In a surprising move, the State of California has ruled that the ride sharing services, Uber and Lyft must comply with state law AB5 and classify all of their drivers as employees rather than contractors. Prior to this, the drivers had been considered independent contractors that could set when they were on the clock or not.
Uber and Lyft had long contended that because these drivers had contracts that were flexible on when they could clock in, they were listed as independent contractors. Critics contend that this is not the case. Governor Jerry Newsom has replied that they use this idea to dodge paying their workers wages and not complying with state regulations. Unions have also criticized them because contractors can’t join their unions.
A three-judge panel ruled that these drivers should be considered employees and the companies have to pay these costs. One judge wrote, “We recognize that defendants’ business models are different from that traditionally associated with employment, particularly with regard to drivers’ freedom to work as many or as few hours as they wish, when and where they choose, and their ability to work on multiple apps at the same time."
The judges noted that nothing is preventing these drivers from using both services as their jobs, which many do so. “The panel nevertheless argued the companies were employers because the ride-sharing service they provided was the core of their business model, rather than an incidental activity, pointing to a Supreme Court ruling called Dynamex. As for the possibility that the companies cannot function as traditional employers, the panel asserted that just couldn’t possibly be true.”
Because of these rulings, both Uber and Lyft have considered leaving the state to avoid paying their drivers. With regards to contractors and employees, consult your state’s laws on where the line is.