There’s been a lot of talk about California’s new contract employment law. Lyft and Uber, two popular rideshare services, were ordered in May to classify their drivers as employers rather than contractors. As the deadline for compliance approached, both companies threatened to shut down services in the state.

That threat worked well for the companies. A last-minute legal order from the San Francisco Superior Court gave the companies an extension. They now have until September to come up with the game plans needed to switch workers from contract workers to employees. They may argue for additional extensions in September.

Under the new law, the companies must extend overtime pay, paid sick leave, employer-sponsored health insurance, labor protections, and other employee benefits. For drivers, the company would have to provide an hourly wage, overtime pay, reimburse for mileage if the driver uses his/her own car, and provide paid breaks. Employees also would have the company paying some of their employment taxes rather than having to file self-employment taxes and make estimated tax payments.

Why did the May judgment happen the way it did? It all comes down to the factors used to determine if a worker is a contractor or employee. For Uber and Lyft drivers, it’s the rule that says workers must be in a field that’s different from the hiring company. Uber and Lyft are essentially taxi services, and Uber and Lyft drivers are taxi drivers. There is no separation as required in the ABC Test. What is the ABC Test?

Factors Used to Determine a Worker’s Classification

Starting in 2020, California’s AB 5 made it a law for companies to correctly classify employees vs. independent contractors. Companies couldn’t try to save money on employment benefits by calling workers contractors rather than employees. This meant that many workers were now entitled to benefits and protections like unemployment insurance, overtime pay, paid breaks, sick/vacation time, and FMLA. To determine if a worker is an employee, companies have to run the ABC Test and ensure that the worker meets all three criteria.

A. The company has no say when it comes to how and when the worker will do the job. Workers are free to work on their own schedule and not be required to meet work rules set by the employer. A company cannot require a contract worker to come to the office once a week for a meeting. They can’t require a worker to be available for phone calls between certain hours.

B. The worker’s line of business is not related to the company’s line of business. For example, an accounting firm hires a flooring specialist to install bamboo flooring. Those are different fields of work.

C. The worker is in an independent occupation or trade that is the same as the work being provided. Using the last example, the flooring specialist owns a flooring company. That specialist works in the same field his/her business is in. Usually, the worker will be able to prove he/she owns a business through a business license, business tax filings, etc.

In some cases, the Borello Test must be used instead. It’s often used in employment fields like insurance, medicine, sales, law/private investigation, accounting, and investment/securities. Its criteria are a little different and cover more than a dozen areas.

1. The worker’s business is different from that of the employer’s.
2. The work provided isn’t an integral part of the employer’s business.
3. The worker provides his/her own tools and, possibly, work location.
4. The worker invests in the supplies for his/her business.
5. The work provided requires a special skill.
6. The work is down without the company’s supervision.
7. The worker’s skill determines his/her profit or loss.
8. The amount of time the worker is to do the job. How permanent is the position?
9. Whether the worker hires staff to help or not.
10. How the work is paid – per job or by the amount of time it takes.
11. Can the employer end the position or would it be a breach of contract?
12. Is there a belief there is an employee/employer relationship?

Lyft and Uber drivers do work on their own schedule and take ride requests only when they want. That can make it seem as though they are contractors. However, they are also bound by some rules that make them seem more like employees. While drivers must have their own insurance, Lyft and Uber provide additional insurance protection to drivers when they’re transporting riders if a driver’s insurance doesn’t offer enough coverage.

If a company is found to be knowingly classifying workers as contractors instead of workers, there are fines of up to $25,000 per violation. The minimum fine is $5,000, which can add up quickly if a company like Uber was fined for each incorrectly classified driver.

What Happens Now?

On the November ballot, voters may be able to change this. There is a vote to determine if gig workers, such as Lyft and Uber drivers, can be exempt from following California AB 5. If that vote passes, it would end all confusion and ensure that rideshare drivers for companies like Uber and Lyft remain independent contractors. It’s a proposition backed by several companies that rely on app-based drivers.

DoorDash, Lyft, and Uber initiated the proposal and was soon joined by Instacart and Postmates. In addition to exempting gig workers from AB 5, Proposition 22 also:

• Come up with a law that sets using a false identity as a driver as a misdemeanor offense.
• Create wage and labor policies that make sure drivers receive net earnings that are the equivalent of 120% of the minimum wage.
• Draw up anti-discrimination and sexual harassment policies.
• Establish a definition for “engaged time” as the time between when a driver accepts a job in the app and completes the ride by dropping the passenger off.
• Institute zero-tolerance policies for drivers who drive under the influence of drugs or alcohol.
• Limit driver hours to 12 hours per day unless a 6-hour break is taken during the day. For example, a driver could work from 7 a.m. to 7 p.m. non-stop or work from 7 a.m. to 9 a.m., take six hours off from 10 a.m. to 4 p.m. and then work another shift.
• Make criminal background checks a requirement for all drivers.
• Offer death benefits to surviving family members if a driver dies while on the job using the company’s app.
• Provide healthcare subsidies to workers who work an average amount of hours each week or month.
• Require companies to extend occupational accident and disability insurance policies to drivers.

The vote for Proposition 22 takes place on November 2nd. If defeated, these companies would have to start paying drivers an hourly rate and meet all other criteria like overtime pay, benefits, taxes, etc. If that happens, there is the chance that the companies would pull their business from California. That could hurt both them and Californians who rely on these services for affordable transportation.

Everything is changing and gig workers for DoorDash, Lyft, and Uber may not know where they stand. If you’re not sure you’re being treated fairly as a driver, it’s time to ask a professional. Shegerian Conniff specializes in all aspects of employment law. We may not be able to help you, but it never hurts to learn more about your rights. If we can’t help, we’ll have suggestions on what you should do next. Initial consultations are free, so you do not risk anything. Call 310-322-7500 to schedule a free consultation.