California plans to ask judge to force Uber and Lyft to reclassify drivers as employees

Uber and Lyft could soon be forced to reclassify their drivers in California as employees or cease operating in the state as part of an escalating legal battle over a new law impacting much of the on-demand economy. California Attorney General Xavier Becerra and a coalition of city attorneys intend to file for a preliminary injunction this week to force the two ride-hailing companies to comply with the new state law, according to a press release issued Wednesday. The move follows a lawsuit filed in May, which alleges the companies are misclassifying their workers in violation of the California law known as AB-5, which went into effect on January 1. “It’s time for Uber and Lyft to own up to their responsibilities and the people who make them successful: their workers,” said Becerra in a statement concerning the injunction the state is intending to file. “Misclassifying your workers as ‘consultants’ or ‘independent contractors’ simply means you want your workers or taxpayers to foot the bill for obligations you have as an employer. … We’re seeking a court order to force Uber and Lyft to play by the rules.” Under the law, companies must prove workers are free from company control and perform work outside the usual course of business in order to classify workers as independent contractors rather than employees. The lawsuit accuses Uber and Lyft of depriving workers of protections, including a minimum wage, overtime, paid sick leave, and unemployment insurance, that they would be entitled to as employees. Uber, Lyft and DoorDash have each put $30 million behind a ballot initiative, with additional support from Postmates and Instacart. If passed, it would exempt them from the AB-5 law, but offer drivers some benefits. “We believe the courts should let the voters decide,” Lyft spokesperson Julie Wood in a statement provided to CNN Business. “Trying to force drivers to give up their independence 100 days before the election threatens to put a million more people out of work at the worst possible time.” Wood said the company plans to oppose the push to reclassify workers. “The vast majority of drivers want to work independently, and we’ve already made significant changes to our app to ensure that remains the case under California law,” an Uber spokesperson said in a statement. “When over 3 million Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry.” The AB-5 law has long been viewed as a potential existential threat to many gig economy companies like Uber and Lyft, which built up their businesses in large part by treating their workers as independent contractors rather than employees. In addition to not receiving basic worker protections, drivers also pay their own expenses, including gas and vehicle maintenance. The renewed push to reclassify their workers in the state comes at an uncertain time for both companies as they grapple with the pandemic, which significantly cut demand for rides. Both Lyft and Uber have undergone layoffs and have long histories of steep losses. Shares of Uber and Lyft each ended Wednesday down more than 7%, while the Dow and S&P 500 were both down about 2.5%. Alison Stein, an economist at Uber, has said California’s actions could threaten an estimated “158,000 additional work opportunities each quarter for Californians who earn using Uber.” Weeks before the law went into effect, Uber began making a number of product changes to its app in California with the stated promise of letting drivers “reap the full independence” of the platform. A legal filing about the preliminary injunction requests a hearing be held on July 23.