As we previously reported [link]
, AB 5 went into effect on January 1. The new law drastically changed the test for determining who can be an independent contractor in California. Despite the new test, Uber and Lyft have continued to assert that their drivers are properly classified as independent contractors. In response to their failure to re-classify their drivers as employees, the state of California, the Los Angeles City Attorney, the San Diego City Attorney, and the San Francisco City Attorney sued both companies under AB5 for misclassifying their drivers.
As part of the case, the state of California sought a “preliminary injunction” to require Uber and Lyft to reclassify their drivers as employees. In a scathing 33 page opinion issued earlier this month, the Court granted the injunction. In doing so, the court noted that the ride sharing companies could not escape a crucial element of AB5’s classification test: “it's this simple: defendants' drivers do not perform work that is 'outside the usual course' of their businesses”. In response to the courts injunction, Uber and Lyft both publicly threatened to cease their operations in California entirely because the injunction required Uber and Lyft to re-classify their drivers as employees.
Last week, a California Court of Appeal granted an emergency stay of the preliminary injunction to allow time for Uber and Lyft to appeal the preliminary injunction. This means that Uber and Lyft do not have to immediately re-classify drivers into employees.
However, the stay was granted with the following conditions: Uber and Lyft must develop plans to immediately comply with the Superior Court order in case the preliminary injunction is confirmed by the appellate court or if a ballot proposition that ridesharing companies are backing in the November election to exempt them from AB 5 does not succeed.
Proposition 22 proposes to exempt Lyft and Uber drivers, and other app-based drivers who provide certain delivery or transportation services, from AB 5. In effect, the Proposition would allow the drivers to be classified as independent contractors, but would provide certain worker protections as well. If the ballot proposition succeeds, it would likely mean the end of these lawsuits, in which case Uber and Lyft can continue operations in California.
If your business uses independent contractors, it would be wise to ensure that they are properly classified under AB 5. As we recently reported[link]
, misclassification could lead to significant legal exposure.
If you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at (818) 508-3700 or 704-765-1409, or visit us online at www.brgslaw.com.
Richard S. Rosenberg
Katherine A. Hren
Stephanie B. Kantor
Ballard Rosenberg Golper & Savitt, LLP