Judge bars Uber, Lyft from classifying drivers as independent contractors

Uber Technologies Inc. and Lyft Inc. can no longer classify their drivers as independent contractors, a San Francisco County judge ruled Monday in a decision the ride-hailing companies immediately appealed.

Superior Court Judge Ethan P. Schulman granted the motion by the state and three large California cities for the preliminary injunction but stayed it for 10 days to allow the appeal.

The decision is a win for state legislators who have sought to enforce AB 5 against Uber and Lyft, and a withering judicial critique of the ride-hailing companies assertion they are not transportation companies.

"Defendants' position cannot survive even cursory examination," Schulman wrote. "Far from 'merely incidental' to the defendants' transportation network businesses, drivers' work -- the work of transporting customers for compensation -- is an 'integral part' of those businesses." People v. Uber Technologies Inc. et al., CGC-20-584402 (S.F. County Sup. Ct., filed May 5, 2020).

"In short, under any reasonable understanding of the English language, an Uber or Lyft driver can only be viewed 'as working in the hiring entities' business," the judge added.

While attorneys for the companies argued a preliminary injunction has an extreme scope that will be difficult to comply with, Schulman responded by saying that is Uber's and Lyft's own fault. "But if the injunction the people seek will have far-reaching effects, they have only been exacerbated by defendants' prolonged and brazen refusal to comply with California law," he wrote.

Spokespersons for Lyft and Uber vowed to appeal the ruling and said it is another argument for the necessity of Proposition 22, an initiative backed by the companies that is on the November ballot.

"Drivers do not want to be employees, full stop," a Lyft spokesperson said in a statement. "We'll immediately appeal this ruling and continue to fight for their independence. Ultimately, we believe this issue will be decided by California voters and that they will side with drivers."

State Attorney General Xavier Becerra praised the ruling in a prepared statement. The state, San Francisco, Los Angeles and San Diego all sued the companies, accusing them of violating state law.

"Uber and Lyft need to put a stop to unlawful misclassification of their drivers while our litigation continues," Becerra wrote. "While this fight still has a long way to go, we're pushing ahead to make sure the people of California get the workplace protections they deserve. Our state and workers shouldn't have to foot the bill when big businesses try to skip out on their responsibilities."

While the legal fight plays out, proponents of Proposition 22 cited the judge's ruling as a reason why the initiative is necessary.

In a New York Times column published Monday, Uber CEO Dara Khosrowshahi characterized the current employment system as "outdated and unfair. It forces every worker to choose between being an employee with more benefits but less flexibility, or an independent contractor with more flexibility but almost no safety net.

"Uber is ready, right now, to pay more to give drivers new benefits and protections," Khosrowshahi added. "But America needs to change the status quo to protect all workers, not just one type of work.""

Last Thursday, San Francisco Deputy City Attorney Matthew D. Goldberg told Schulman the drivers are being "systematically denied a wide range of employee protections."

Rohit K. Singla, a partner with Munger, Tolles & Olson LLP who represents Lyft, told the judge it would be unprecedented to grant a preliminary injunction ordering hundreds of thousands of workers to be reclassified.

Theane Evangelis, a partner with Gibson, Dunn & Crutcher LLP who represents Uber, argued the company merely provided a service for drivers. "The platform is just connecting the rider and the driver," she told the judge.

Schulman, however, rejected that rationale in his ruling.