California appellate court upholds injunction against Uber and Lyft, saying they ‘likely’ violated labor law

Prop 22 becomes even more important to rideshare companies

A California appeals court upheld an injunction granted by the San Francisco Superior Court in August that found Uber and Lyft had “likely” violated statewide labor law AB 5, which prevents gig companies from skirting labor protections by classifying workers as independent contractors.

The lower court determined the two companies had failed to classify their workers as employees, therefore depriving them of a suite of basic labor protections such as minimum wages, healthcare and paid leave, and required they comply.

“This is a huge victory for workers. Once again, the state has looked at the law and found it clear: Uber and Lyft drivers deserve basic protections and benefits,” Gig Workers Rising, a campaign that organizes app-based workers.

Issued Thursday night by a three-judge panel in the First Appellate District Court , the 74-page decision makes clear its legal role was to determine whether the lower court had “abused its discretion” in requiring the companies to follow the law within 30 days.

“Seeing no legal error, we conclude the trial court acted within its discretion and accordingly affirm the order as issued,” the decision states.

California State Attorney General Xavier Becerra filed a lawsuit in May with San Francisco City Attorney Dennis Herrera and the city attorneys in Los Angeles and San Diego seeking reclassification of workers, restitution and civil penalties.

The suit asserted that by failing to give drivers employee status, Uber and Lyft had denied workers the fundamental protections guaranteed to California laborers and passed an estimated $413 million to taxpayers by evading Social Security and Medicare payroll taxes.

Becerra then filed an injunction in June hoping to compel the companies to reclassify their employees immediately and remediate the payroll taxes they’d failed to pay.

“This decision makes it abundantly clear that Uber and Lyft have been breaking the law for years. The only thing ‘radical’ and ‘unprecedented’ is the scope of Uber and Lyft’s misconduct,” City Attorney Dennis Herrera said in a statement.

Uber and Lyft as well as other app-based gig companies subject to AB 5 have said the hallmark labor law would completely upend their business models, threaten the flexibility of work that’s valued by workers, force the companies to hire fewer people to cut costs associated with full-time benefits and increase prices and wait times to customers.

The appellate court acknowledged the injunction’s “adverse effect” on some drivers, “but noted first, that those drivers who worked for only a small number of hours a week would suffer correspondingly minor effects, and second, that during the current pandemic, many drivers were working less or not at all, further reducing the interim consequences of an injunction.”

AB 5 does provide a framework for exemption known as the ABC test. Should a company be able to prove its worker meets a three-prong test, it can allow them to work as an independent contractor.

The appeals court found that, “taking a generous view for defendants, their chances of prevailing” on even one of the requirements “may be characterized as daunting.”

These findings could soon be undermined by Proposition 22, a measure on November’s ballot that would permit app-based companies to continue classifying their workers as independent contractors while agreeing to provide more benefits than they do currently — such as a healthcare subsidy, a different pay structure and reimbursement for work-related expenses — but not nearly at the same level that is mandated under AB 5.

Uber, Lyft, Instacart and other app-based companies have dedicated nearly $185 million towards propping up a campaign in favor of the ballot measure.

“If Sacramento politicians have their way and Prop 22 doesnt pass, those jobs and services will be gone for good,” according to a statement issued by Yes on 22, the campaign funded by the companies.

Drivers are on both sides of the issue. Though the division might muddy the waters for interested voters, the court asserted it has no bearing on its legal opinion.

“The governing ABC test is not decided by plebiscite. And if there is a segment of drivers—even a large one—who do not need, wish to have, or even understand they are entitled to employment benefits, that does not strip others of rights the People seek to ensure may be claimed by all,” it said.

The ruling won’t go into effect for 60 days, and Uber and Lyft have the right to request the California Supreme Court to hear the case. If asked, the Supreme Court would then decide whether to hear it.

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