On Tuesday, May 5, California’s attorney general and a coalition of city attorneys in California dropped a bombshell: they would be suing Uber and Lyft, claiming the companies wrongfully classified drivers as independent contractors. Below, we’ll outline what this means for drivers and how you could potentially see some money from Uber and Lyft.
Periodically throughout the year, we will survey drivers from our email list and social media channels (make sure to sign up for our newsletter if you want to share your opinions!) on topical or hot button issues. Reach out to Harry if you’re with the media or academia and would like more information.
You can find our annual Uber driver survey here.
- The full history of AB5 and its impact on drivers
- What it’s like to be an Uber driver during the pandemic
- Uber and Lyft drivers are more like employees now than ever before
71% of Uber and Lyft Drivers Still Want to be Independent Contractors
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 COVID-19, 81% of drivers stated they wanted to remain independent contractors.
Although a minority of drivers, just 17%, would like to be designated as employees, this is a 75% jump from the 10% figure prior to Covid-19.
More Drivers Have Chosen to Stop Driving for Uber and Lyft
Recently, we interviewed Uber and Lyft drivers driving during the pandemic, but these drivers are few and far between. With the drivers we’ve spoken to, many of them acknowledged needing to earn money, driving for the greater good, or simply not being too worried about the pandemic where they live.
This, however, is not reflective of the drivers who took our survey. Nearly 58% of drivers say they are no longer driving for Uber or Lyft during the pandemic.
Given all of the difficulties drivers have had navigating the CARES Act, unemployment insurance and more, it becomes clearer to us why driver support for remaining independent contractors is waning.
The History of Assembly Bill 5
The lawsuit claims this is in direct violation of Assembly Bill 5 (AB5), passed in 2019, which requires companies to treat their workers as employees instead of independent contractors if the company fails the ABC test. You can read more about the history of AB5 here, but below is a summary of the ABC test:
To hire an independent contractor, businesses must prove the following (my take is below in italics):
(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.
Uber and Lyft set the rates, deactivate you if you fall below a 4.6 star rating and have lowered rates over the past 5 years and replaced them with Quest bonuses that tell you when and where you have to drive. I would say they fail this one.
(B) that the worker performs work that is outside the usual course of the hiring entity’s business
Uber and Lyft’s business is to get passengers from Point A to Point B like a taxi and drivers are the ones who get riders from Point A to Point B, so I would say they also fail this one.
(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.
Around 22% of drivers work more than 40 hours a week for Uber and Lyft so this might be one that they’re sort of ok on.
In order to hire an independent contractor, you must meet all of the requirements in the ABC test, so you can see that Uber and Lyft would fail this test pretty easily.
Since AB5 went into effect in January 2020, Uber and Lyft should have been required to designate all of their drivers in California as employees instead of independent contractors.
That would mean they would have to abide by minimum wage laws, pay into unemployment, provide benefits and more.
California Sues Uber and Lyft
Implementing AB5 would affect at least one million gig workers, according to The New York Times, and includes workers like DoorDash drivers and other delivery and courier services.
Uber and Lyft have steadfastly opposed the enforcement of AB5 to their businesses, putting in $60 million to propose a ballot initiative that would exempt them from the proposed law. DoorDash kicked in another $30 million for the initiative.
Uber and Lyft claim they are technology platforms, connecting drivers with riders, and not in the business of providing rides to passengers. See the difference?
In order to get around some of these challenges, Uber rolled out some impressive changes for California drivers at the end of 2019 and into 2020, including the ability to see passenger destinations, removal of acceptance rates, ending flat rate surge and more.
However, none of this has been enough to stop the California lawsuit, which claims ridesharing companies exert enough control over their independent contractors so as to make them employees. The lawsuit accuses Uber and Lyft of depriving workers of protections, including a minimum wage, overtime, paid sick leave and unemployment insurance they would be entitled to as employees but don’t currently receive.
According to CNN, “Californians who drive for Uber and Lyft lack basic worker protections — from paid sick leave to the right to overtime pay. Uber and Lyft claim their drivers aren’t engaged in the companies’ core mission and cannot qualify for benefits,” said California Attorney General Xavier Becerra in a statement. “Sometimes it takes a pandemic to shake us into realizing what that really means and who suffers the consequences.”
The lawsuit also claims the ridesharing companies are engaging in unfair business practices that harm other California companies following the law.
What Does This Mean for Drivers?
The California lawsuit seeks civil penalties and back wages for workers, meaning if the lawsuit is successful, California gig workers could be entitled to hundreds of millions of dollars.
In addition, California drivers would be entitled to earning a minimum wage, which could impact how many drivers can log on during certain periods (as is happening in New York City). Drivers could also be entitled to compensation for gas, depreciation, and other expenses, in addition to earning sick leave, unemployment benefits, and more. Not to mention, California drivers could also be entitled to back pay for the last four years, meaning some drivers could receive substantial payments.
The downside is that riders could see significantly higher fares – and drivers could see a corresponding reduction in business. Data shows Uber rides fell by 8% after the company raised fares in New York in 2019, after the minimum wage requirement took effect.
Uber and Lyft have said they will challenge the lawsuit in court, and they are also moving forward with their ballot initiative.
One major worry for Uber and Lyft is misclassification lawsuits from workers, similar to the lawsuit Jay filed via the arbitration process. According to Attorney Mark Potter:
“Gig driver companies (Uber, Lyft, Doordash, etc) know they are illegally paying their drivers less than ½ of what is required under California law. Their arbitration clauses have thus far been able to keep cases and settlements confidential.
I want to get the word out that I will do the hard work that is required to individually arbitrate each and every of my clients’ claims to get them full recovery. My average client is entitled to well over $100,000 under California law so it is well worth them pursuing their claims.”
You can use the Potter Handy damages calculator to get an estimate of what you could potentially be owed here.
As of right now, this doesn’t mean a whole lot for drivers. The lawsuit is in its beginning stages, and it’s too early to say right now how it will shake out. However, the timing isn’t ideal given how ridesharing demand has dropped over 80%, and Uber and Lyft announce layoffs.
What Do Drivers Think About All of This?
When we polled drivers about their preference between remaining an independent contractor or becoming an employee, an overwhelming number of drivers wanted to remain independent.
This makes sense, since a majority of drivers drive 10-20 hours a week – or less.
Where it gets tricky though is that many of these same drivers who want to be ICs don’t feel that they’re actually independent. We’ve covered how Uber and Lyft drivers aren’t really independent contractors in previous articles, but suffice it to say that Uber and Lyft control nearly every aspect of the job.
For full time drivers, working 30+ hours a week, it’s even worse. You work like an employee, but without any benefits or worker protections.
Now in the time of COVID-19 and the stark realization that people need sick time, unemployment benefits, and health coverage, have drivers’ opinions about becoming employees changed?
That’s what we want to know! Having experienced COVID-19 and a potential loss of income, what do you think about becoming an employee? Share your thoughts with us here!
California Lawsuit FAQs
Does the Bill Give California Cities the Ability to Sue These Companies?
This was one of the later amendments that was added into the bill. It basically gives cities a little more power to sue Uber and Lyft if they’re not complying, but it’s clear how stubborn Uber and Lyft are and how bad they don’t want this to pass. It can also be a hassle trying to regulate all of this. City attorneys from San Francisco, Los Angeles and San Diego have joined the California Attorney General’s lawsuit.
Can I Sue Uber and Lyft for Misclassifying Me?
Our very own RSG contributor Jay Cradeur has done so, and is working with the law firm Potter Handy, LLP. You can read all about why Jay is suing Uber and Lyft or check out the video below.
How Will AB5 Affect Other States?
While we know that the passing of this bill will directly affect Californians, this doesn’t mean that drivers in other states won’t be affected in the future as well.
Right now, if drivers want to drive, they can. We’re not 100% sure what that will look like but it’s safe to say you won’t lose all your flexibility like Uber and Lyft are claiming.
This bill is important for drivers everywhere to pay attention to because other states are looking into similar legislation (which could be even scarier for Uber and Lyft). Depending on how this goes in California, other states could implement their own version of AB5 too.
If this lawsuit is successful, it would be a fundamental transformation of how they do business in the most populous US state. It would be crazy to think this wouldn’t also change how Uber and Lyft do business in other states.
What do you think about this lawsuit by California against Uber and Lyft?
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