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Uber and Lyft Driver Declared Employees by California Regulators

Last Updated June 23, 2020

The Public Utilities Commission of the State of California (CPUC) ruled on June 9th, 2020 that drivers of Uber and Lyft are employees and not independent contractors.

The CPUC reviewed the rules and regulations, particularly after the passing of state law AB 5 affecting who was a “gig contractor” vs an employee. These new guidelines affect both Uber and Lyft as they are what the CPUC calls “Transportation Network Companies” (TNC).

What is the difference between an independent contractor and employee status for rideshare drivers?

When a business takes on labor, it can do so by hiring an employee or hiring contractors. There are large legal distinctions between contractors and employees, both at state and federal levels. Many labor laws and employment laws do not apply to contractors, and sometimes there are differences in liability to the business both in terms of what happens to the contractor vs employee and how they act while working.

In California, the move to classify rideshare drivers as employees can create large differences in tax liabilities for the company, such as whether they need to pay additional payroll tax on top of wages, and whether they are subject to unemployment insurance contributions.

What does the ruling drivers are employees mean for Uber and Lyft in California?

AB 5 was passed and signed into law in September 2019, and came into effect at the start of this year. The law changed the California Labor Code to ensure the end of the practice of making “gig jobs” independent contractors vs employees. The law notes these conditions are required to continue labeling staff and contractors:

  1. The person is free from control and direction in connection with the performance of work, both under contract and in execution of the work.
  2. The person performing the work is outside the usual hiring entities business.
  3. The person is customarily independently performing the work that is being performed for the business. This means the person regularly engages in this type of work, independently.

Uber and Lyft have both sued to stop AB 5 from classifying their drivers as employees, but the CPUC now states that they are in fact employees. The CPUC further clarified that lawsuits or political action intended to overturn the current law should not prevent the CPUC from acting on the law as it stands today. The portion of the scope document stating drivers are presumptive employees:

“Thus, for now, TNC drivers are presumed to be employees and the Commission must ensure that TNCs comply with those requirements that are applicable to the employees of an entity subject to the Commission’s jurisdiction.”

What is Uber and Lyft’s responsibility to prevent and investigate sexual assault and sexual harassment claims?

The CPUC noted that among the 5,981 sexual harassment and sexual assaults claims noted in their 2018-2019 report, 1,243 or 21% of the reports to Uber occurred in California. The CPUC noted that in addition to being investigated by the Administrative Law Judge overseeing TNC companies, that the CPUC would continue to implement “additional measures to ensure that there are uniform minimum standards and practices in place to prevent sexual assault and sexual harassment, either by drivers or passengers”.

The CPUC set an initial scope to determine what it should classify as sexual assault and sexual harassment, in order to then establish the guidelines for rules regarding prevention, training and reporting. The CPUC scope:

  1. What definitions of sexual assault and sexual harassment should the Commission adopt that should be applicable to all TNCs subject to its jurisdiction?
  2. What minimum training protocols should the Commission require TNCs to adopt to train its drivers that sexual assault and sexual harassment are punishable by law and must be prevented?
  3. What minimum standards should the Commission require TNCs to adopt for investigating and resolving claims of sexual assault and sexual harassment?
  4. What reporting requirements should the Commission adopt that TNCs must follow regarding claims of sexual assault and sexual harassment?

Comments on these questions are to be filed and served by June 26, 2020. Replies to comments on sexual assault and sexual harassment questions are due July 7, 2020. The CPUC and assigned judges will issue additional schedules.

What liability do Uber and Lyft have for the actions of their employees?

While Levin Simes Abrams already hold Uber and Lyft accountable [[insert Uber Lyft lawsuit link]] for sexual assault and sexual harassment, nationwide, regardless of current state classification rules, these changes in California could have big implications for how Uber and Lyft operate their business.

The University of California released a report stating the rideshare companies would have paid $413,000,000.00 over 5 years in state unemployment contributions. Contributions that unpaid leave California with less funds to cover now massive unemployment due to the current pandemic.

California has a tax rate for new employers of 3.4% of their pay, up to a limit of $7,000 per year per employee in earnings.  The resulting estimate of over $80 million per year is based on this calculation and estimates for driver earnings in the state.

Lyft claimed that the Labor Center’s board has multiple labor leaders among it, and thus is biased to find in favor or workers. The report also estimates the amount that would be owed in New Jersey for 2014 through 2018: $119 million.

The data from the labor center:

With nearly 200,000 drivers earning $7,000 or more from driving for a rideshare company, and assuming the remaining over half a million drivers earned on average half that cap, you come up with an estimate of $115 million owed in 2018.  This figure is above the 5 year average calculated, as rideshare companies have been growing each year and so would Unemployment Insurance obligations. As each company has separate obligations, a driver that drivers for both Uber and Lyft would generate unemployment benefit payments twice.

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