A California judge ruled Uber and Lyft must classify drivers as employees. What does that mean for DoorDash and Instacart?
Many apps have flagrantly ignored California’s new gig worker law. They may soon be forced to comply.
It’s been seven months since California’s Assembly Bill 5—the law that was intended to force companies to reclassify gig workers as employees—went into effect. But instead of triggering a sea change in the way tech companies treat their workers, the legislation has been largely ignored by the biggest players in the industry.
That may be about to change.
The result of a 2018 state Supreme Court ruling, A.B.5 established a test to determine whether a worker should be classified as an independent contractor or as an employee. Employees enjoy a host of benefits not available to contractors, including health insurance, minimum wage, the right to form a union, and sick pay. Companies like Uber, Lyft, and DoorDash have long classified their workforce as independent contractors, a policy which saves them a lot of money but deprives workers of the most basic benefits. When the law first went into effect on January 1, the platforms simply refused to comply, claiming that drivers and delivery couriers were not central to their business.
Uber went a step further on Wednesday, threatening to shut down service in the state of California until November, when voters will decide on a ballot initiative backed by Uber, Lyft, and DoorDash to exempt ride-sharing apps from AB5.
But on Monday, a Superior Court judge put a stop to that claim in a decision that will require Uber and Lyft to reclassify their workers as employees within 10 days. The companies have both said they plan to appeal the ruling. Uber went a step further on Wednesday, threatening to shut down service in the state of California until November, when voters will decide on a ballot initiative backed by Uber, Lyft, and DoorDash to exempt ride-sharing apps from AB5.
Despite all the bluster, it appears the ride-sharing companies may finally have to reclassify their workers—in California, at least. “In the judge’s view, and in my view also, they are unlikely to succeed on appeal,” said William Gould, professor emeritus at Stanford Law School and former chairman of the National Labor Relations Board.
The judge’s ruling applies only to Uber and Lyft, but the decision may have implications for food delivery apps like Instacart and DoorDash, which also rely heavily on gig workers. A mandatory reclassification for Uber workers alone would likely send shock waves through the food delivery ecosystem: The company made more than double as much through Uber Eats in the second quarter of 2020 than it did through its traditional rideshare service. Even if they aren’t directly targeted by state lawmakers, Uber Eats competitors may be forced to offer their drivers better benefits or employee classification in order to stay competitive. (Uber Eats acquired Postmates last month, further consolidating the nascent industry.)
“This industry thrives on the surge economy—people need to have transportation at the beginning and the end of the work day. You’ve got to have part-time drivers to do that. There’ll always be a need for part-time drivers. The difference is that there’ll be costs associated with both the full- and part-time drivers.”
The platforms maintain that workers prefer to be classified as independent contractors, relying primarily on survey results the Washington Post has called “unscientific.” They’ve claimed that changes in worker classification would lead to more rigid scheduling for drivers and higher prices for riders.
Gould called the scheduling claim “nonsense. “This industry thrives on the surge economy—people need to have transportation at the beginning and the end of the work day. You’ve got to have part-time drivers to do that. There’ll always be a need for part-time drivers. The difference is that there’ll be costs associated with both the full- and part-time drivers.”
So: Is the latest news out of California the end of the battle between the government and the platforms, or just the latest volley in a war that’s already stretched well past the two-year mark?
For Uber and Lyft, regulatory attention appears to be heating up. Outside of California, Massachusetts Attorney General Maura Healey sued the ride-hailing companies last month over misclassification claims. Gould added that New Jersey also has a worker classification law on the books.
“What happens is that the workers, rather than get into court and enforce their rights, have had to go into independent arbitration systems.”
Though DoorDash and Instacart aren’t mentioned in the statewide lawsuits in California and Massachusetts, local officials have mounted challenges of their own against the food delivery platforms in recent months. San Diego City Attorney Mara Elliott sued Instacart for worker misclassification back in February, and San Francisco District Attorney Chesa Boudin went after DoorDash for the same reason in June.
Lawsuits brought by public officials may be workers’ only hope for enforcing A.B.5 and laws like it around the country. Worker efforts to challenge the independent contractor classification have largely stalled because the Supreme Court has interpreted the Federal Arbitration Act to mean that employees give up their rights to class action lawsuits if they sign contracts with arbitration clauses. “What happens is that the workers, rather than get into court and enforce their rights, have had to go into independent arbitration systems,” Gould said. It’s complicated, but he added that the system is “designed, controlled, and promulgated by employers.”
Without the ability to sue collectively, worker efforts to change their standing have largely stalled. It’s difficult to persuade a lawyer to take on a case representing a single individual claiming that they should be issued a W-2 form. “They simply cost too much,” Gould said.
California voters do still have a chance to exempt the platforms from reclassification this November. Uber, Lyft, and DoorDash have spent $110 million so far to persuade them to do so. Uber may be hoping the threat of yanking its services out of California might help its case. Either way, it’s likely the platforms will continue to fight lawmakers on the worker classification question. “They’ve been able to avoid the rule of law time and time again, and this threatens the end for them,” Gould said. “There’s just no end to the lengths they will go to if they can’t have it their way.”