Rules for Uber and Lyft likely apply to other app-based companies, some say

By rejecting Uber and Lyft's argument that the companies don't employ drivers, but rather equip them with an app so they can run their own businesses, a Court of Appeal's ruling that they must comply with California labor law likely applies to other companies that provide services via apps - even if the court didn't explicitly identify them in its ruling.

Last week's opinion rendered by a three-justice panel in the 1st District Court of Appeal upheld a preliminary injunction a San Francisco Superior Court judge issued against Uber and Lyft in August. The order requires the companies to comply with Assembly Bill 5, which went into effect Jan. 1 and automatically classifies California workers as employees unless they pass a three-pronged "ABC" test. People v. Uber, A160706 (Cal. App. 1st Dist., filed Aug. 17, 2020).

"This decision will absolutely impact other app-based companies, and I'm not talking about just drivers," commented Travis Gemoets, who represents employers as a partner at Jeffer Mangels Butler & Mitchell LLP. Gemoets is not involved in the case.

"Anytime you use a technology platform to have a service rendered by a human to a human, then this ruling would apply," he said. As an example, Gemoets pointed to TaskRabbit, an app that connects workers with people who need help with everyday tasks like cleaning, moving, or home repairs.

Uber and Lyft have argued that before the courts can determine whether the companies need to use the "ABC" test to classify drivers, the courts need to determine whether the companies even qualify as hiring entities. Uber and Lyft "frame the 'hiring entity' issue in this manner because, fundamentally, the case they make here rests on the theory that the drivers do not render services to them; rather, drivers are their customers, who render services to defendants' other customers, the riders, using the two-sided platforms defendants developed," last week's ruling said.

"We reject their 'hiring entity' argument on the merits because it rests on a false dichotomy," the ruling added. "In defendants' proffered mode of 'hiring entity' analysis, we must first decide whether drivers' services are rendered to riders, or to them, before applying the remainder of the ABC test. That, in our view, presents an artificial choice. What the argument masks is that drivers' services may be rendered both to the hirer and to a third party, benefiting each one."

While David A. Lowe, who represents employees as a partner at Rudy, Exelrod, Zieff & Lowe LLP, agreed with Gemoets that many app-based companies stand to be impacted by last week's ruling, he said some companies may not be affected at all.

"It depends on whether the work is outside the usual course of business," he said.

Lowe is not involved in the case, but filed a lawsuit against Uber hours before the Court of Appeal issued its ruling last week, alleging the company was pressuring drivers to support a ballot measure that would exempt ride-share companies from AB 5. California voters will decide on the ballot measure, Proposition 22, on Nov. 3. Valdez et al. v. Uber, CGC20587266 (San Francisco Super. Ct., filed Oct. 22, 2020).

Gemoets said if Proposition 22 passes, the trial court's preliminary injunction and the appellate court's decision to uphold it will "really have no bearing, because these ... decisions are based on current law and the law will change" with the ballot measure.

But the passage of Proposition 22 could prompt changes for app-based companies outside the ride-share industry, too, Gemoets said. Proposition 22 wouldn't explicitly apply to these other companies, but it would allow them to argue, based on equal protection, they are also entitled to the same standards as Uber and Lyft.

Lowe believes the Court of Appeal's ruling could sway voters away from Proposition 22, though. "What this opinion really shows is that Uber is taking away something from the employee. It's not allowing them to remain in a particular status. It is taking away their existing status as employees and turning them into independent contractors," he said. "Voters may feel that it's more serious to take away rights."

But Gemoets is of a different opinion. Last week's ruling "gives the Yes on Prop. 22 folks new energy," he said. "This is now very clear. If the voters do not vote yes on Proposition 22 then the California courts have proven that they are hostile to the notion that these drivers should be treated as independent contractors."