Where Uber Is In California And Where It Is Going
By James M. Mulcahy and Allard Chu on September 11, 2020
In California, rideshare companies Uber and Lyft are currently appealing a preliminary injunction compelling the companies to classify drivers as employees rather than independent contractors. The Attorney General for the State of California has sought enforcement of Assembly Bill 5 (“AB-5”) against the rideshare companies to provide additional labor protections to the drivers. This article will focus on Uber’s actions, but will also be applicable to Lyft and other rideshare companies.
On Friday, Uber filed its opening brief for appeal of the Attorney General’s preliminary injunction granted by the lower court. The Attorney General will have until September 18, 2020 to file their respondent’s brief. Uber will then have an opportunity to file a reply by September 25, 2020, and oral arguments are currently scheduled for October 13, 2020.
Follow along with Mulcahy LLP as we evaluate Uber’s appeal and its alternative strategies to addressing the classification of its drivers under AB-5 in a multi-part series of articles.
While Uber appeals the reclassification of its drivers as employees, Uber is also taking other actions to sidestep AB-5. Uber is currently supporting Proposition 22, which is a ballot measure to designate app-based drivers as independent contractors. More interestingly, Uber has expressed interest in alternative organizational structures to sidestep AB-5, including its restructuring as a purported franchise system.
Employee or Independent Contractor
The California Legislature enacted AB-5 to broaden the definition of an employee, provide protections to workers, and hold employers accountable for compliance with labor laws. AB-5 presumes that workers are employees and thereby provided with protections under California laws that are not provided to independent contractors. AB-5, which was signed into law in September 2019, expanded on the “ABC test” used in California Supreme Court’s opinion in Dynamex. Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018).
AB-5 defines the three conditions of the ABC test for classification as an independent contractor as:
- (A) The person 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.
- (B) The person performs work that is outside the usual course of the hiring entity’s business.
- (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
CA Labor Code § 2750.3
Uber’s Classification of Drivers as Independent Contractors
Thus far, Uber has classified all of its drivers as independent contractors rather than employees. As a rideshare company, Uber provides a software application, the Uber App, that allows consumers to request a ride from one location to a second location. The Uber App matches a consumer with a driver in the area, provides the driver with the destination information, and provides navigation for the driver. Drivers for Uber can set their own working hours and drive when they want, but the ride directions are dictated by the Uber App.
Attorney General of California Seeks Injunctive Relief
On May 5, 2020, the Attorney General of California filed a Complaint for injunctive relief against Uber in California state court. In the Complaint, the Attorney General argued that Uber could not show even one of the three necessary conditions of the ABC test.
In light of the Attorney General’s arguments, the superior court granted a preliminary injunction to restrain Uber and Lyft from classifying their drivers as independent contractors. Uber has now filed an emergency stay request with the appellate court.
Uber Appeals the Preliminary Injunction
As part of the appellate court’s conditions to stay the preliminary injunction, the chief executive officer of Uber was required to file a sworn statement confirming that it had developed implementation plans to comply with the preliminary injunction and would comply within 30 days after issuance of the remittitur in the appeal. However, the sworn statement that was filed was simply a cursory statement attesting that Uber had indeed developed implementation plans. Uber’s specific plans should they lose the appeal are yet to be seen.
For now, Uber’s opening brief advances three primary arguments: (1) Uber is not a hiring entity as envisioned under AB-5, (2) that the Attorney General did not establish irreparable harm, and (3) the injunction would irreparably harm drivers, the public, and Uber.
As the appeal progresses, Mulcahy LLP will provide updates and analysis.
Uber Pursues Alternative Means to Avoid Classifying Drivers as Employees
With the looming threat of a fundamental change to its classification of drivers and the resulting financial liabilities, Uber is currently exploring its options to avoid AB-5. To that end, it is supporting a voter proposition specifically to exempt its drivers from AB-5. At the same time, it is reportedly exploring changes to its organization structure, including the potential of switching to a franchise model.
A. Voter Proposition 22
To prepare for the potential of a loss in court, Uber has contributed to Proposition 22, which is a ballot initiative for California voters to decide on with the November 3, 2020 elections. Proposition 22 would specifically classify drivers for app-based transportation and delivery companies as independent contractors and not employees. California is in the minority of states in having a ballot proposition system that allows for voters to put measures on the ballot to propose new laws.
According to August 9, 2020 polling by Redfield & Wilton Strategies, 41% of respondents said “Yes” to the text of Proposition 22 versus 26% of respondents saying “No.”
B. Contemplation of a Franchise Model
Alternatively, Uber has stated that it is contemplating restructuring as a franchise system. There are significant concerns within the franchising community about this, as Uber’s business does not currently comport with the traditional franchising model. Mulcahy LLP addresses this in Part 2 of this multi-part series.
Whether Uber is successful in overcoming the presumption of its drivers being employees under AB-5 will potentially have consequences reaching beyond rideshare companies. If unsuccessful, Uber may have to significantly overhaul its operating model. Even with alternative organizational structures, Uber may still run into liability as a joint employer. Please join us while we evaluate Uber’s strategy as it unfolds in real-time with Mulcahy LLP’s multi-part series.
Part 2: Can Uber Avoid Labor Laws With A Franchise Model? Doubtful
This article was prepared by James M. Mulcahy (email@example.com) and Allard Chu (firstname.lastname@example.org) of the Irvine law firm of Mulcahy LLP. Mulcahy LLP is a boutique litigation firm that provides legal services to franchisors, manufacturers and other companies in the areas of franchise, trademark, trade secret, unfair competition, and distribution laws.
Disclaimer: While every effort has been made to ensure the accuracy of this article, it is not intended to provide legal advice as individual situations will differ and should be discussed with an experienced franchise lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.