What has happened?
On August 10, a US Superior Court judge forced Uber and Lyft, to reclassify their workers as employees.[1] Ten days later, hours before the landmark ruling came into force, Uber and Lyft were granted a reprieve to delay the deadline until their appeal was heard.[2] This compounds Uber’s transatlantic woes: the company is currently appealing a similar decision in the UK Supreme Court.[3]
What does this mean?
Uber and Lyft, two of the largest players in the ‘gig economy’,[4] have always claimed that their workers are self-employed independent contractors, because they can choose where and when they wish to work. Yet, in accordance with AB5 (a California state law that extends employee privileges to gig workers), Judge Ethan Schulman argued that Uber and Lyft could not satisfactorily prove that their workers were truly self-employed.[5]
AB5 dictates that any hirer wishing to classify a worker as an independent contractor must pass the ‘ABC test’.[6] Employers must prove that the worker is (A) free from the direction of the hiring entity, (B) can perform work outside this organisation, and (C) is engaged in regular work in an ‘independently established trade, occupation, or business of the same nature as the work performed’. Effectively, AB5 is a new gig-economy rights bill, which increases the burden of proof of employment status at the door of companies such as Uber and Lyft.
Schulman’s ruling, though specific to California and currently under appeal, could have widespread consequences for the gig economy. Uber has always had something of an uneasy relationship with local jurisdictions, but now it must fight its corner on both sides of the Atlantic.
Employee misclassification in the gig economy amounts to much more than a labour dispute. Self-employed workers do not have access to many employee benefits, such as sick pay, paid leave, and maternity leave. Since they are not technically employees, they are afforded very little legal protection, and are not even entitled to the minimum wage.
Uber and Lyft have launched an appeal, during the course of which their workers will still operate as independent contractors. Lyft claim that 80% of their drivers do not want to be classified as employees, arguing that they valued flexibility.[7] Uber adopted a more threatening tone, warning that ‘hundreds of thousands’ of Californian workers were at risk should Uber be forced to reclassify their workforce overnight.[8]
Uber’s belligerent tone may not cut the mustard with the US Supreme Court, and, indeed, raising the spectre of job security may just prove the point that their workers are too dependent on them to be truly classified as independent contractors.
Whether AB5 sounds the death knell for the gig economy across the world is a question that extends beyond legislation. In 2019, there were an estimated 4.7 million gig workers in the UK alone, a figure that had doubled over the previous three years.[9] Consumer demand may yet prove an effective bulwark against overly drastic legal action - the ugly truth is that companies such as Uber and Just Eat are now so popular that they may simply be too big to fail.
Ultimately, Uber and Lyft are playing a waiting game. In November, Californians will take to the polls to vote on ‘Proposition 22’, a new employment law that would exempt app-based workers from AB5. Whilst it would entitle drivers to some benefits, such as a minimum wage guarantee, it stops considerably short of the employee status sought by state judges.[10] In California at least, the legal battle for fair working rights has only just begun.
How does this impact the legal industry?
Shortly after Judge Schulman’s initial ruling, Uber CEO Dara Khosrowshahi wrote an op-ed for the New York Times, entitled ‘I am the CEO of Uber. Gig workers deserve better’.[11] In this article, Khosrowshahi called for a ‘third way’ for gig workers arguing that current employment laws were ‘outdated and unfair.’
Insofar as gig workers represent a modern approach to working that values flexibility, Uber’s CEO may have a point. App-based work is a phenomenon that does not seem to be satisfactorily covered by either employee or independent contractor status. This will lead to increased litigation in the short term, and perhaps, more legislation in the long term.
Either way, law firms with a substantial employment division could soon find themselves inundated with new cases. In the UK, there have been a number of high-profile employment law cases in the past few years, notably Pimlico Plumbers Ltd v Smith,[12] in which the Supreme Court ruled in favour of a plumber who claimed he was a ‘worker’, despite being contracted as a ‘self-employed operative’, and thus should be entitled to rights such as paid leave. Though Mr Smith was not a gig worker, and the nature of his case was principally one of fact, the case sets something of a precedent for the booming gig economy.[13] Employers and their workers alike are set to look at California with bated breath
Written by Tom Higgins Toon
Assessing Firms:
All large commercial law firms with a substantial employment division.
References:
[1] Dave Lee, ‘Uber and Lyft told to treat drivers as employees in California’ (Financial Times, 10 August 2020).
[2] ‘Lyft and Uber receive reprieve in California employment rights row’ (BBC News, 20 August 2020).
[3] Samuel Osborne, ‘Supreme Court asked to decide whether Uber drivers are workers’ (Independent, 21 July 2020).
[4] a labour market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.
[5] Megan Rose Dickey, ‘Judge says Uber, Lyft preliminary injunction ruling to come in ‘a matter of days’ (TechCrunch, 7 August 2020).
[6] Megan Rose Dickey, ‘Judge says Uber, Lyft preliminary injunction ruling to come in ‘a matter of days’ (TechCrunch, 7 August 2020).
[7] ‘Lyft and Uber receive reprieve in California employment rights row’ (BBC News, 20 August 2020).
[8] Dave Lee, ‘Uber and Lyft’s California operations hang in balance’ (Financial Times, 17 August 2020).
[9] Richard Partington, ‘Gig economy in Britain doubles, accounting for 4.7 million workers’ (Guardian, 28 June 2019).
[10] Dave Lee, ‘Uber and Lyft’s California operations hang in balance’ (Financial Times, 17 August 2020)
[11] Dara Khosrowshahi, ‘I am the CEO of Uber. Gig workers deserve better’ (New York Times, 10 August 2020).
[12] Pimlico Plumbers Ltd & Anor v Smith [2018] UKSC 29.
[13] ’Supreme Court upholds decision of court of appeal in Pimlico Plumbers v Smith’ (Ashfords, 13 June 2018).
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.