Judge Orders Uber and Lyft to Treat Drivers as Employees

On August 10, a California judge issued a remarkable order blocking Uber and Lyft from continuing to misclassify their drivers as independent contractors rather than employees. This preliminary injunction from Judge  Ethan P. Schulman of San Francisco Superior Court  comes as part of the litigation brought by the State of California against Uber and Lyft because of the ride-hailing companies’ flagrant disregard for their duties under Assembly Bill 5 (A.B. 5). 

A.B. 5 codified the Supreme Court of California’s decision in Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, and was signed into law in September of 2019. Under A.B. 5 and Dynamex, drivers for Uber and Lyft should be considered employees, not independent contractors. Despite this, Uber and Lyft have continued to misclassify their drivers as independent contractors. Hopefully, the August 10 injunction forces the companies to finally change course.

 

The court highlighted that when companies like Uber and Lyft misclassify their employees as independent contractors, they deprive them of access to basic workers’ rights and protections including minimum wage, overtime pay, meal and rest breaks, workers’ compensation, unemployment insurance, health insurance, paid sick leave, and paid family leave. These worker protections are extremely important to working families and the economy as a whole, especially in the face of the challenges posed by a pandemic. 

 

The court explains that in order to grant a preliminary injunction of Uber and Lyft’s violations of A.B. 5, the government must demonstrate that it had a reasonable probability of prevailing, with a presumption that the nonissuance of an injunction would be harmful to the public. This is different than in an ordinary case with private parties, where the party seeking the injunction faces a higher burden. This is because by enacting a statute, the legislature has already determined that a violation goes against the public interest.

 

In this case, the court opined that the government demonstrated an “overwhelming likelihood” of prevailing and that “substantial public harm” will result without an injunction. According to the court, Uber and Lyft’s violations of A.B. 5 pose, “real harms to real working people.” Under A.B. 5’s “ABC” test, a person is properly classified as an independent contractor if: (A) The person is free from the control and direction of the hiring entity in connection with the performance of the work; (B) The person performs work that is outside the usual course of the hiring entity’s business; and (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

 

The judge in this decision primarily examined element B, which requires that the work performed be “outside the usual course of the hiring entity’s business.” Uber argued, as it has before, that it is a technology company, rather than a company that provides car rides, and that its “actual employees” work in engineering, development, marketing, and operations. Driving, the company insists, is not part of Uber’s usual course of business. The court rejected this argument, instead insisting that Uber could not survive without its drivers. Because drivers are central to Uber and Lyft's business models, they should be classified as employees. 

 

Since the August 10 order, Uber and Lyft have threatened to halt operations in California, and Judge Schulman has denied the companies’ request for an extension of the deadline to appeal. Uber and Lyft have been attempting to delay their compliance with A.B. 5 because the companies are funding a ballot measure, Proposition 22, which would re-classify drivers as independent contractors. In issuing the injunction, however, the judge explained that he could not excuse the companies from compliance with A.B. 5 simply because they are waiting to see if Proposition 22 passes in November.

 

Bryan Schwartz Law has written about A.B. 5 and Dynamex here, here, here, and here. If you believe you have been misclassified as an independent contractor, please contact Bryan Schwartz Law.

SCOTUS Allows Millions of Transportation Workers to Have Their Day in Court.

In recent decades, the U.S. Supreme Court has largely sided with big business over workers, consumers, and small businesses when victims of wage theft, fraud, and monopolist market abuses[1] band together to prove their case in open court. This past week was a rare exception for potentially millions of transportation workers across the United States.

Brief Background

The FAA generally requires courts to enforce arbitration clauses according to the terms of such clauses, which businesses have forced on individuals in the workplace, in consumer contracts, and in many other contexts (e.g., nursing homes that allegedly cause their residents to die from substandard care). However, Section 1 of the FAA provides an important exception to this general rule, exempting “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the otherwise strict enforcement of arbitration agreements. 9 U.S.C. § 1.

Upshot of the New Prime Decision

Writing for an 8-0 majority, Justice Gorsuch’s opinion in New Prime Inc. v. Oliveira contains two key takeaways: (1) transportation workers are entitled to their day in court even if both sides signed an arbitration agreement and the transportation workers are classified (or arguably misclassified) as independent contractors, and (2) before ordering workers, consumers, and others to secret, one-on-one binding arbitration under the Federal Arbitration Act (“FAA”), courts still have the power to decide whether any exceptions apply that would allow these groups to have their day in open court.

The Majority’s Reasoning in New Prime

The New Prime majority relied heavily on the text and structure of Sections 1-4 of the FAA to hold that a business cannot take away a court’s authority to decide whether the exception contained in Section 1 applies to a particular dispute. No. 17-340, 2019 WL 189342, at **3-4 (U.S. Jan. 15, 2019). The Court noted that Section 3’s mandate to enforce arbitration agreements according to their terms is limited by Section 1’s exclusion for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. at *4 (citing 9 U.S.C. § 1).[2] Based on the FAA’s “terms and sequencing” of its statutory provisions, the Court concluded that “a court should decide for itself whether § 1's ‘contracts of employment’ exclusion applies before ordering arbitration.” Id.

Finding that it has authority to review whether the exception in Section 1 applies to Mr. Oliveira’s arbitration agreement with his former employer, the Court went on to address whether Mr. Oliveira’s written agreement with New Prime was a “contract[] of employment” as the term is used in Section 1 of the FAA. Here, the Court determined that the original meaning of “contracts of employment” in 1925 included both the modern idea of an employer/employee relationship and also true independent contractors. Id. at **6-7. The Court swatted down the company’s attempt to argue that the Court should ignore the plain text of the FAA, and instead make from whole cloth a general federal policy of compelling all disputes to arbitration. (“Unable to squeeze more from the statute's text, New Prime is left to appeal to its policy. … By respecting the qualifications of § 1 today, we respect the limits up to which Congress was prepared to go when adopting the Arbitration Act.”) (internal citations and quotation marks omitted). Id. at *9.

If you are a transportation worker like the lead plaintiff in the New Prime, Dominic Oliveira,[3] know that you are entitled to your day in court to recover your lost wages and expenses.

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[1] Justice Kagan’s dissent in this case, Italian Colors, sums up the state of play well:

Here is the nutshell version of this case, unfortunately obscured in the Court's decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract's arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool's errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad.

Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 240 (2013) (emph. added).

[2] The Court also drew upon the then-contemporary 1925 legal landscape in which “Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers. And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties' private contracts might happen to contemplate.” Id.

[3] You can learn more about Mr. Oliveira’s personal story here.