On Thursday, August 20th, the California Court of Appeals put a lower court decision on hold and temporarily avoided the possibility of major ride sharing companies suspending their business operations in California. Had the Court of Appeals upheld the lower court’s decision, these ride share companies would have been ordered to end the classification of their drivers as independent contractors in California. As a result, both companies warned they might suspend operations in California if forced to comply with the injunction.
How did rideshare companies get to this point?
The preliminary injunction was the result of a lawsuit against the companies by California’s Attorney General and City Attorneys from San Francisco, Los Angeles, and San Diego, alleging violation of California’s strict AB 5 law. California’s AB 5 law went into effect January 1st,2020 and is aimed at making it more difficult to classify workers as independent contractors and eliminating unfair business advantages, such as, employers shifting tax, wage, benefit and unemployment burdens onto workers.
The Court of Appeals postponement of the injunction did not relieve the companies of their compliance obligations. Instead, the court ordered both companies to provide a plan by September 4th detailing how they would comply with the injunction if:
- It was ultimately upheld by the court, and
- If the companies sponsored ballot, Proposition 22, fails to pass in the upcoming November elections.
This lawsuit appeared likely to prevail, but, if Proposition 22 passes, it would allow the ride sharing companies to continue to classify their workers as independent contractors despite California’s AB 5 law.
More details on Proposition 22:
As stated above, these rideshare companies have responded to AB 5 by spending millions of dollars placing ballot measure, Proposition 22, before California voters in November. Their hope is that voters will push to allow drivers and other workers engaged with application-based companies, to remain independent contractors even under California’s current law. Those backing Proposition 22 claim to have gathered over a million signatures in support of the change in the law.
The lower court stated it appears likely the plaintiffs would prevail in the lawsuit for a few key reasons:
- The ride sharing companies’ claim that they are not hiring entities, which is conflicted with the fact that they hire and contract with drivers.
- Additionally, the B prong of the ABC test codified under AB 5 provides that, in order to be an independent contractor, a person must perform work that is outside the usual course of a hiring entity’s business. The court stated that the defendants’ drivers do not perform work that is outside the usual course of their businesses.
- Further, the defendants’ position that these businesses are multi-sided platforms rather than transportation companies, conflicts with the statutory provisions that govern their businesses as transportation network companies.
- Finally, it was obvious that drivers were central to the ride-hailing businesses.
These events illustrate the significance of California’s worker classification laws and how they continue to be one of the key employment law challenges facing employers and workers in 2020. All businesses should be reviewing their contingent workforce to determine their compliance with the law, especially as the litigation unfolds and Proposition 22 goes to the voters.
Find out how California voted on Prop. 22, here!
How iWorkGlobal can help:
With over 70 years of combined experience, the experts at iWorkGlobal are here to ensure workers are classified accurately – anywhere in the world. Whether a business needs to evaluate its current contingent workforce or is looking to engage a new worker, we can quickly and compliantly determine whether your worker is an independent contractor or an employee. Find out how, by checking out these three simple steps.