The California State Assembly recently passed AB 5 which imposed the so-called ABC test on California employers with respect to how “employees” and “independent contractors” are classified. The author of AB 5 was San Diego Assemblywoman Lorena Gonzalez (San Diego, D). Gonzalez touted the law as an effort to bring fairness to workers in California. AB 5 was aimed at giving “gig” workers the benefits and protections that are afforded to more traditional workers under California’s labor laws. Companies like Uber, Grubhub, and Lyft were among the targets of the legislation. Governor Newsom signed the bill into law, and it goes into effect on January 1, 2020.

Since Governor Newsom signed the bill, Uber’s legal team has signaled that they do not believe that the new law requires them to classify their drivers as “employees.” According to the reports, on September 11, 2019, Tony West, Uber’s chief legal officer, stated that Uber “… continue[s] to believe drivers are properly classified as independent” and that, because drivers want flexibility, Uber will not be automatically reclassified its drivers as employees, even after AB 5 takes effect. In other words, Uber’s legal team seems to think that it can beat the ABC test that is now enshrined in California law.

The ABC test requires that an employer demonstrate three circumstances before workers can be classified as “independent contractors.”

  1. The workers are free from the employer’s control
  2. Workers perform work that is outside the usual course of business for the company and
  3. Workers are in an independent trade or business with licensure

Uber’s chief lawyer did not provide any details on how Uber plans to “beat” the ABC test. On its face, it seems like a tough legal argument to make. However, we can offer some predictions. Part A will be the easiest part to meet for Uber since that is, essentially, the old test for an independent contractor in California. Uber drivers have a great deal of flexibility and can do their driving at any time, in their own vehicle, in their own uniforms or clothing and more. Parts B and C will be more difficult for Uber to demonstrate. With respect to Part B, Uber may argue that its “core business” is providing a web-based payment and reservation platform for independent drivers and consumers to negotiate travel. That will be a tough sell. Indeed, one federal court here in California rejected a similar argument made by Lyft in the case Cutter v. Lyft, Inc., 60 F. Supp. 3d 1067 (US Dist. ND California 2015). In that case, Lyft argued that it was like a bystander merely furnishing a platform that allows drivers and riders to connect. Lyft suggested that it was like eBay which provided a platform through which seller and buyers could connect. The court rejected that argument as “obviously wrong.”

Part C of the ABC test will also be difficult for Uber to satisfy. It is unlikely that having a standard driver’s license will be sufficient to satisfy the “licensure” or independent trade aspect of Part C. Yes, there is a test that you must take and pass to obtain a driver’s license, but the skill needed is ordinary, not trade-specific. Even if Uber required its drivers to obtain chauffeur’s licenses, that still might not be enough to satisfy Part C. Uber might need to require its drivers to have multiple relationships with similar platforms like Lyft, Grubhub, and others which would make its drivers more like independent businesses performing similar services for multiple entities. Of course, imposing these extra requirements will increase barriers to entry for drivers and lessen the appeal of Uber in the gig economy. Plus, in the end, even these extra requirements might not be enough for a court to determine that Uber’s drivers are independent contractors. If Uber tries to beat the ABC test, it will be interesting to watch the legal arguments and results.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq., of San Diego Corporate Law.  Mr. Leonard has been named as “Best of the Bar” by the San Diego Business Journal for the last four years. Mr. Leonard has extensive experience in drafting employee policies, employee handbooks, employment contracts, and all other contracts and agreements necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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