Companies Were Ordered to Re-classify Drivers as Employees, Pending Trial; However, Order Is Stayed Until Jan. 21, and Passage of Proposition 22, on Nov. 3 Ballot, Would Render Legal Controversy Moot
By a MetNews Staff Writer
The First District Court of Appeal has affirmed an order granting a preliminary injunction barring Uber and Lyft from classifying their drivers as independent contractors rather than employees.
The opinion will have no effect, however, if voters approve Proposition 22, on the Nov. 3 ballot. It provides that “an app-based driver is an independent contractor and not an employee or agent with respect to the app-based driver’s relationship with a network company” under specified circumstances.
In this 2016 file photo, a ride share car displays Lyft and Uber stickers on its front windshield in downtown Los Angeles. —AP
San Francisco Superior Court Judge Ethan P. Schulman on Aug. 10 granted a preliminary injunction, sought by the Office of Attorney General and the city attorneys of Los Angeles, San Francisco, and San Diego, staying that order for 10 days. The Court of Appeal on Aug. 20 granted a petition for a writ of supersedeas, and Thursday’s opinion provides that the stay will remain in effect until after issuance of the remittur—which will occur on Dec. 22—thus leaving the stay in effect until Jan. 21.
If Proposition 22 passes, however, sections will have been added to the Business and Professions Code, effective Jan. 1, which would render the litigation moot.
Authoring the Court of Appeal opinion, filed late Thursday, was Justice Jon B. Streeter of Div. Four. He wrote:
“The core allegation in the case is that Uber and Lyft improperly misclassify drivers using their ride-hailing platforms as independent contractors rather than employees, thus depriving them of a host of benefits to which employees are entitled. This misclassification. it is alleged, also gives defendants an unfair advantage against competitor companies, while costing the public significant sums in lost tax revenues and increased social-safety-net expenditures that are foisted on the state because drivers must go without employment benefits.”
“Mindful that—absent legal error—our role in reviewing a decision to issue interim injunctive relief is a limited one, we address here whether the trial court abused its discretion in granting a preliminary injunction that restrains Uber and Lyft from classifying their drivers as independent contractors. Seeing no legal error, we conclude the trial court acted within its discretion and accordingly affirm the order as issued.”
Labor Code Section
At issue was an application of Labor Code §2775.3, added last year through enactment of AB 5. It provides, in part:
“For purposes of this code and the Unemployment Insurance Code, and for the purposes of wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:
“(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
“(B) The person performs work that is outside the usual course of the hiring entity’s business.
“(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
That section—which Streeter said creates an “ABC test”—codified the California Supreme Court’s 2018 holding in Dynamex Operations West, Inc. v. Superior Court—but, he pointed out, went farther, by vesting in prosecutors authority to enforce the section through gaining injunctive relief. To defeat such a civil action, he noted, a defendant must prove that none of the prongs is satisfied.
Uber and Lyft argued that the second prong—the only one considered by Schulman—is not satisfied because they are not in the business of transporting passengers. Rather, they maintained, their business is creating technological platforms.
Their apps are used by persons desiring transportation and by the drivers. The drivers may work as many or as few hours as they desire and may agree or not agree to transport would-be passengers.
“Most pertinent is the following. Uber and Lyft both solicit riders….They screen drivers and set standards for vehicles that can be used. Defendants track and collect information on drivers when they are using the apps. and they may use negative ratings to deactivate drivers. Riders request rides and pay for them through defendants’ apps, and the drivers’ portions are then remitted to them, either through a payment processing service or a dedicated bank account….The remuneration here may reasonably be seen as flowing from riders to defendants, then from defendants to drivers, less any fee associated with the ride. With the possible exception of rides obtained using Uber’s Drive Pass subscriptions…defendants’ revenues are directly connected to the fees that riders pay for each ride….
“These facts amply support the conclusion that, whether or not drivers purchase a service from defendants, they perform services for them in the usual course of defendants’ businesses. Defendants’ businesses depend on riders paying for rides. The drivers provide the services necessary for defendants’ businesses to prosper, riders pay for those services using defendants’ app. and defendants then remit the drivers’ share to them, either through a bank account in the case of Uber or a payment processing service in the case of Lyft.”
Uber recently made two policy changes. Drivers may apply a “multiplier” to the base fare set by Uber and may purchase a “Drive Pass subscription” allowing them to accommodate a specified number of requests for transportation within a seven-day period with no additional remuneration to Uber.
“We acknowledge these newly adopted business practices, but are not persuaded they make a difference to the analysis,” Streeter said. “The fare multipliers are within limits set by Uber, and the Drive Passes provide only a limited number of leads, including leads the driver rejects. And Uber has not shown that Drive Passes account for a significant portion of its business or that any drivers use them exclusively.”
“Even if some drivers take advantage of these options, we agree with the trial court that these changes do not alter the basic fact that providing transportation is part of Uber’s usual course of business. While these details relating to how drivers are compensated might to a limited extent bear on whether the drivers are free from Uber’s direction and control or whether the drivers are engaged in an independently established trade—prongs A and C of the ABC test—they do not support Uber’s contention that the drivers’ work is outside the usual course of its business under prong B.”
Uber and Lyft described the preliminary injunction as “radical” and “unprecedented.” Streeter responded:
“But these adjectives perhaps say more about the reach of modern technology and the scale of today’s technology-driven commerce than they do about the order itself. Although the business context may be relatively new. we conclude that the injunction was properly issued in accordance with enduring principles of equity. It is broad in scope, no doubt, but so too is the scale of the alleged violations.”
California Attorney General Xavier Becerra commented Thursday:
“Californians have fought long and hard for paycheck and benefit protections. Uber and Lyft have used their muscle and clout to resist treating their drivers as workers entitled to those paycheck and benefit protections. The courts saw right through their arguments. In the midst of a COVID health and economic crisis, what worker can afford to be denied basic protections like paid sick leave, unemployment insurance, minimum wage, or overtime?”
“Today’s decision comes on the same day that the federal government reports that more than one million Americans filed for unemployment benefits—and 3 of every 10 of them are gig workers or self-employed. But remember, companies like Uber and Lyft that classify gig workers as “independent contractors” don’t pay into unemployment benefit funds for workers. That means that American taxpayers—not gig companies like Uber and Lyft—are covering the unemployment benefits that gig workers are receiving from the COVID bailout. That’s not fair to our workers and taxpayers. It’s time for Uber and Lyft to play by the rules.”
The case is People v. Uber Technologies, Inc., 2020 S.O.S. 4976.
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