In August 2020, a California judge ruled that rideshare companies like Uber and Lyft must treat their California drivers as employees, and cannot classify them as independent contractors. Both companies are fighting the decision, which has been put on hold while their attorneys file an appeal.

For years, Uber, Lyft, and other similar companies in the rideshare (also known as "ride-hailing") market have argued their drivers are independent contractors, citing the flexibility drivers have to set their own hours. However, in his ruling, Judge Ethan Schulman noted that drivers are far too integral to the operation of ridesharing companies to be treated as independent contractors.

The roots of this decision can be traced back to the start of the year, when state law AB5 took effect. This law strengthened the state's rules on classifying employees and independent contractors. In May, the California attorney general and the three city attorneys of Los Angeles, San Francisco, and San Diego filed a lawsuit against Uber and Lyft, arguing that the ridesharing giants misclassified their employees as contractors, depriving them of benefits and other protected owed to them by law.

In Dynamex v. Superior Court, the California Supreme Court adopted the “ABC" test to determine coverage under existing Industrial Welfare Commission Wage Orders.

Under the ABC test, anyone that performs services for another is assumed to be an employee, unless all three of the following "ABC" test requirements are met:

1. The worker must be free from the control and direction of the employer in connection with the performance of the work;
2. The worker must perform work outside the “usual course” of the employer’s business;
3. The worker must be customarily engaged in an independent established trade, occupation, or business of the same nature as the work performed.

Employee misclassification represents a serious breach of employment law here in the state of California. If you have been misclassified as an independent contractor, please contact us for a free case evaluation.

Both Uber and Lyft have threatened to suspend operations in California if the judge's ruling goes into effect. However, with the recent news that the ruling is on hold pending appeal, the two ridesharing companies and their drivers continue to operate throughout the state.

In this year's November election, California voters will decide on Proposition 22. This ballot initiative deals with the question of independent contractors directly. A "Yes" vote will allow ridesharing and delivery companies to continue classifying their drivers as independent contractors, with specific employment policies put in place for this type of worker. In effect, Prop 22 would override AB5.

If the initiative fails at the polls and the appeal is unsuccessful, Uber and Lyft will need to abide by Judge Schulman's ruling or, alternately, shut down operations throughout the Golden State.