In investigating Uber and Lyft for alleged violating an employee classification law, California's attorney general is adopting what has long been the jewel of the on-demand economy. How the state's top attorney awards could determine whether other parts of the industry are similarly affected – particularly fast-growing on-demand grocery and grocery delivery companies.
The dispute over whether hail drivers should be treated as employees or as independent contractors as they have long been treated by Uber and Lyft in response to new California law is heated. Last month, under court orders, Uber and Lyft threatened to stop hailing in California before being granted temporary reparation.
Had the companies ceased operations in the state, Uber would have continued to operate the food delivery service Eats, which was a breakout star for the company during the pandemic. Similarly, Eats similarly treats employees as independent contractors and must adhere to the same California Worker Classification Act known as AB-5, which is designed to make it difficult for companies to classify workers as independent contractors.
The law, which went into effect Jan. 1, codified an "ABC" test resulting from the 2018 Dynamex decision of the California Supreme Court. Among them, employers must meet three requirements to demonstrate that their employees are independent contractors, including the fact that the services provided by the employees are outside the core business of the company.
California MP Lorena Gonzalez, who drafted the bill, said AB-5's intent was to narrow down who the Dynamex decision covered – with the on-demand gig economy being one of those goals.
Although they have been in place since the beginning of the year, it wasn't until May that the attorney general and a coalition of city attorneys began looking for the best-known companies in the industry and their original services.
According to William B. Gould IV, a law professor at Stanford University, "it certainly makes a lot of sense for the AG to put the majority of their marbles in the Uber basket".
"You are up against a company that has been dealing with the rule of law for some time and that believes there is no constraint they cannot escape," added Gould IV, a former chairman of the National Labor Relations Board .
Jenny Montoya Tansey, political director of the Public Rights Project, a not-for-profit public interest nonprofit that has been involved in enforcement efforts in California, said another factor was that "the drivers have organized themselves in numbers and are doing a really compelling job to get around to spread their stories. " So that regulators, enforcers, and policy makers understand some of the experiences drivers have. "
Montoya Tansey added, "The delivery of food has not escaped the attention of AB-5 enforcers."
Other California litigation has begun clearing up the similar alleged misclassification of on-demand grocery and grocery delivery workers, which has only grown in importance as consumers rely on them for public spaces amid the ongoing public health crisis to avoid.
Prior to AB-5, San Diego City attorney Mara Elliott filed a lawsuit against Instacart, the on-demand startup that supplies $ 14 billion worth of groceries. The case is still ongoing. More recently, in June, San Francisco District Attorney Chesa Boudin filed a lawsuit against DoorDash, the $ 16 billion food delivery startup.
"Grocery delivery is in greater demand than ever. Billion-dollar businesses that deliver groceries are benefiting from this crisis while they exploit their drivers and give them a living wage, unemployment insurance, sick leave and other basic safeguards in the workplace San Diego Rep. Gonzalez said in a statement to CNN Business praising the actions of Elliott and Boudin.
"I hope other officials will follow suit. These companies must be subject to the same standards as any other law-abiding company in the state," added Gonzalez.
The decision to seek out deep pocket companies, and which ones, will depend on the resources of local officials.
"That was an uphill battle. It's always when you're dealing with billion dollar industries – there's a lot at stake," said San Diego-based Elliott of the lawsuit against Uber and Lyft during an August event with the Public Rights Project.
California Governor Gavin Newsom's budget has earmarked $ 20 million for AB-5 enforcement. However, it's unclear if it will target other companies while the case against Uber and Lyft unfolds this fall. The attorney general declined to comment on their possible legal strategy.
Of the Instacart lawsuit, Elliott said it was "a little reluctant at first and that's because it's a big argument for an office like ours," adding that they only have three trial lawyers.
The threat to the combined on-demand business model is obvious. Uber, Lyft, Instacart, DoorDash, and Uber-owned Postmates poured more than $ 110 million into a referendum called Prop 22 in November that would exempt them from the law and give drivers some extra perks.
In addition, Uber and Lyft are facing lawsuits from the California Labor Commissioner's Office of alleged wage theft by misclassifying their on-demand employees as independent contractors instead of employees.
Beth Ross, a San Francisco employment agency attorney who led a high-profile worker misclassification case against FedEx, said it was "everyone's guess" whether other on-demand grocery and grocery delivery cases will emerge in the meantime.
"The city's lawyers in San Diego, Los Angeles, and San Francisco have flagged the Uber and Lyft cases," said Ross. "Are you going to submit more public enforcement cases? I'd be surprised because it's a resource issue – you could wait and see what happens."