Updated at 6:48 p.m. ET
A California judge has ordered Uber and Lyft to reclassify their workers from independent contractors to employees with benefits, a ruling that could be consequential for gig economy workers if it survives the appeals process.
Superior Court Judge Ethan Schulman ruled Monday that Lyft and Uber's thousands of contract drivers should be given the same protections and benefits under labor law as other employees of the ride-hailing companies.
Schulman said Lyft and Uber use "circular reasoning" by only treating tech workers, not drivers, as employees.
"Were this reasoning to be accepted, the rapidly expanding majority of industries that rely heavily on technology could with impunity deprive legions of workers of the basic protections afforded to employees by state labor and employment laws," Schulman wrote.
The judge said Uber and Lyft have refused to comply with a California law passed last year that was supposed to make it harder for companies in the state to hire workers as contractors, so gig economy workers such as drivers for the ride-hailing companies would receive health insurance, workers' compensation and paid sick and family leave. As independent contractors, Uber and Lyft drivers are not provided these benefits.
"It bears emphasis that these harms are not mere abstractions; they represent real harms to real working people," wrote Schulman, adding: "To state the obvious, drivers are central, not tangential, to Uber and Lyft's entire ride-hailing business."
California Attorney General Xavier Becerra called the judge's preliminary order a victory for drivers.
"The court has weighed in and agreed: Uber and Lyft need to put a stop to unlawful misclassification of their drivers while our litigation continues," Becerra said in a statement. "Our state and workers shouldn't have to foot the bill when big businesses try to skip out on their responsibilities. We're going to keep working to make sure Uber and Lyft play by the rules."
The judge's order does not take effect for 10 days. Both Uber and Lyft said they plan to appeal.
"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 spokesman Matt Kallman said. "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."
In a statement, Lyft said: "Drivers do not want to be employees, full stop. We'll immediately appeal this ruling and continue to fight for their independence. Ultimately, we believe this issue will be decided by California voters and that they will side with drivers."
Monday's order comes ahead of a trial in that case. But Schulman said there was an "overwhelming likelihood" that the state of California would win the case.
Uber and Lyft have asked the court to delay the order until after November when California voters will be asked whether to keep drivers as independent contractors, but Schulman rejected this request.
"Defendants are not entitled to an indefinite postponement of their day of reckoning," the judge wrote.
Uber and Lyft, which already have trouble turning a profit, have argued that converting drivers to formal employees with benefits would force the companies to lay off drivers and result in higher prices for passengers.
Ride-hailing companies have suffered mightily during the pandemic.
In its earnings call with investors this month, Uber said its core business of picking and dropping people off has fallen nearly 75%.
Uber is now making more money delivering food than it is from ride-hailing. Still, its revenue remains down 30% from the same period last year.
Since the coronavirus outbreak started, Uber has laid off some 6,700 office workers, and Lyft has let go of nearly 1,000 employees.
San Francisco City Attorney Dennis Herrera said in a statement Monday that drivers need additional protections, such as qualifying for unemployment benefits, now more than ever as the economic downturn leaves many workers especially vulnerable.
"These companies have pocketed millions of dollars by leaving taxpayers to foot the bill. That's unacceptable," Herrera said. "There is no rule that prevents these drivers from continuing to have all of the flexibility they currently enjoy. Being properly classified as an employee doesn't change that."
A previous version of the Web story said the judge had directed the ride-hailing companies to give drivers the same protections as full-time employees. Actually, the judge said the companies could no longer consider drivers as independent contractors. In addition, the story did not note that companies have the option of hiring these drivers part time.
MARY LOUISE KELLY, HOST:
Uber and Lyft have been fighting California and its biggest cities over whether the thousands of ride-hailing drivers on the state's streets are company employees, meaning entitled to benefits, or independent contractors. Well, today the ride-hailing giants lost in court. A state judge has ordered them to consider all those drivers employees, which could cost the companies millions of dollars. NPR tech reporter Bobby Allyn is with us now from San Francisco.
Bobby, how you doing?
BOBBY ALLYN, BYLINE: Hey, Mary Louise - doing OK.
KELLY: So what are the stakes here?
ALLYN: Well, in some ways, the stakes are the very business model Uber and Lyft are built on, which, you know, of course, relies very heavily on drivers being independent contractors. And you know, this ruling is a big deal because here we have a state judge saying Uber and Lyft are violating the law because there are hundreds of thousands of drivers who are, you know, independent contractors that the companies are refusing to convert them to regular employees. And you know, it comes after California passed a law last year that made it much more difficult for companies like Lyft and Uber to hire people as independent contractors. And here we have the judge saying Lyft and Uber are showing, quote, "a prolonged and brazen refusal to comply" with that California law.
KELLY: What did the judge say in explaining what the rationale for this ruling was?
ALLYN: Yeah. The judge said that, you know, Uber and Lyft are exhibiting, quote, "circular reasoning." And what the judge meant by that is, you know, Uber and Lyft consider its engineers and other tech workers as full-time employees, but the hundreds of thousands of drivers are treated a little differently. And even though the companies, you know, have long made the case that this new state law regulating the gig economy shouldn't apply to them, the judge says the companies can no longer postpone their day of reckoning.
KELLY: Let me go out on a limb and guess that Uber and Lyft are planning to appeal this.
ALLYN: Yes, they sure are. Uber says it will appeal, quote, "on behalf of California drivers." Just this morning in The New York Times, the CEO of Uber wrote an op-ed, you know, and he said Uber would only have full-time jobs for a small fraction of its current drivers and would have to shrink its service dramatically if they converted all of their drivers to full-time employees. And you know, Uber and Lyft are not profitable companies. They point this out. And they also say if all of their drivers were full-time employees, they'd have to lay many of them off. And for passengers, rides would get more expensive. That's what the companies say.
KELLY: Yeah. So what's the timing here? Does this kick in immediately or what happens next?
ALLYN: So the judge is giving Uber and Lyft 10 days to appeal, which, as you mentioned, they plan to. And this case is going to trial, and so this ruling will last until the trial and through the trial. I will say the judge noted that the state of California, the attorney general and the city attorneys who are suing the companies here are likely to prevail on the merits. So the judge is basically signaling that when it comes time for the trial that California has a really strong case.
In November, voters in California will be, you know, testing this idea out about whether or not Lyft and Uber drivers should be contractors or full-time employees. There's a ballot initiative that's going to be asking voters that that both Lyft and Uber have been pushing for. So we will see what California voters think about that come November.
KELLY: Bobby Allyn, thanks so much.
ALLYN: Thank you, Mary Louise.
KELLY: That is NPR's Bobby Allyn reporting on this latest ruling against Uber and Lyft in California.
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