California, City Attorneys Sue Uber and Lyft Over Worker Misclassification

Since Uber and Lyft launched almost a decade ago, their drivers have lacked most basic worker protections, including a guaranteed minimum wage, overtime pay, workers' compensation and unemployment insurance.

That's because, from the onset, the two ride-hailing giants categorized drivers as independent contractors rather than employees, a tactic adopted by subsequent startups like DoorDash, Postmates and Instacart. It's at the heart of the business model that fuels what is now called the “gig economy.”

And for years, drivers and other workers in the gig economy have been fighting to be recognized as employees and have pushed to get the backing of lawmakers.

On Tuesday, they scored a big victory.

California Attorney General Xavier Becerra, joined by city attorneys in San Francisco, Los Angeles, San Diego and other jurisdictions across the state, filed a lawsuit against Uber and Lyft over their use of contractors. The suit aims to force the two companies to recognize their workers as employees under the authority of Assembly Bill 5, a state law that went into effect this year that significantly limits which workers can be classified as contractors.

In announcing the lawsuit, Becerra outlined its three goals: to stop misclassifying workers, assign penalties and seek restitution.

The litigation, he said, is based on the premise of “unfair competition” — which asserts that Uber and Lyft have an advantage over other businesses that are following the law and providing their workers with employee protections.

If the effort is successful, the two companies could be forced to pay a penalty of as much as $2,500 per driver, which would amount to billions of dollars.

“These companies are willing to take these workers’ labor as drivers,” Becerra said at a press conference Tuesday. “But they don’t want to accept the worker protections that should go with that work, as these employees should get.”

In a statement sent to KQED, Lyft said, “We are looking forward to working with the Attorney General and mayors across the state to bring all the benefits of California’s innovation economy to as many workers as possible.” Uber said it would contest the suit in court.

The lack of protections for Uber and Lyft drivers has come to a head in the current pandemic. Stay-at-home orders have left hundreds of thousands of ride-hail drivers in California with little to no work, forcing them to apply for unemployment benefits. But because of their status as contractors, they have never paid into the state's unemployment fund. And that means the state is currently covering the cost.

Becerra said the lawsuit has been in the works for months, but admits that the pandemic sped up the process. Of worker misclassification, he said, “Sometimes it takes a pandemic to shake us into realizing what that really means and who suffers the consequences of it.”

The lawsuit is another step in a years-long legal battle over gig worker classification in California, one that has involved the state's Supreme Court, Legislature and now, its executive branch.

But workers have been arguing that they are employees, not contractors, since the inception of Uber and Lyft. For years, the companies have used arbitration clauses in their contracts to resolve any worker claims behind closed doors.

But in 2018, the state Supreme Court issued a ruling, known as “Dynamex,” making it harder for companies to classify their workers as contractors. AB 5 codified that ruling.

Since the law took effect in January, however, many gig companies have fought in court against the law's application and continued to treat their workers as contractors.

Drivers like Al Aloudi, who works for Uber and Lyft in the Bay Area, are fed up with how long it has taken the government to recognize what he says has been hurting workers for nearly a decade. Soon after he began driving for Uber and Lyft in 2013, Aloudi began organizing other drivers.

“We know always that Uber and Lyft don’t obey the law,” Aloudi said. “They move so fast. The government is always going slowly.”

Aloudi said he is happy that the state is finally taking action on AB 5, albeit five months after it became law. He hopes this lawsuit compels the companies to finally start paying for basic worker protections. But he said he's also concerned it will get snared in the court system and drag on at a time when so many drivers desperately need protections and benefits.

“Uber and Lyft have a giant army of attorneys,” Aloudi said. “I worry this could last for months or years. ... Maybe I won't see AB 5 in my lifetime. But I hope my kids at least do.”

Becerra and city attorneys said they were more hopeful about a speedy resolution. And although no timeframe has yet been laid out, they are seeking an injunction to immediately halt worker misclassification. A full copy of the lawsuit is available here.

Although the litigation only targets Uber and Lyft, city attorneys on Tuesday suggested it could impact the entire gig economy.

“This lawsuit is going to have a ripple effect that radiates out through the gig economy,” Los Angeles City Attorney Mike Feuer said.

“Often the language we use here gets kind of sanitized,” Feuer added. “Misclassification means cheating. We are here to assure that no company gets an unfair advantage, particularly at the expense of the workers they employ and the taxpayers on whom all of us rely.”

San Francisco City Attorney Dennis Herrera said he hoped the lawsuit would help curb a disturbing trend in businesses, particularly those in Silicon Valley.

“Hopefully we are going to bring an end ... to the mindset that has developed over the last 10 years or so that you don’t have to ask permission, you just need to ask for forgiveness,” Herrera said. “Responsible business leaders know that there’s a way to conduct yourself and a way not to. Folks like us shouldn’t be forced to have to bring repetitive actions to make sure companies are adhering to the law and acting in a responsible way.”