By Aarian Marshall
Uber will not treat its California drivers as employees, the ride-hail company’s head lawyer said Wednesday, despite a new law designed to do just that. The law would create a more stringent test to separate independent contractors from full-time employees. The company’s argument rests on a premise that’s been a cornerstone since its early days: that Uber is a technology company, not a transportation one.
The California law, called Assembly Bill 5, reaffirms a 2018 California Supreme Court decision that established a three-part test to separate independent contractors from employees, who are eligible for minimum wage, health care benefits, workers’ compensation, and other protections. A worker is only an independent contractor if she is not under the control or direction of the company while she’s working; if her work is “outside the usual course” of the company’s business; and if she is “customarily engaged” in the same kind of work that she does for the company. This three-part test is already in limited use in Massachusetts and New York.
Uber has reason to be worried about the new law, which is awaiting the signature of Governor Gavin Newsom. Analysts with Barclays have estimated that the law would cost Uber $3,625 per California driver, or about $500 million a year. A former Uber executive told The Information that the company’s costs would rise by 20 percent if it were forced to reclassify its workers worldwide. The company reported a $5 billion loss last quarter.
Uber Chief Legal Officer Tony West acknowledged that the new test is stringent, but argued that Uber would not have to reclassify its drivers when the law takes effect in January 2020. “Just because the test is hard doesn’t mean we will not be able to pass it,” West said Wednesday.
West said proving that Uber drivers are performing work “outside the usual course” of the company’s business will be its highest legal hurdle. But in a blog post, the lawyer pointed to one place the company has been able to pass the test: Vermont, where Department of Labor officials wrote in a 2017 bulletin that the “usual course of [Uber]’s business is the provision of a technology platform to its drivers, in exchange for a service fee.” In other words: Uber’s customers are drivers, not riders. Uber just builds the platform that connects independent business owners with a client base.
Elsewhere, though, courts have had little patience for this argument. In California, one federal judge called it “fatally flawed,” arguing the company is “no more a ‘technology company’ than Yellow Cab is a ‘technology company’ because it uses CB radios to dispatch taxi cabs.”
“It seems very clear that Uber is a transportation company, not a technology company, despite the fact that it uses an impressively powerful piece of technology to offer transportation services,” says Benjamin Sachs, a professor who teaches labor law at Harvard Law School.
William Gould, a professor emeritus at Stanford Law School and a former chair of the National Labor Relations Board, says Uber is unmistakably acting as an employer under the rules of the new California test. “Uber is deciding who’s suitable to do this work for it, what their wages are to be, what the fare is, and the percentage of the fare the worker will get,” he says. “The emperor has no clothes.”
Another element of the new law will undoubtedly also keep Uber lawyers busy. An amendment added late in the legislative process gives the state attorney general or the city attorney of any large California city the power to sue companies to comply with the law. As San Francisco city attorney Dennis Herrera—who seems eager to get involved in the legal fight—pointed out Tuesday, “the state doesn’t necessarily have the resources to handle every case.”
The amendment gives government officials another enforcement mechanism—a headache for companies like Uber that have customarily tried to move worker classification cases into closed arbitration processes. “You can’t shuttle all claims into arbitration if you’re being sued by a government entity,” says Sachs. Uber, Lyft, DoorDash, Postmates, and other companies strongly objected to the amendment in a letter sent last week to California legislative leaders.
Uber seems to anticipate a legal fight on many fronts. “We expect we will continue to respond to [worker] classification [issues] in arbitration and in court, as we do now,” West said Wednesday. He said Uber and Lyft had collected $60 million to support an effort to put the worker classification issue to California voters as a 2020 ballot measure. The companies could spend even more. “We’re open to investing more to put us in the strongest position possible to run the campaign,” he said.
Newsom has said that he is willing to sign the new law, but signaled Tuesday that he still hopes to reach a compromise that will make California industry and California workers happy.
Lyft declined to say whether it would treat its drivers as employees after the law takes effect. A spokesperson said a “compromise” proposed by the companies last month would have been preferable to the new law. “The overwhelming majority of rideshare drivers … want a thoughtful solution that balances flexibility with an earnings standard and benefits,” the spokesperson said.