The California agency that regulates Uber and Lyft said in an order Tuesday that ride-hail drivers are employees under AB5, the state’s new gig-work law, marking a significant development in the battle over drivers’ status.
Separately, in a recent letter to the ride-hailing companies, the agency said they must get workers’ compensation coverage for their drivers by July 1, the date set in AB5, or face consequences such as fines or even having the agency cancel, revoke or suspend their operations.
“For now, TNC drivers are presumed to be employees and the commission must ensure that TNCs comply with those requirements that are applicable to the employees of an entity subject to the commission’s jurisdiction,” wrote Genevieve Shiroma, a commissioner with the California Public Utilities Commission. Her order, which was designed to lay out the scope for future issues, used the acronym for transportation network companies, which is what the commission calls ride-hail operators.
Shiroma noted that the issue is contentious, with a lawsuit by the state and three cities seeking to force the companies to reclassify drivers; an upcoming ballot measure sponsored by Uber, Lyft and other gig companies that would exempt their drivers from AB5; lawsuits by drivers seeking reclassification; and a lawsuit by Uber and Postmates seeking to halt enforcement of AB5 against them.
“The presence of these lawsuits and ballot measure does not mean that the commission can abdicate its regulatory responsibility over TNCs,” she wrote. “As a matter of California constitutional law, the commission is tasked with enforcing those laws applicable to the entities subject to its jurisdiction until such time as a higher court, the legislature, or the public through their right to vote, determine otherwise.”
Uber and Lyft both pushed back and said their ballot measure, which voters will weigh in on in November, provides a better approach.
The commission’s “presumption is flawed; drivers are correctly classified as independent contractors and overwhelmingly want to remain independent contractors — 71% in the latest independent poll, even after the impacts of COVID,” Lyft spokeswoman Julie Wood said in an email. She referred to a study the companies commissioned showing that under an employment model, only 10% to 20% of gig drivers and couriers would be able to continue working.
“Uber remains committed to expanded benefits and protections to drivers,” it said in a statement. “If California regulators force rideshare companies to change their business model it could potentially risk our ability to provide reliable and affordable services along with threatening access to this essential work Californians depend on.”
“When did the (commission) get authority to oversee labor law?” Stacey Wells, a spokeswoman for the ballot campaign, said in an email. “This is an outrageous political stretch and not what drivers want.”
On the other hand, some of the entities pursuing Uber and Lyft on the issue applauded the order.
“We have long maintained that Uber and Lyft are misclassifying and exploiting their drivers, and we intend to prove that in court,” said Meiling Bedard, a spokeswoman for City Attorney Dennis Herrera, who joined with California Attorney General Xavier Becerra and the city attorneys of Los Angeles and San Diego in suing the ride-hailing companies last month. “To the extent that the California Public Utilities Commission takes the position that Uber and Lyft drivers are employees, they join a long list of government entities and regulators that have consistently and correctly reached that same conclusion.”
In an order on Dec. 19, Robert Mason, an administrative law judge with the commission, asked Uber and Lyft for detailed responses on why they think their drivers should not be employees.
Most of Shiroma’s 18-page order dealt with other issues, such as the handling of sexual harassment and sexual assault claims, confidentiality issues, and autonomous vehicles.
The one practical change due to reclassification the order discussed is that the companies must provide drivers with workers’ compensation coverage, either from a third-party insurer or by self-insuring.
“In addition … what additional (employment) requirements should the commission impose on TNCs?” the order asked without elaborating.
Workers’ compensation is no small matter. For high-risk professions such as driving, it can be pricey.
The ballot measure backed by Uber, Lyft and others says the companies would provide a form of occupational accident insurance similar to workers’ comp.
In a June 2 letter to the ride companies, Doug Ito, director of the CPUC consumer protection and enforcement division, reminded them of the July 1 deadline that AB5 set for companies to get workers’ comp coverage for people deemed to be employees under the law.
The letter laid out consequences for not complying, noting that the PUC is authorized “to cancel, revoke or suspend a carrier’s operating authority, and to fine a carrier, for violations” of the state’s charter-party carriers act.
Philip Macafee, a manager at QuickSilver TownCar in San Bruno, said that workers’ comp for its six drivers, who are employees, costs about 20% of their paychecks.
Macafee runs a website, RideShareJustice, seeking to promote the use of technology in ground transportation in a way that’s fair to existing industries, such as his livery service.
“The PUC has a tremendous power here in California,” Macafee said. “They have the authority to create rules on their own to protect the public.”
His view: Requiring Uber and Lyft drivers to be employees could drive the companies out of the state entirely because of the high costs involved, including paying for time when drivers are logged into the app and awaiting ride requests.
“I don’t see them being able to sustain a business model here, because of the costs of workers’ comp, idle time waiting for jobs, and the supervisorial responsibilities,” he said.