Uber and Lyft Face Backlash for Classifying Workers as Independent Contractors

By Michael Klazema on 8/27/2020

Should Uber and Lyft consider their drivers employees? This question is at the center of a growing debate concerning the two biggest ridesharing businesses in the United States.

For years, both Uber and Lyft have classified their drivers as independent contractors rather than full-time or part-time employees. Both businesses are facing criticism for the practice and for how it impacts everything from legal compliance to driver and passenger safety.

A driving force in the conversation about Uber, Lyft, and contractor-versus-employee is a new California law, Assembly Bill 5 (AB 5), which was introduced in 2018 and became law effective on January 1 of this year. The bill concerns companies wrongfully classifying workers as independent contractors. Going forward, it requires hiring entities to fulfill the “ABC test” to label a worker as an independent contractor.

Under the ABC test, an employer must consider a worker an employee and not an independent contractor unless the business can prove that the worker meets all three of these conditions:

  1. “The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of 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 that involved in the work performed”

These conditions are listed on California’s Labor & Workforce Development Agency webpage on ABT testing.

In May, California Attorney General Xavier Becerra filed a lawsuit against Uber and Lyft for allegedly violating AB 5. The lawsuit was joined by city attorneys from Los Angeles, San Francisco, and San Diego. It alleges that Uber and Lyft’s hiring practices not only fail the ABC test but also that the companies have gained “an unfair and unlawful advantage” by incorrectly classifying their workers as independent contractors.

Specifically, the lawsuit argues that Uber and Lyft are using the independent contractor classification to deny workers minimum wage, overtime, protection under anti-discrimination laws, and access to unemployment insurance, workers’ compensation, paid sick leave, or disability insurance. Regarding discrimination laws, the EEOC notes that “people who are not employed by the employer, such as independent contractors, are not covered by the anti-discrimination laws.”

In June, Becerra filed a motion seeking a preliminary injunction that would force Uber and Lyft to reclassify their workers as employees. Uber and Lyft said at a hearing in August that such an order would force them to restructure their company significantly, to the point of causing job loss. The companies claimed that having to add human resource functions and other new systems would bring their operations to a halt, impairing their ability to provide a livelihood to any drivers in California for at least a brief period.

A judge granted the injunction, which went into effect on August 21. Uber and Lyft appealed the decision, indicating that they would temporarily halt operations in California if not granted a reprieve. That reprieve came on the day that the order was set to go into effect when an appellate court delayed the injunction.

Regardless of what happens next with AB 5, the debate about whether ridesharing drivers are employees or contractors is likely to continue. In California, for instance, Lyft is facing a class-action lawsuit that claims the company has failed to run proper contractor background checks on its drivers or provide safeguards to prevent drivers from assaulting women.

Part of that lawsuit hinges on the idea that Lyft and Uber do not have to accept responsibility or accountability for the actions of their drivers if they classify them as contractors rather than as employees. COVID-19 has elevated the debate further, with drivers imploring Uber and Lyft to offer employee status and some of the protections that it might provide against the risks of accepting fares amid the pandemic.

This increasingly heated battle between ridesharing companies and drivers shows the importance of correctly classifying your workers. It’s also a reminder to businesses that whether you are hiring employees or contractors, thorough background checks are an essential part of the process. Contact us today if you need help with contractor background checks or navigating EEOC and FCRA guidelines for vetting potential employees.



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