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May 13th, 2020
California Sues Uber and Lyft for Worker Misclassification
This week, more shots were fired in the ongoing war over AB5. On May 5, 2020, California’s Attorney General and city attorneys for Los Angeles, San Diego, and San Francisco sued Uber and Lyft for misclassification of hundreds of thousands of California workers.
Under AB5, a California law that went into effect on January 1, 2020, workers are presumed to be employees unless the hiring entity proves that the worker:
(A) is free from the control and direction of the company in performing work, both practically and in the contractual agreement between the parties;
(B) performs work that is outside the usual course of the company’s business; and,
(C) is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.
Not only does AB5 authorize California’s Attorney General and city attorneys in the state’s four biggest cities to sue companies for misclassifications, it empowers the government to obtain injunctive relief to prevent the continued misclassification of employees as independent contractors. The California government has stated that this addition to California law is designed to prevent companies from settling individual misclassification claims while continuing broader worker misclassification practices.
Uber and Lyft have fought hard against AB5 for over a year. The ride-share companies spent nearly $675,000 lobbying California lawmakers last summer fighting unsuccessfully for a carve-out from the legislation. Undeterred, Uber and Lyft have been pursuing several alternative attacks on the new law. The companies had been negotiating with lawmakers and labor unions to create an alternate class of worker, Uber filed a federal lawsuit challenging AB5 as unconstitutional, and gig companies are working on a ballot measure to exempt them from AB5 to put before voters in November.
Now, California is taking the fight to Uber and Lyft. Maybe the government smells blood in the water. Uber and Lyft reportedly have suffered huge financial blows in the wake of country-wide stay-at-home orders. Maybe the government’s lawsuit may be born out of necessity. Roughly 3.7 million California workers have filed for unemployment benefits during the Coronavirus crisis. Since March 12, California has paid out over $6 billion in unemployment claims. The state of California estimates that the annual state tax revenue loss due to misclassification is as high as $7 billion. It may become more aggressive in trying to recoup those dollars due to the unprecedented strain on the state budget resulting from COVID-19.
We will continue to monitor the claims and report to you. In the meantime, if you have questions about worker classification under AB5, or other employment law questions, please contact Tricia Legittino, Tiffany Caterina or any other member of the Frankfurt Kurnit Employment Compliance, Training & Litigation Group.
Other Employment Law Alerts
What Employers Need to Know About the American Rescue Plan Act
On March 11, 2021, President Biden signed the American Rescue Plan Act (“ARPA”) into law, promising $1.9 trillion in relief related to the COVID-19 pandemic including certain relief for workers. Read more.
March 23 2021
California Enacts COVID-19 Supplemental Paid Sick Leave 2021
On March 19, 2021, Governor Newsom signed into law California’s COVID-19 Supplemental Paid Sick Leave Law. Read more.
March 22 2021
Ten Employment Law Developments Every California Employer Should Know for 2021
As we all happily bid 2020 “good riddance” and enter 2021 with much-needed optimism, there are a host of recent employment laws, some in response to the COVID-19 Pandemic, that California employers need to comply with. Read more.
January 5 2021