To some, it would seem that transportation companies cannot catch a break in California. California Labor Code section 2775 (also known as “Assembly Bill 5” or “AB 5”) establishes the presumption that all workers are employees and not independent contractors unless all three conditions known as the “ABC” test are met. Only a few exemptions apply, none of which apply to the transportation sector.

As highlighted in prior articles of the California Tort Defender, various entities within the transportation sector are seeking to prevent the enforcement of AB 5 as to its drivers such as independent owner-operators and ride share drivers. Currently, there are two major lawsuits at stake regarding AB 5 and the transportation sector: one brought by the California Trucking Association (“CTA”) and two California-based owner-operators to prevent the enforcement of AB 5 against their drivers and companies (California Trucking Association, et al. v. Attorney General Xavier Becerra, et al. (S.D. Cal. 3:18-cv-28458-BED-BLM)), and the other brought the state and local governments to enforce AB 5 against Uber and Lyft (The People v. Uber Technologies, Inc., et al. (Oct. 22, 2020, A160701, A160706) __ Cal.5th ___).

The California Legislature enacted AB 5 to codify the state’s supreme court decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 (Dynamex). Thus, California Labor Code section 2775 essentially establishes that workers cannot be classified as independent contractors unless all of the following three conditions are satisfied (otherwise known as the “ABC” test): “(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. [¶] (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.”

The CTA matter is currently making its way in federal court. Currently, there is a preliminary injunction in place preventing California from requiring owner-operators to be classified as employees as opposed to independent contractors. The preliminary injunction was granted by Hon. Roger Benitez of the U.S. District Court, Southern District of California, on the ground that AB 5 was expressly exempted by the Federal Aviation Administration Authorization Act (FAAAA), which prohibits states from passing laws “related to a price, route, or service of any motor carrier.” expressly ex However, the preliminary injunction is being appealed by California’s attorney general before the Ninth Circuit. Oral arguments were recently heard but there is no indication when an opinion will be issued. Regardless of the ruling by the Ninth Circuit regarding the preliminary injunction, CTA’s lawsuit, which seeks a permanent exception to the enforcement of AB 5, is expected to be eventually tried before Hon. Roger Benitez of the U.S. District Court, Southern District of California.

In addition, the California Court of Appeal recently affirmed the trial court’s granting of a preliminary injunction enjoining Uber and Lyft from classifying their drivers as independent contractors in violation of AB 5. (The People v. Uber Technologies, Inc., et al. (Oct. 22, 2020, A160701, A160706) __ Cal.5th ___.) Specifically, the 74-page decision by the First Appellate District (which covers 12 Northern California counties: Alameda, Contra Costa, Del Norte, Humboldt, Lake, Marin, Mendocino, Napa, San Francisco, San Mateo, Solano, and Sonoma), held that the trial court did not abuse its discretion in granting the preliminary injunction against Uber and Lyft. In so holding, the Court cautiously explained its decision was “limited” to reviewing the trial court’s decision for any legal errors.

The People v. Uber Technologies, Inc., et al. involved an effort by the state Attorney General, and the city attorneys of Los Angeles, San Francisco, and San Diego to require Uber and Lyft to comply with AB 5 and classify their drivers as employees instead of independent contractors. They alleged that Uber and Lyft classifying their drivers as independent contractors deprived those drivers of minimum wages, overtime wages, reimbursement of necessary work reimbursements, meal and rest periods and premiums, wage statements, sick leave and health benefits, unemployment insurance and training fund contributions, disability insurance, and workers’ compensation benefits. The governmental plaintiffs further alleged injury to competitors who provided such benefits to drivers and to the state for failing to their fair share of state and local payroll taxes and workers’ compensation insurance premiums.

Both Uber and Lyft essentially argued that they should not be considered “hiring entities” as their drivers do not provide services to them and are not their employees, but instead are their customers. That is, the drivers are actually independent businesspeople who pay for the use of Uber and Lyft’s platforms to find opportunities to earn money. Both Uber and Lyft also argued that their agreements with their respective drivers specifically contain provisions that satisfy the ABC test. For example, Uber’s agreement states that the parties’ relationship “is solely as independent business enterprises, each of whom operates a separate and distinct business enterprise that provides a service outside the usual course of business of the other” and that Uber has no right to direct or control the driver.

The Court of Appeal rejected the “hiring entity” argument by Uber and Lyft. Rather, the Court found that the drivers perform services for Uber and Lyft in the usual course of their business as their revenues are directly connected to the fees that riders pay for each ride. Among other things, the Court noted that both Uber and Lyft solicit riders; that they screen drivers; and set standards for vehicles that can be used.

In light of this recent decision, Uber and Lyft have until approximately January 21, 2021 to reclassify their drivers as employees.

However, there is currently a ballot initiative known as Proposition 22 which would allow Uber and Lyft to exempt themselves from AB 5 and continue to classify their drivers as independent contractors. According to an October 26, 2020 poll released by UC Berkeley’s Institute of Government studies, of the 6,686 registered voters, 46% of the voters planned to vote “yes” while 42% planned to vote “no.” 12% remained undecided.

Although the two above lawsuits share little common legal ground in their fight against AB 5, whether Proposition 22 fails may affect the CTA lawsuit. If Proposition 22 fails, then Uber and Lyft will be required to reclassify all of their drivers as employees given the decision in The People v. Uber Technologies, Inc., et al. In turn, the federal court may look to the decision in The People v. Uber Technologies, Inc., et al. for guidance when deciding whether to permanently enjoin California from requiring owner-operators to be classified as employees.

Jaion Chung 



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