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There’s no end in sight in the fight over how Uber and Lyft classify their workers

·Technology Editor
·6-min read
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This article was first featured in Yahoo Finance Tech, a weekly newsletter highlighting our original content on the industry. Get it sent directly to your inbox every Wednesday by 4 p.m. ET. Subscribe

Uber, Lyft, and DoorDash aren't giving up on their fight over worker protections

A judge this week struck down a California ballot initiative championed by Uber (UBER), Lyft (LYFT), and DoorDash (DASH) that let companies treat so-called gig workers as contractors rather than employees. But the battle between labor advocates and those companies could rage on for years, experts say.

Proposition 22, passed by California voters in November, exempted so-called gig companies from a state law that would have required them to treat their workers as employees entitled to benefits like health care and workers compensation.

In his Aug. 20 opinion, California Superior Court Judge Frank Roesch ruled that the state’s controversial Proposition 22 is unconstitutional, because it “limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law.”

But that opinion is unlikely to deter gig companies from trying to continue classifying their workers as independent contractors.

“Given the difficulties involved in reaching any kind of compromise, it's likely that they'll start over again and we'll have more of these ballots, more of these initiatives, more campaigns, more expenditures, more litigation,” William Gould, former chairman of the National Labor Relations Board, told Yahoo Finance.

“One thing we know is that they have enormous resources and ability to litigate forever,” added Gould, who also serves as a Stanford Law School professor.

And if they’re able to successfully continue the fight in California, the companies could make similar inroads in states across the country.

Gig economy companies will fight to the state's highest court

Gig economy companies have fought to classify their workers as independent contractors for years, and it’s unlikely to stop any time soon. The idea is to avoid having to pay the thousands of drivers and delivery people who work for Uber, Lyft, and DoorDash the same kind of benefits they would otherwise pay full employees.

Rideshare driver Teresa Mercado raises her fist in support in a protest urging voters to vote no on Proposition 22 (Al Seib / Los Angeles Times
Rideshare driver Teresa Mercado raises her fist in support in a protest urging voters to vote no on Proposition 22 (Al Seib / Los Angeles Times

The companies, however, claim workers appreciate the flexibility of being independent contractors.

Prop. 22 was a reaction to California’s Assembly Bill 5, which ordered that gig economy workers be classified as employees entitled to benefits.

Uber and Lyft were defiant in the face of the bill, threatening to leave California if they were required to make the change. Prop. 22, however, allowed the companies to continue to operate in the state while offering a modicum of benefits to drivers including stipends for health insurance and wage floors.

Leaving California, one of the gig economy’s biggest markets, would seem outrageous for Uber and Lyft, but both companies have pulled out of markets before in the U.S. and abroad. In 2016, Uber and Lyft shut down operations in Austin, Texas, when voters rejected a ballot measure that would have allowed the companies to regulate themselves in the city. The proposition was designed to override a city council measure that, among other things, required all drivers be fingerprinted.

But after spending millions lobbying Texas state lawmakers, Uber and Lyft convinced the legislature to take control of rule making for ride-sharing companies, and the firms returned to Austin.

“It's really kind of a classic struggle between employers wanting to have rules that give them flexibility and maximize their profits, and workers who understand that and realizing that they would have more power if they could be classified as employees,” Todd Vachon, director of the Labor Education Action Research Network at Rutgers University, told Yahoo Finance.

If Uber, Lyft, and DoorDash successfully appeal the Prop. 22 ruling, driver and labor advocates will likely end up fighting all the way to the California Supreme Court. But that could take at least a year, Vachon said.

Plan B for Uber and Lyft

If the gig economy companies fail in their attempt to win an appeal of the Prop. 22 ruling, and can’t garner enough support for a new ballot measure, they already have backup plans.

Uber and Lyft previously floated the idea of operating as franchises in California to continue operations in the state without paying drivers as employees. Under that plan, franchisees that hire the drivers would be on the hook for their pay and benefits.

What’s more, the companies are already trying to drum up support for similar ballot measures in other states. The Massachusetts Coalition for Independent Work, which is made up of Uber, Lyft, DoorDash, and Instacart, filed a proposal with the Massachusetts attorney general to put forward a ballot measure that would reclassify their workers in the state.

FILE - In this July 1, 2020 file photo, Instacart worker Saori Okawa loads groceries into her car for home delivery in San Leandro, Calif. A battle between the powerhouses of the so-called gig economy and big labor could become the most expensive ballot measure in California history. Voters are being asked to decide via Proposition 22 whether to create an exemption to a new state law aimed at providing wage and benefit protections to Uber, Lyft and other app-based drivers.Okawa, who drove 10 hours a day, six days a week for Uber for a year in San Francisco and now delivers food, said she's opposed to the ballot measure because she wants more protections for drivers, many of whom are immigrants like her. (AP Photo/Ben Margot, File)
Instacart worker Saori Okawa loads groceries into her car for home delivery in San Leandro, Calif. (AP Photo/Ben Margot, File)

“I think they could get these gains in other states, if they can put the same amount of money, comparable money into their campaign,” Gould said. “They're really the moneyed interests, and they can do this again, and perhaps not be faced in those states with the same constitutional hurdles that exist here in California.”

Gig companies have lost before

Despite their best efforts, gig companies have failed in at least one instance to maintain their stance that workers aren’t employees. In March, Uber classified its drivers in Britain as workers entitled to minimum wage, vacation pay, and a pension.

But the move only came after the company lost a legal ruling in the country’s Supreme Court. It also helps that England gives companies the ability to classify drivers as “workers,” which is a middle of the road designation between independent contractors and full employees with more rights than contractors, but less than full employees.

According to NYU Stern School of Business Professor Arun Sundararajan, California could have seen similar results if it initially crafted AB5 with a middle ground measure similar to Britain’s.

“They sort of took the lazy way out and said ‘Hey let's just classify them as employees because that's easy’,” Sundararajan said.

“My hope is that other legislators are going to pick up on the fact that we've got a structure now, observe the case as it progresses, identify the pieces that might have legal issues and, craft something that serves the interests of society,” he added.

Whether those legislatures can stand up to the gig economy companies, though, depends on their will to do so.

Daniel Howley is tech editor at Yahoo Finance.

Got a tip? Email Daniel Howley at dhowley@yahoofinance.com over via encrypted mail at danielphowley@protonmail.com, and follow him on Twitter at @DanielHowley.

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