In a decision that could forecast a similar outcome in Massachusetts, a California judge ordered ride-hailing companies Uber and Lyft to classify their drivers as employees rather than independent contractors.
California Superior Court Judge Ethan Schulman on Monday issued a preliminary injunction in a case the state's attorney general brought against the two platforms, slamming Uber and Lyft for "brazen refusal to comply" with state law and effectively banning them from defining their massive fleets of drivers as contractors.
Uber and Lyft both plan to appeal the injunction, which is scheduled to take effect Aug. 20.
While the appeal effort unfolds, the decision carries major ripple effects as Massachusetts Attorney General Maura Healey pursues her own lawsuit against the companies on similar grounds.
At the center of the California case is a state law that took effect last year, often referred to as AB5, outlining a three-part "ABC test" to determine a worker's status.
The law requires most workers to be deemed employees unless a business can prove that the contractor is free from control and direction of the hiring entity, performs work outside the usual course of the hiring entity's business, and is engaged in an independently established trade.
Schulman wrote in his Monday ruling that Uber and Lyft "cannot possibly" prove that second tenet, so their drivers must be considered employees under California law. Drivers are "central, not tangential" to the ride-hailing business model, he said.
"It's this simple: Defendants' drivers do not perform work that is 'outside the usual course' of their business," Schulman wrote. "Defendants' insistence that their businesses are 'multi-sided platforms' rather than transportation companies is flatly inconsistent with the statutory provisions that govern their businesses as transportation network companies."
When Healey filed a lawsuit in July, Massachusetts became just the second state to pursue legal action against Uber and Lyft over worker classification.
Massachusetts has had a three-part test nearly identical to California's on the books since 2004. Healey alleged last month that Uber and Lyft are violating that section of law to boost their profits.
"Uber and Lyft have gotten a free ride for far too long, and we are proud to be in this fight with California and the cities of Los Angeles, San Diego, and San Francisco," Healey spokesperson Meggie Quackenbush said in a statement. "This decision is a big win for the hundreds of thousands of drivers who have been misclassified by these companies and denied basic employee protections and benefits."
While both cases rely on similar state laws, California Attorney General Xavier Becerra is also asking that drivers gain access to unemployment and workers' compensation. Healey's lawsuit seeks wage and hour protections such as minimum wage and earned sick time, but not unemployment or workers' compensation.
The California case does not conclude with Schulman’s Monday ruling. Even if Uber and Lyft are unsuccessful in their appeals of the preliminary injunction, the underlying case — in which Schulman wrote the state has an “overwhelming” chance of success — will continue.
Uber and Lyft have argued that many of their drivers, most of whom work part-time hours, prefer to be contractors because the status grants them more flexibility, pointing to surveys of the fleets and broader public opinion trends.
Both have also pointed to the economic crisis brought on by COVID-19, implying that the shift to categorizing drivers as employees will affect hiring trends and force some drivers off the ride-hailing platform.
“The court’s ruling is stayed for a minimum of 10 days, and we plan to file an immediate emergency appeal on behalf of California drivers,” Uber said in a company statement. “The vast majority of drivers want to work independently, and we’ve already made significant changes to our app to ensure that remains the case under California law. When over 3 million Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry during an economic depression.”