Appeal Court Upholds Judgment Ordering Uber to Reclassify Drivers as Employees

A California appeals court has dashed the hope of Uber and Lyft, upholding the earlier ruling of trial court, that the companies must reclassify their drivers as employees.

Associate Justice Jon Streeter of the Appellate court wrote in his decision Thursday that the injunction restraining Uber and Lyft from classifying their drivers as independent drivers is valid.

“It is broad in scope, no doubt, but so too is the scale of the alleged violations,” Streeter wrote.

The state of California had in May sued Uber and Lyft for violating its state law. The state’s new labor law (AB5), enacted in January mandated the ridesharing companies to give their drivers employment status. The law weighed in on a three-part standard to determine the status of an independent contractor. 1 They are free from company’s control; 2 they are doing work that isn’t central to the company’s business; and 3, they have an independent business in that industry.

The state had argued that by classifying their drivers as independent contractors, Uber and Lyft deny them employment benefits such as healthcare and government support in times of crisis.

“Uber and Lyft have used their muscle and clout to resist treating their drivers as workers entitled to those paycheck and benefit protections. It’s time for Uber and Lyft to play by rules,” Attorney General Xavier Becerra said in a statement after the ruling.

The ruling has put Uber and Lyft once again in a difficult situation. The companies may likely appeal the ruling or wait on the proposition 22. The change will not take effect immediately as the companies still have 30 days to comply with California’s law after the appeal’s processes. If the ruling is not challenged, the time starts counting after the appellate court transfers jurisdiction to the trial court.

The companies appear to be counting more on the prop. 22 as the trial and appellate court rulings have given the impression that the Supreme Court will side with state of California.

Uber, Lyft and delivery companies such as DoorDash, Instarcat and Uber-owned Postmates have been pumping millions into prop. 22, a California ballot initiative that may overrule the AB-5 law if the people vote in support of the ridesharing companies.

So far, the companies have pumped $185 million into the ballot initiative, the most expensive proposition in the history of California. For the companies, it is a survival fight. Putting the ridesharing business off the gig model will mean that the companies will have to pay drivers according to the state’s minimum wage, and apply other rules that will spike running cost.

But if Prop. 22 passes, the ride-hailing companies will continue to treat their drivers as independent contractors, though there would be some concessions on benefits, which involves the minimum wage earnings guarantee based on “engaged time”, the time drivers spent on delivery or conveying a rider, not time spent waiting for gig.

Uber and Lyft have been aggressively campaigning for votes, telling riders that it means expensive rides if they don’t vote in support of prop. 22.

“This ruling makes it more urgent than ever for voters to stand with drivers and yes on prop. 22,” Lyft Spokesperson Julie Wood told CNN Business.

Although the companies said they will accept the state’s law if the prop. 22 fails, they have been appealing to drivers to support the initiative. Uber said in a statement that if the measure is not passed, “rideshare drivers will be prevented from continuing to work as independent contractors, putting hundreds of thousands of Californians out of work and likely shutting down ridesharing throughout much of the state.”

But the drivers seem to have had enough of the pressure from the companies forcing them to stand by the initiative. The drivers on Thursday sued Uber over in-app messages regarding the prop. 22, saying the pressure from the ride-hailing company violates California law protecting their political rights.

The in-app prompts urge drivers to show their support for the ballot measure, including asking them to submit video messages, and links to the Yes on prop. 22 campaign.

David Lowe, the attorney for the drivers said the prompts, in combination with Uber’s threat to leave California or reduce its driver base, leads drivers to believe that they might be punished if they do not follow the company’ line.

This development with drivers places Uber in yet another difficult position, as it minimizes its chances to win at the Nov. 3 election.