Uber Confronts California in Turning Point for Gig Workers

(Bloomberg) -- The stakes are higher than ever for Uber Technologies Inc. and Lyft Inc. as they line up Thursday against their most fearsome opponent yet -- their home state of California -- in the fight to determine whether ride-share drivers should be treated as employees with benefits.

Gig-economy companies, and Uber and Lyft in particular, have successfully deflected many previous lawsuits that threatened their business model. They now face an unprecedented threat, experts say, in California’s enforcement of Assembly Bill 5, the year-old state law that vastly expands the universe of workers who qualify for overtime, health care and other benefits.

“This hearing is very important -- it’s possible that at the end of it, Uber and Lyft will finally have to start complying with A.B. 5 and treating their drivers as employees,” said Charlotte Garden, a professor at Seattle University School of Law.

The raised stakes are reflected on the ground –- for both sides. While drivers have for years organized in their fight to be treated as employees, rallies around the hearing are scheduled Thursday in Los Angeles and Oakland in support of Attorney General Xavier Becerra’s demand for a court order enforcing A.B. 5.

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“This does feel different in terms of the suit filed by the attorney general, as compared to other litigation,” said Lauren Casey, a spokeswoman for Gig Workers Rising, one of the groups behind Thursday’s rally. Drivers are energized, she said, by the state stepping in and “making the argument that the harm done to drivers is so dire, so grave, as a result of their misclassification.”

Meanwhile, supporters of Proposition 22, a ballot measure that would exempt drivers from A.B. 5, staged their own rally this week. A caravan outside Becerra’s office in Sacramento was organized to protest the attorney general’s “misleading and prejudicial” re-write of the official description of the ballot measure, according to its campaign.

On Thursday, with Uber poised to report a deep falloff in second-quarter revenue, the focus will be on whether San Francisco Superior Court Judge Ethan P. Schulman thinks the companies have had a fair chance to make their cases based on what Uber argues is a “woefully undeveloped factual record.”

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The argument carries weight because it will be hard to “unring the bell” if Schulman orders immediate compliance by the companies, according to Garden. If he does, it’s possible but not certain that Uber and Lyft could block the order while they appeal, she said.

Uber and Lyft have urged the judge to hold off making a decison until a November statewide vote on Proposition 22. Lyft warned in a court filing it would need to “fundamentally change its business model to comply,” only to see the referendum restore “Lyft’s ability to run its platform as it does today.”

Uber’s shares are up 11.6% this year, while Lyft’s are down 28.2%.

Legal experts who are skeptical that the companies can avoid reclassifying their drivers point to a provision of A.B. 5 that says workers can generally only be considered independent contractors if they perform duties outside the usual course of a company’s business.

In response, Uber says California’s lawsuit mischaracterizes its platform, ignoring adjustments to its model that let drivers set their own fares and see a rider’s pickup and drop-off locations before they accept requests. It also argues that the state misunderstands its relationship to drivers.

In court, Uber and Lyft will be without their most valuable weapon against efforts to reclassify their drivers -– arbitration.

Because the suit is brought by the government and not by a private plaintiff, Uber and Lyft can’t use any agreements signed by workers requiring them to resolve disputes individually, behind closed doors and outside of court. To the contrary, A.B. 5 gives California’s attorney general and city attorneys the ability to prosecute companies and block their operations if they’re found to be misclassifying employees as contractors.

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