A Lyft driver and passenger. Courtesy Lyft

By Kerry Jackson

The law that virtually bans independent contract work in California nearly claimed the jobs of the hundreds of thousands it was supposedly intended to help. They were granted a reprieve, but it might not last long. By now, both rideshare drivers and customers are suffering from whiplash caused by the wreck of legislation called Assembly Bill 5.

On Aug. 10, California Superior Court Judge Ethan Schulman ordered Uber and Lyft to stop classifying their drivers as independent contractors. Ten days later, California’s First District Court of Appeal stayed the lower court’s injunction. The companies now have until Friday to submit sworn statements from their chief executives confirming they have “developed implementation plans” for compliance with AB 5 that would presumably go into effect if the appeals court “affirms the preliminary injunction and Proposition 22 on the November 2020 ballot fails to pass.”

If the companies are forced to hire drivers who have been working as independent contractors, the objective of AB 5, their operations in the state would be forever changed. Uber CEO Dara Khosrowshahi provided a glimpse of this future in a New York Times op-ed.

“Uber would only have full-time jobs for a small fraction of our current drivers and only be able to operate in many fewer cities than today,” he said. Rides would be costlier – as much as 111% more expensive in some areas — “which would significantly reduce the number of rides people could take and, in turn, the number of drivers needed to provide those trips.”

Another option is to abandon California, which the companies were prepared to do before the appeals court stepped in, due to the added cost of doing business and the restraints on their operations. If wealthy San Diegans want to maintain their lifestyles that have become rideshare reliant, they might have to suspend their leftward voting habits and support Prop 22, which, if approved, will classify app-based drivers as independent contractors.

Uber, Lyft, and roughly half a million independent drivers and their customers find themselves dependent on the appeals process and the voters because a court in an earlier case established three conditions under which workers can be legally classified as independent contractors. This “ABC test” was used against the companies even though their arrangements meet all three standards.

Prong “A,” for instance, requires independent contractors to be “free from the control and direction of the hiring entity in connection with the performance of the work.” Both companies meet this demand. Rideshare drivers choose when and where they want to work, and they can accept passengers or turn them down. The vehicles belong to the drivers, not the companies, as do their phones, which are essential to their work. Uber and Lyft do not set standards for drivers’ appearances, nor do they determine the routes they choose, or other services they might provide. Drivers can set their rates independently and are not prohibited from working for multiple app-based companies.

Uber and Lyft also pass prong “B,” which says independent contractors have to perform “work that is outside the usual course of the company’s business.” They are app companies; they’re not taxi businesses nor limousine services. Uber and Lyft employees are not the drivers but engineers, product developers, marketing and operations staff. Uber argues that not a single employee’s job description includes using an app to pick up a passenger. The work being done by drivers is clearly outside “the usual course of” both companies’ business, which is to connect drivers with passengers.

Uber further argued in Schulman’s court that drivers are in fact its customers who pay the company for the services it sells. The structure is “no different from eBay’s dependence on sellers and buyers and Airbnb’s dependence on hosts and guests,” according to the company.

Prong “C” says “the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.” The relationship between the companies and drivers satisfies this benchmark, as well. The drivers clearly run autonomous businesses. They often subscribe to apps from multiple companies, and some even incorporate, hire other drivers, and advertise their services.

The companies’ arguments are compelling. But they were dismissed by lawmakers, then a state judge. So it might be expecting too much to hope they ultimately get the outcome they’re looking for at the appeals court.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

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