Preliminary Injuction in CA Requires Uber and Lyft to Classify Drivers as Employees

On August 10, 2020, a preliminary injunction was issued requiring Uber and Lyft to classify their drivers as employees rather than independent contractors under California law. The injunction is a temporary order issued in connection with a lawsuit filed by the CA State Attorney General against Uber and Lyft. The effect of the injunction is that Uber and Lyft must treat drivers as full-fledged employees as required under CA Assembly Bill 5 pending a full resolution of the underlying lawsuit. This means that these companies would be required to extend the benefits of employee classification such as healthcare, overtime pay, and workers’ compensation benefits among several others.

CA Assembly Bill 5 went into effect January 1, 2020, and codified the CA Supreme Court’s “ABC test” for determining whether a worker is classified as an employee or an independent contractor. The ABC test states that a worker is considered an employee unless the hiring entity can establish all of the following three elements:

1. The worker is free from the control and direction of the hiring entity in the performance of the work, both under the contract for the work and in fact;
2. The worker performs work that is outside the usual course of the hiring entity’s business;
3. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

The CA Attorney General’s suit against Lyft and Uber, filed in May, alleges that the companies have misclassified their workers as independent contractors instead of employees under the new ABC test. The injunction issued on Monday means that the Court found two things: first, that the State demonstrated a strong likelihood of winning the lawsuit against Uber and Lyft; and second, that irreparable harm will result to the State and workers if the companies are not required to follow the law as it stands pending resolution of the suit.

To their credit, Uber and Lyft put forth various arguments against issuing the injunction, but all were shot down. With this injunction, the Court has signaled to CA employers that CA AB 5 is the law of the land and the Court expects strict adherence to the law, despite other pending lawsuits challenging the constitutionality of the ABC test. Until those lawsuits are resolved, CA employers should follow the ABC test closely when classifying its workers.

This creates a rippling effect for not just rideshare companies such as Lyft and Uber, but also to all employers across California. Notably, for those companies that hire and retain independent contractors as part of their business. Given this ruling, businesses will likely need to rethink not only the classification of workers as independent versus an employee but also the liability implications of having workers be classified as an employee, as opposed to an independent contractor. Further, how far will the Court’s reach to classify a worker as an employee. If this ruling is a baseline, then the possibility of classifying a workers as an independent contractor seems like an uphill battle for employers in CA.

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