Will Uber and Lyft Survive in California?

1. A California Court Ruled that Uber and Lyft Drivers are Independent Contractors

On August 10, 2020, a California judge ruled that Uber and Lyft are to classify their drivers as employees when this entire time they were being classified as independent contractors.  The State of California brought a lawsuit against Uber and Lyft claiming that they were misclassifying their workers.  Uber and Lyft have since appealed the decision, which could bring years of litigation defending their business models.

2. What is the Difference Between an Employee vs. Independent Contractor?

An independent contractor is basically someone that works for themselves, provides their own tools and equipment to do their work, sets their own schedule, and has their own license to do business in California.  An independent contractor can be anyone from a plumber to a large corporation.  An independent contractor is treated as if they are their own business and usually have a unique skill.  They can be hired for temporary work, highly skilled work, or even bigger jobs like construction work.

An employee is someone who is hired by a company but the difference is that the company has control over that employee and can tell them how to do their job, when to show up to work, and the employer provides most of the equipment and tools to do the employee’s job.  The law performs a weighing test to determine exactly how much control the company has over the person hired for the job to determine if they are an employee or an independent contractor.  However, in California, the vast majority of workers are presumed to be employees and overcoming this presumption can be a very difficult task in court.

3. Why is Classification Such a Big Deal?

There is a reason that the cost of doing business in California is one of the highest in the entire country.  Whether a company (Uber or Lyft) classifies their workers as employees or independent contractors has drastic implications.

With employees, the employer is responsible for making sure their workers take meal breaks, rest breaks, receive wage statements, responsible for reimbursing the driver’s for all of their business expenses, pay them overtime, track all of the drivers’ hours, schedule every single driver for every day that they work, track all of their pay, may be required to provide vacation pay and paid leave of absences, the employer pays payroll taxes, they must withhold payroll taxes from their employee’s wages, and they may be required to provide their employees with health insurance depending on the size of the company.  The company has to provide accommodations to disabled workers or workers that are temporarily sick, provide certain paid sick leave for medical treatment, create anti-discrimination and harassment training programs for its workers, and it is prudent to hire human resources professionals to handle employee complaints once an employer has more than 10 workers.  On top of that, federal law requires that an employer reimburse its employees for $.575 per mile that they drive during the course and scope of their work.  While there are exceptions to these rules, this is a short summary of the rules that employers must abide by when operating in California.

If a driver for Uber or Lyft is now an employee and they get into a car accident, it also makes it a lot easier to sue Uber and Lyft in court.  An independent contractor is typically responsible for themself and before the recent ruling by the court, it was a lot harder to sue Uber or Lyft for the actions of an independent contractor (an Uber or Lyft driver).  However, under the doctrine of respondeat superior, employers are generally responsible for the actions of their employees while they are working, subject to certain exceptions.  Uber and Lyft may need to purchase more comprehensive insurance plans to cover their drivers.  They may even need to require their drivers complete a training program before they may become drivers similar to commercial drivers.  All these obstacles could turn a lot of people off from wanting to drive for Uber or Lyft.

With independent contractors, the only thing that Uber or Lyft was really required to do before was make sure their workers were paid and that the workers were provided with a somewhat safe work environment.  Uber and Lyft were not required to issue their drivers wage statements, pay them overtime, or make sure they paid taxes.  At the end of the year, an independent contractor receives a W-9 and they are responsible for paying their own taxes.  An independent contractor must set aside money throughout the year for their anticipated tax bill at the end of the year.  An employee receives a W-2 and the employer must legally make sure the employee pays their taxes throughout the year.

4. How Will This Affect Ride Sharing?

The change in classification of Uber and Lyft drivers from independent contractors to employees could be devastating for Uber and Lyft.  The change in classification could destroy their business models.  Most people work for Uber and Lyft because they need temporary work and they prefer the flexibility in being able to work when they want to and on their time.  However, with the change in classification, that could all be eliminated from the business model with set schedules for the drivers.  The cost of doing business could become equivalent to taking a regular Taxi at which point their competition could drastically increase.  A $20 Uber or Lyft ride could turn into $30 or $40 ride very easily, which previously gave them a competitive advantage over Taxi’s.

It is doubtful that Uber or Lyft will prevail on this issue and if they want to continue doing business in California, they will need to find another way around these employment laws or the California legislature will need to create a loophole for these special circumstances.  People’s jobs could be at risk and the number of intoxicated drivers on the road could also increase if the cost of ride sharing makes it unaffordable for the general public.  In the end, they are facing an uphill battle.

If you have any questions about your own workers or employees, please contact the Law Offices of Michael C. Murphy today at 818-558-3718 or email us at info@murphlaw.net.