Class Actions: the Many-headed Hydra of App-based Driver Classification
| Jurisdiction | California,United States |
| Author | By Rachel Terp |
| Citation | Vol. 2020 |
| Publication year | 2020 |
By Rachel Terp
Proposition 22 was a last-ditch effort funded and led by Uber, Lyft, DoorDash, Instacart, Postmates, and other tech companies to buy a loophole in California’s worker protection laws. It worked, at least for now. As of December 16, 2020, most app-based drivers are, arguably, independent contractors under California law.
The lead up to Proposition 22’s approval and enactment could hardly have been more dramatic or high stakes, and the drama continues into 2021. The California Supreme Court’s 2018 Dynamex decision, codified by the state legislature in 2020, left little space for app-based rideshare and delivery companies to credibly justify classifying drivers as independent contractors. California’s courts were on the precipice of enjoining Uber and Lyft to treat drivers as employees. Then, California voters passed Proposition 22, which makes app-based drivers independent contractors under specific circumstances. Within days of the new law taking effect, large employers announced plans to out-source jobs to gig-companies, and the Service Employees International Union (“SEIU”) petitioned the California Supreme Court for a writ challenging Proposition 22’s constitutionality. The Court denied the writ, directing the SEIU to start its claim at the trial court level.
This article describes these developments and Proposition 22’s possible impacts on independent contractor litigation, both ongoing and potential.1
For the last decade, companies including Uber and Lyft have provided convenient ridesharing services that pair consumers with drivers on a massive scale through smartphone application technology. These app-based companies and others – like DoorDash, Instacart, and Postmates, which specialize in food delivery – have kept labor costs low by treating drivers as independent contractors.2 Treating drivers like independent contractors permits companies to avoid the statutory and regulatory workplace protections extended to employees.
In California, these protections include state anti-dis- crimination and retaliation laws; “wage and hour” protec- tions, such as minimum wages, overtime, paid sick-leave, meal and rest periods, and indemnification for work-related expenses; family medical leave rights; workers’ compensation; state disability insurance; collective bargaining rights; and workplace safety provisions – most recently, protections addressing COVID-19.3
In case after case brought by drivers seeking to be treated as employees, these gig-companies argued, unsuccessfully, that they were mere technological platforms for linking drivers with consumers, rather than transportation or delivery businesses, or at least that their drivers were independent contractors.4 Advocates for workers’ rights argued instead that Uber, Lyft, DoorDash, Instacart, and Postmates are in the business of transporting passengers, groceries, and hot meals, and rely on their drivers to do so, making those drivers employees under California law.
Workers rights’ advocates found support for their arguments at the California Supreme Court. In Dynamex Operations W. Inc. v. Superior Court,5 the Court clarified that the legal stan- dards for determining whether a worker is properly classified as an independent contractor under California’s Industrial Welfare Commission’s Wage Orders include the “ABC” test.6
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Under the ABC test, a worker is considered an employee and not an independent contractor unless the hiring entity can prove the following three criteria apply: (A) the worker is free from the control and direction of the hiring entity in connection with performing the work, both under contract and in fact; (B) the worker performs work outside the usual course of the hiring entity's business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.7 Because the ABC test is stated in the conjunctive, if any of these prongs do not apply to the working relationship, then the worker is an employee for purposes of the wage orders.8
The Court explained that the "exceptionally broad" suffer-or-permit test for employee status under the wage orders recognized the unequal bargaining position of workers whose "fundamental need to earn income for their families' survival may lead them to accept work of substandard wages or working conditions."9 The wage orders are "intended to enable them to provide at least minimally for themselves and their families and to accord them a modicum of dignity and self-respect," while preventing unfair competition by businesses willing to stretch workers thin and pass associated burdens onto taxpayers.10
In applying prong B to the facts in Dynamex, the California Supreme Court found common evidence could resolve this issue, as the workers were delivery drivers for Dynamex; Dynamex was in the delivery service business; and "Dynamex obtains the customers for its deliveries, sets the rate that customers will be charged, notifies the drivers where to pick up and deliver the packages, tracks the packages, and requires the drivers to utilize its tracking and recordkeeping system."11
Under the ABC test, Dynamex's delivery drivers were similarly positioned to drivers working at Uber, Lyft, and similar companies. App-based ridesharing and delivery companies would not exist without their drivers,12 who are clearly employees based on prong B of the ABC test. Setting the stage for further confrontation, even after Dynamex, the leading app-based ridesharing and delivery companies continued to misclassify drivers as independent contractors.13
Workers rights' advocates also found support for their arguments in the California State Legislature. In 2019, driven by concerns about the gig economy and ongoing misclassification, the state legislature passed Assembly Bill 5 ("AB 5"), effective January 1, 2020, which codified Dynamex's ABC test. AB 5 recognized the "misclassification of workers as independent contractors" as a "significant factor in the erosion of the middle class and the rise of income inequality" in California.14 AB 5's express intent was to stop the widespread, exploitative, practice of misclassifying workers:
It is [] the intent of the Legislature [] to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers' compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave. By codifying the California Supreme Court's landmark, unanimous Dynamex decision, this act restores these important protections to potentially several million workers who have been denied these basic workplace rights that all employees are entitled to under the law.15
AB 5 and a follow-up bill, Assembly Bill 2257 ("AB 2257"), which took effect on September 4, 2020, expanded the application of the ABC test to all provisions of the Labor Code, wage orders, and Unemployment Insurance Code. The ABC statutes permit the Attorney General, private attorneys general, and specified localities to obtain injunctive relief to combat independent contractor misclassification,16 thereby avoiding barriers to enforcement created by employee arbitration and class action waivers.
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AB 5 and AB 2257 included exceptions to the bright-lined conjunctive ABC test for specified professional services and industries. For these carved-out businesses, the less rigorous Borello test applies for determining whether a worker is appropriately classified as an independent contractor.17 The long-recognized Borello test balances on roughly ten factors, with the principal test being whether the hiring entity retained the "right to control the manner and means of accomplishing" the job, and the strongest evidence thereof being whether the worker could be fired without cause.18
Under AB 5 and AB 2257, all workers are still considered employees by default. Hiring entities are responsible for using either the ABC test or Borello test, if they fall within an exception, to prove a worker's independent contractor status. Despite lobbying efforts, the legislature did not provide exceptions for app-based sharing and delivery businesses.
Dynamex and the ABC statutes clarified that drivers for Uber, Lyft, and similar companies were employees under California law. Still, the companies did not re-classify their drivers, and on January 8, 2020, Uber and Postmates filed Olson, et al. v. State of California, et al., an action challenging AB 5 on federal and state constitutional grounds including the Equal Protection, Due Process, and Contracts Clauses.19 These aggressive tactics were met with government enforcement actions.20
Most notably, on May 5, 2020, the Attorney General of California and several city attorneys brought a civil enforcement action, People v. Uber Technologies, Inc., et al., alleging harm to misclassified drivers, to competitor businesses, and to members of the public who bear the burden of lost tax revenues and increased social-safety-net expenditures.21 The government sought restitution based on wage violations under California's Unfair Competition Law, Business and Professions Code section 17200, et seq. ("UCL") and injunctive relief.
The Attorney General moved for interim injunctive relief under the UCL and AB 5. The trial court granted a preliminary injunction restraining the companies from classifying drivers as independent contractors in violation of AB 5, but stayed the decision to permit defendants to appeal.22 On October 22, 2020, the First District Court of Appeal affirmed the trial court's order.23
Considering a question of first impression for California courts — "whether, under the...
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