In a promising development for gig-workers, California Attorney General Xavier Becerra says his state will be suing Lyft (NASDAQ: LYFT) and Uber (NYSE: UBER) over the treatment and employment classification of their drivers. Classifying workers as contractors limits their access to healthcare and labor protections.
"Uber and Lyft both claim that their drivers aren't engaged in the company's core mission and therefore qualify for benefits," Becerra told reporters at a Tuesday press conference. "If drivers in California contract the coronavirus or if they lose their job as a result, guess what? They're the ones that go missing. They're the ones that don't know what to do next. They're the ones who have to worry about how they'll pay their bills."
However, according to Becerra, it isn't just drivers who are being negatively impacted by these ride-sharing companies' business practices. The companies have avoided paying "hundreds of millions of dollars in social safety net obligations" and state payroll taxes, Becerra said. The penalties being sought by the state could reach into the hundreds of millions, as well.
This lawsuit represents the next step in the battle between companies and employees in the gig economy. The coronavirus pandemic has been particularly difficult for gig-workers who often are put at risk of contracting the virus but have few options for recourse.
Classifying employees as contractors is a way for companies like Lyft and Uber to save money on the benefits they would otherwise have to provide their workers. Contractors are not guaranteed health coverage and those who employ them don't have to pay into state unemployment insurance systems. The companies claim that classifying drivers as contractors gives drivers more flexibility to work when they want.
"Uber and Lyft claim that properly classifying drivers as employees is incompatible with flexibility. That is a lie," San Francisco City Attorney Dennis Herrera said in a statement. "There is no legal reason why Uber and Lyft can't have a vast pool of employees who decide for themselves when and where they work - exactly as drivers do now. These companies simply don't want to do it."
Becerra and other Cali. prosecutors working on the case say that the actions of Uber and Lyft contradict rules laid out in Assembly Bill 5 (AB5). This law was passed last year and is meant to make it harder for companies to claim workers aren't employees.
"Misclassification means cheating," Mike Feuer, Los Angeles City Attorney, said at the press conference.
AB5 has faced significant pushback from many companies who commonly classify their workers as contractors. Uber, Lyft, and Postmates have refused to comply entirely (meaning they won't reclassify workers) while millions of dollars are being contributed to a ballot initiative seeking to overturn AB5 by companies like DoorDash as well as Uber and Postmates.
Lyft made a statement saying they "are looking forward to working with the Attorney General" to bring more benefits to more employees, but Uber was left cooperative.
"At a time when California's economy is in crisis with four million people out of work, we need to make it easier, not harder, for people to quickly start earning," Uber said. "We will contest this action in court, while at the same time pushing to raise the standard of independent work for drivers in California, including with guaranteed minimum earnings and new benefits."