Shades of European righteousness in California’s handling of Uber

Across the pond in the US, not only have various state courts dragged their feet on making this change, but at the federal level, there is even a thinly veiled support for the ride-sharing services like Uber to continue classifying their drivers as independent contractors.^[2] California, however, has followed a path similar to that of the EU. For starters, in January 2020, California’s AB-5 (Assembly Bill No. 5) went into effect, which introduced a new section (Section 2750.3) into the California Labor Code. Section 2750.3 established how employees and independent contractors could be distinguished more clearly.^[3] In relevant parts, the new section states that a person may be considered as an independent contractor if and only if:

A)  “The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact”,
B)   “The person performs work that is outside the usual course of the hiring entity’s business”, and
C)   “The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

In short, AB-5 made it effectively impossible for companies like Uber and Lyft to retain their drivers as independent contractors because their drivers would no doubt fail at least one – if not all three – prong(s) of the so-called “ABC” test.

In May 2020, Attorney General of California, Xavier Becerra, along with City Attorneys of Los Angeles, San Diego, and San Francisco sued Uber and Lyft for the misclassification of their drivers as independent contractors based on the California Labor Code’s new section. On 10 August 2020, Superior Court Judge Ethan Schulman ruled in People of the State of California v. Uber Technologies, Inc et al.  stating that Uber and Lyft drivers must be reclassified as employees accordingly.

Uber and Lyft will no doubt appeal this decision. They are also investing their lobbying powers to prop up a ballot initiative (California Proposition 22) come November.^[4] In the meantime, both Uber and Lyft are also threatening to suspend or even halt operations in California, which could potentially have adverse impacts for the residents of California (at least had it not been for the COVID-19 pandemic, which has significantly decreased the number of passengers already). However, even if they remain in service, the reclassification of their drivers from independent contractors to employees would mean that their services will have to change, and not necessarily for the better.

Ultimately, California taking the EU approach to push forward with the forced reclassification of Uber drivers as employees will compel ride-sharing companies that have been shirking their labor protection obligations into compliance. That’s the positive. However, there will inevitably be unintended consequences including, but not limited to drivers being fired (which Uber and Lyft have already signaled that they will if forced to reclassify) and consumers being confronted with increased fees and longer waiting times to hail a ride. While these negative spillovers may not be a huge problem for cities like London, Paris, or Amsterdam, where alternative means of transport (e.g. bike sharing, metros, trams) are widely available and often used, for cities like Los Angeles and San Francisco, where residents rely heavily on cars as their primary means of transport (not to mention the lack of viable alternative transportation systems on par with that of Europe), the approach that the California courts and legislatures have taken could potentially backfire.

In the end, perhaps the EU approach is the righteous path to take, especially from the labor protection perspective. However, given that various sacrifices will be required for going down this particular path, there are lingering doubts as to whether California’s emulation of the EU approach will produce a satisfactory outcome for Californians, including the ride-share drivers.

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