting for Drivers with Rideshare United.

    Before I dive into what she said, I’m going to give a brief background of RDU. According to their website, “We’re Uber and Lyft drivers uniting for a fair, dignified, and sustainable rideshare industry.”

    When speaking with Nicole about RDU and the lawsuit, she emphasized how critical it is that AB5 be enforced. “The government is doing what it should be doing,” she stated. “They are enforcing the law. I am so proud.”

    Nicole went on to say that the reason she and many others feel that Uber and Lyft are countering AB5 with the Protect App-Based Drivers and Services (PABDASA) ballot measure is because they are afraid of losing their own flexibility in what they can and cannot make drivers do.

    Many arguments for PABDASA focus on the flexibility of drivers and state that only with PABDASA will drivers keep their current flexibility, which is what many drivers want. They want to be able to go online whenever they want and they want to be able to accept whatever rides they want.

    RDU and Nicole’s argument is that drivers will be able to maintain their current flexibility while Uber and Lyft follow the current laws in place thanks to AB5 because that is the way the apps and systems are currently set up. In order to take away that kind of flexibility, Uber and Lyft would have to do a complete overhaul of their processes, and it would be unlikely they’d spend the money and take the time to do so.

    But the counterpoint to RDU’s take is what’s happening in New York City, where Uber and Lyft are required to pay minimum fares and they have completely overhauled the way drivers go online with schedule blocks and shifts.

    Another big part of RDU is to allow drivers to unionize and have a voice for themselves and each other without retaliation from Uber and Lyft.

    Now, on the side of the Protect App-Based Drivers and Services (PABDASA) coalition—they want to maintain the independent contractor categorization while also getting a few perks from Uber and Lyft.

    One reason some drivers are skeptical of this coalition and what they represent is that the ballot measure they are supporting on this November’s ballot is being largely backed by Uber and Lyft.

    I reached out to the coalition and was given a recent press release to reference. Part of the press release states:

    “Today, members of the Protect App-Based Drivers & Services coalition expressed significant concern after the state and three city attorneys announced a lawsuit that seeks to take away the choice that app-based drivers make to work as independent contractors. If successful, this lawsuit would force more Californians out of work and eliminate access to these essential services when millions are relying on them.”

    It does not outline how the lawsuit would put current app-based drivers out of work, but hints that if drivers have the independent contractor categorization taken away, they would not be able to continue what they are doing if classified as an employee instead.

    PABDASA’s goals with the ballot measure

    Other Responses to the California Lawsuit

    The day the lawsuit was announced officially, Assemblywoman Lorena Gonzalez tweeted: “I went to law school because I believe in the law. I went to work for labor because I believe in the power of workers. I ran for office because I believe in the legislative process. Sometimes, I think I was wrong to believe so strongly. Today is not one of those days.”

    She also retweeted the following:

    One part of the current argument is that Uber and Lyft are not paying their drivers enough and that they actually owe drivers backpay from years of underpaying them. The lawsuit would partially address this by paying drivers this compensation.


    While AB5 is ‘the law of the land’ in California as of 2020, California’s Attorney General has said Uber and Lyft are not complying and is pursuing further legislation. Uber and Lyft disagree and are supporting a different bill called Protect App-Based Drivers and Services (PABDASA), which would maintain the IC categorization and include more perks from Uber and Lyft.

    This isn’t enough for many driver-focused organizations, like Rideshare Drivers United, and others. For now, they are happy the California Attorney General is moving forward to enforce AB5.

    With this move by CPUC, it’s really beginning to force Uber and Lyft’s hands. However, Uber and Lyft could file an injunction to prevent being shut down.

    Whether or not you live in California, it’s undeniable states across the nation are paying attention to this lawsuit. New York, New Jersey and Illinois are just a few of the states across the country actively looking into ‘ABC tests’ and other ways to protect independent contractors, but chances are other cities and states are at least considering it as well.

    In 2018, New York did pass a minimum wage for Uber and Lyft drivers. But that ended up having consequences that no one really realized. Even though New York drivers are considered independent contractors, they are still being controlled as to when they are allowed to go online and where they can go online.

    If demand is low, not all drivers who want to work are “allowed” to work. In February of this year, we covered how drivers in NYC are being locked out of their accounts.

    As with most things in life, not everyone will be happy with the outcome of the lawsuit and/or the PABDASA ballot measure. There will always be people for AB5 and the lawsuit and others that are for the ballot measure. There may even be others that can’t make up their minds either way. Only time will tell how this will all shake out.

    Are you a rideshare or gig driver in California? Are you for AB5 or PABDASA? Do you agree with the lawsuit? Tell us below!

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    -Paula @ RSG

    Paula Gibbins

    Paula Gibbins

    Paula Gibbins, a graduate of Augustana University, Sioux Falls, is a part-time rideshare driver and a full-time proofreader. She is based in Minneapolis/St. Paul. In her free time, Paula enjoys reading, playing board games and participating in trivia nights.