Uber and Lyft Leaders Speak Out Against California Contractor Bill

Proposed legislation would codify the state’s stringent independent-contractor test

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Uber and Lyft have teamed up to combat proposed legislation in California that would make many of the state's gig workers employees—rather than independent contractors—unless an exception is added to the bill.

In Dynamex Operations West v. Superior Court, the California Supreme Court adopted a narrow three-factor test to determine whether workers are employees or independent contractors under the state's wage orders. To be classified as an independent contractor, one factor requires that workers perform tasks that are outside of the usual course of the hiring entity's business. This creates a dilemma for gig-economy businesses that rely on independent contractors to deliver core services.

AB 5, which recently passed the California Assembly, would codify the state high court's test and clarify how the new standard would be applied to jobs in the state (if it is approved by the Senate).

The distinction between employees and independent contractors is significant: Employees are entitled to minimum wage, overtime pay and other protections that are not afforded to independent contractors, who may work for themselves or for several employers.

We've rounded up the latest news on this topic from SHRM Online and other trusted outlets.

Company Executives Offer Compromise

Uber chief executive Dara Khosrowshahi, Lyft chief executive Logan Green and Lyft president John Zimmer published an opinion piece June 12 in the San Francisco Chronicle. They noted that a change to the employment classification of ride-hailing drivers would put their businesses at risk and that many drivers want the independence that comes with contractor status. "Speak with drivers, and they will tell you they are attracted to the work because of the flexibility it affords," they wrote. The companies' leaders suggested starting a collaborative driver association. They also said that amending existing law to "allow for a system of worker-determined benefits—from paid time off to retirement planning to lifelong learning—could deliver a measure of security that independent workers currently lack."

(San Francisco Chronicle)

Worker Advocates Aren't Persuaded

Employee advocates called the Uber and Lyft leaders' opinion piece vague. "They know they are losing and are desperate to change the PR without offering any details that help workers," said Assemblywoman Lorena Gonzalez (D-San Diego), who authored AB 5. When gig workers are classified as independent contractors, "taxpayers are on the hook for providing social services for employers who don't do the right thing," she said. Ride-hailing drivers also raised objections to Uber's and Lyft's practices during a strike in May. "The gig app industries are making bazillions for the few, while drivers starve," said Lyft driver Nicole Moore. 

(Los Angeles Times)

The Dynamex Case

According to the three-pronged (or ABC) test, the state considers a worker an employee unless the hiring entity establishes all  of the following factors:

  • The hiring entity does not control or direct the work, both in fact and according to the contract for the work's performance.
  • The worker performs tasks that are outside of the usual course of the hiring entity's business.
  • The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

The Dynamex decision not only expanded the definition of "employee" under the California Wage Orders, but it also places the burden on companies to prove that independent contractors are properly classified.

(SHRM Online)

[SHRM members-only resource: California Labor and Employment Law Overview]

Some Exceptions Added to Bill

The Dynamex decision only applies to wage orders. However, if passed, AB 5 would extend the ABC test to all provisions of the California Labor Code and Unemployment Insurance Code unless another definition of "employee" is provided. So, for example, the ABC test would apply to a labor-code claim for wrongful termination in violation of public policy. Although the bill would exempt certain occupations—such as doctors, investment advisors and some direct sellers—gig-economy workers aren't included in the exemptions. The business community is trying to change that before the bill is finalized.

(SHRM Online)

Gap Between Federal Direction and State Law Grows

Classifying workers as independent contractors or employees was already a contentious issue in the workplace before the rise of the gig economy, and recent developments have only muddied the waters more. As California doubles down on the state's more-restrictive standard, a new federal opinion letter made it easier for employers to classify a worker as an independent contractor under the Fair Labor Standards Act.

(SHRM Online)

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