AB 5: Time to get Uber it and move on

The reports of Uber's death, to paraphrase Mark Twain, are greatly exaggerated. When Gov.Gavin Newsom signed Assembly Bill 5 into law, he completely changed the state's worker classification landscape. The newly paved road will undoubtedly be both painful and costly for companies that weren't expressly exempted from the Dynamex analysis, but their way will be smoothed if gig industries and the state are willing to negotiate a compromise that works for both employers and employees.

The so-called "ABC" test became law in April 2018 when the California Supreme Court decided Dynamex Operations West v. Superior Court, 4 Cal. 5th 903. The three-pronged test -- no ability to control worker; worker's tasks are outside of company's usual business; and worker is engaged in an independently-established trade, occupation or business -- replaced (with certain exceptions) the Borello test (S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989)). All companies utilizing independent contractors had to satisfy Dynamex's ABC test for purposes of the Industrial Wage Orders.

AB 5 did everyone a service by providing clarity, consistency and much-needed common sense to the classification scheme. It removed ambiguity by spelling out exactly what types of workers are exempt, including "licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry." Those may continue to classify workers under Borello (AB 5 Legislative Counsel's Digest). Those workers may still end up being employees, but many more will remain independent by virtue of the 10-factor test that doesn't require every box to be checked.

For everyone else -- including Uber and Lyft -- the ABC test is the law. Unless all three boxes are checked, workers are employees and employment benefits now encompass not just wage/hour but a host of other rights under the Labor Code, including workers compensation insurance, wage statement accuracy, time-keeping, and work-related expenses.

Uber, however, has dug in its heels. It is publicly refusing to reclassify its drivers and has threatened to sponsor a referendum to overturn AB 5.

What could this mean for Uber and other "scofflaws"? If done smartly, it could result in a better outcome for all concerned. When Uber asserted it was a technology company, not a transportation company, the U.S. district court rolled its eyes: "Uber is no more a 'technology company' than Yellow Cab is a "technology company" because it uses CB radios to dispatch taxi cabs, John Deere is a "technology company" because it uses computers and robots to manufacture lawn mowers, or Domino Sugar is a "technology company" because it uses modern irrigation techniques to grow its sugar cane.... Even more fundamentally, it is obvious drivers perform a service for Uber because Uber simply would not be a viable business entity without its drivers." O'Connor v. Uber Technologies Inc., 82 F.Supp.3d 1133 (2015). The Court of Appeal tipped part "C" against Uber last year (Garcia v. Border Transportation Group, 28 Cal. App. 5th 558), when it found an alleged "independent taxi driver" was actually the employee of a taxi company because that driver could not make any money without being associated with that taxi company. To incorporate AB 5's language, the driver could not establish an independent trade without the taxi company. Sound familiar? Uber drivers cannot establish an independent trade to access Uber passengers in need of a ride without access to Uber's technology platform. Uber has virtually no chance of passing the Dynamex test. Were it to seek judicial adjudication of its worker classification system, it would most likely fail.

Companies that misclassified their workers must now make things right, starting with reimbursing back pay owed under the wage orders. On Jan. 1, 2020, they will also be required to conform with workers comp and other new requirements mandated by AB 5. Those costs will most likely be significant.

For companies found to have intentionally misclassified workers, the costs could be toxic. Penalties ranging from $10,000 to $25,000 per worker could be assessed, and a "public shaming" provision (California Labor Code Section 226.8) could obligate them to post the fact that they misclassified their workers along with the steps they'll take to make things right.

Uber could easily be looking at half a billion dollars in penalties and reimbursements under this scenario, enough to threaten its very existence, but I predict that this won't happen.

Nobody benefits if Uber goes out of business -- not its drivers, not its customers, and certainly not California, which stands to lose substantial tax revenue if the company leaves the state. When Gov. Newsom signed AB 5, he indicated a willingness to work with affected industries to mitigate the law's negative impacts.

If Uber, Lyft, DoorDash and other gig companies want to turn things around, this is the way to do it. Negotiate with the state to eliminate overtime before 50 or 60 hours, as is done in the agricultural and trucking industries, to prevent drivers from gaming the system. Set drivers up as W-2s without requiring reimbursement of expenses they've covered in years past. Establish that the state-wide minimum wage applies regardless of where a ride starts or ends versus the variety that have been established by specific cities and counties.

A partial rollback of the law's enforcement may be effectuated through executive order without undermining its spirit or intent. Expect to see fewer drivers, higher demand and increased prices as the ride-hailing services cut back or eliminate casual workforce. AB 5 is a good fit for full-time drivers, not for those who dabble in it. Amazon, whose drivers in their delivery services are already employees, has figured out how to do it. Uber and Lyft, with accommodation from the government, can figure out how to do it as well. 