• A California judge ruled Monday that Uber and Lyft must classify their drivers as employees, not gig workers.
• That decision, which will go into effect next week if it is not halted by an appeal, means that employees for ride-sharing companies will be eligible to receive benefits, including health insurance, paid time off, sick leave, and overtime.
• Both Uber and Lyft have argued that the decision will cause ride costs to increase significantly and could result in mass layoffs. 
• Uber CEO Dara Khosrowshahi has proposed a third model that would establish a benefits fund, but under it, drivers would still likely not be able to see full benefits guaranteed under an employee status.

Judge Rules in Favor of California

A California judge has ruled that drivers for Uber and Lyft in the state must be reclassified as employees rather than gig workers. 

Notably, that ruling means drivers will be afforded the same protections and benefits as the companies’ other full-time employees. For example, as full-time employees, drivers could be eligible for benefits like health insurance, overtime, paid sick leave, vacation time, and more. It’s also possible that Uber and Lyft would have to pay them personal vehicle mileage. 

Gig workers, also known as contract or independent workers, don’t see those benefits. 

The decision, which came from San Francisco Superior Court Judge Ethan Schulman on Monday, isn’t scheduled to take effect until next week. Uber and Lyft have also promised to appeal the ruling and block it from even going into effect.

For their part, both companies have argued that their businesses are in technology (meaning the apps themselves), not ride-sharing. They also claim that the majority of their drivers prefer being independent and deciding when they work, an aspect that likely would be harder to retain if drivers were treated as employees.

In his ruling, Schulman said both companies used “circular reasoning” by treating only their tech workers as employees, saying that reasoning “flies in the face of economic reality and common sense,”

“It bears emphasis that these harms are not mere abstractions; they represent real harms to real working people,” Schulman said regarding the current lack of benefits for drivers. “To state the obvious, drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business.”

Still, Schulman noted that for these companies, such a change in reclassification might “have an adverse effect on some of their drivers, many of whom desire the flexibility to continue working as they have in the past.”

California Sues Uber and Lyft

Last year, California passed Assembly Bill 5, a bill that requires companies to treat their workers as employees if those companies control how workers perform tasks or if their work is a routine part of the company’s business.

Specifically, AB5 was designed to target companies like Uber and Lyft. In fact, the state has argued that because these companies deal in ride-sharing, their drivers are essential to business. Therefore, they should be treated as employees. 

Still, after this law went into effect at the beginning of the year, Uber and Lyft refused to adhere to it. 

In May, California Attorney General Xavier Becerra filed a lawsuit against the companies for their refusal. Chiefly, that lawsuit seeks “restitution for workers, a permanent halt to the unlawful misclassification of drivers, and civil penalties that could reach hundreds of millions of dollars.” 

Both companies—along with DoorDash—have pumped $110 million into a campaign to exempt them from the law. Because of those efforts, in November, California voters will decide on a ballot measure that could keep ride-sharing companies from having to convert their drivers into employees.

Why Uber and Lyft Are Fighting This Ruling

Uber and Lyft had argued for Schulman’s ruling to be stayed until the November ballot, but Schulman denied that request.

“The vast majority of drivers want to work independently, and we’ve already made significant changes to our app to ensure that remains the case under California law,” Uber spokesperson Matt Kallman said following the decision. “When over 3 million Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry during an economic depression.”

Also Monday, Lyft released a similar statement saying that drivers don’t want to be employees, “full stop.” 

The debate around how to address these companies’ drivers is not a black and white argument. Many people drive for Uber or Lyft on the weekends for a little extra money. Some retired individuals also drive on for these companies on the side. 

But for many drivers, this may be their only job. For example, they may be currently unable to find another job. Such a situation is especially true as the United States continues to struggle with the COVID-19 pandemic, where a driver may have lost their main job and could now rely on Uber or Lyft as a main source of income.

“Today’s ruling affirms what California drivers have long known to be true: workers like me have rights and Uber and Lyft must respect those rights,” Lyft driver Mike Robinson said in a statement following Monday’s decision.

It’s also important to keep in mind that companies like Uber and Lyft were already struggling to turn a profit, and now, that’s even worse because of the coronavirus. Just between April and June, Uber’s bookings were reportedly nosedived 75%.

The prospect of having to change their business models could result in layoffs of drivers. It would likely also mean substantially higher costs for passengers. 

A Potential Third Option

In the end, the decision from Schulman likely won’t stop with California. In fact, it could be the beginning of massive changes to ride-sharing companies across the U.S. 

In a March letter to President Donald Trump, Uber CEO Dara Khosrowshahi advocated for a third model on how to classify drivers. Particularly, Khosrowshahi argued that workers should be offered another way to gain protections without sacrificing the flexibility of being a gig worker. 

Just hours before Schulman’s decision on Monday, Khosrowshahi outlined more details of that plan in an op-ed published by The New York Times.

“Our current employment system is outdated and unfair,” he said. “It forces every worker to choose between being an employee with more benefits but less flexibility or an independent contractor with more flexibility but almost no safety net.”

“It’s time to move beyond this false choice. As a start, all gig economy companies need to pay for benefits, should be more honest about the reality of the work, and must strengthen the rights and voice of workers.”

Khosrowshahi then proposed a model that would require gig companies “to establish benefits funds which give workers cash that they can use for the benefits they want, like health insurance or paid time off.”

“Independent workers in any state that passes this law could take money out for every hour of work they put in,” he added. “All gig companies would be required to participate, so that workers can build up benefits even if they switch between apps.”

Khosrowshahi claimed that if this had been the law nationwide, Uber would have contributed $655 million in benefits last year. To further his point, he used an example of a Colorado driver working an average of 35 hours a week last year. Under Khosrowshahi’s system, that driver would have racked up $1,350 in benefits for 2019. As Khosrowshahi noted, that’s enough to cover two-weeks time off or a median annual premium for health insurance.

But the key here is “or.” Unlike a full-time employee, this driver would need to make a decision on how to spend that accrued benefit money as they would likely not be able to choose both options.

See what others are saying: (The Verge) (NPR) (Reuters)