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ANALYSIS: Gig-Worker Classification Battles Spread to New Fronts

Nov. 16, 2020, 9:52 AM

Gig worker classification battles have continued through Covid-19 and are spreading to new fronts. Beyond private class action lawsuits, the central question of whether gig workers are employees or independent contractors is giving rise to state litigation against companies, new labor regulations, and an epic state ballot initiative campaign. These trends will play out over the next few years, but Covid has already intensified the fight by raising the stakes for worker classification.

Driven largely by the ride-sharing industry, the swelling gig economy and workforce are comprising increasing shares of the overall U.S. economy and labor market. If gig workers are not employees, it means that, amid Covid, they are without basic protections like unemployment insurance and leave benefits. But gig companies caution that if the extra costs of providing benefits to workers cause their business models to collapse, even more people will lose their livelihoods.

New Court Battles

The lengthy struggle between gig drivers who try to keep their claims in the courts and companies that try to divert those cases into arbitration is heading into a new phase, as federal appeals courts take up the issue. Conflicting decisions could prompt one or both sides to ask the U.S. Supreme Court to resolve any circuit split.

The overall number of new federal class action filings in 2020 are lower than those at the same point in 2019. This might be due, at least in part, to the pandemic. But it might also be true that drivers are starting to rely on states to bring classification suits against companies.

In California v. Uber, the nation’s most populous state has a high-profile enforcement action against ride-sharing companies like Uber and Lyft to compel their compliance with Assembly Bill 5, which makes it harder to treat drivers as contractors as opposed to employees.

This enforcement action poses a potent threat to rideshare companies in two ways that private class actions do not. First, the companies cannot delay and divert enforcement actions away from the courts and into arbitration, as they do when workers bring class actions, which are bound by arbitration agreements. Second, when a state files suit, small confidential settlements are impossible.

The lawsuit’s success in the courts has so far been affirmed on appeal, as the case moves up the state judicial system. Separately, the Supreme Court of California is considering, in Vazquez v. Jan-Pro Franchising, whether its strict test for classifying workers as contractors, later codified in A.B. 5, applies to companies retroactively.

California’s Uber suit has already prompted Massachusetts to bring a similar classification action against a wider set of gig companies. A trend toward more states litigating worker classification against gig companies is likely to result.

All In on Proposition 22

Uber has hinted that the worker classification fight represents an existential threat to its business, so it’s not surprising that it and other gig companies went all in on a California ballot measure that sidesteps A.B. 5 and avoids those court battles.

Proposition 22, which was successfully passed by California voters Nov. 3, turned out to be the most expensive ballot initiative in the state’s history. As of Oct. 15, gig companies spent an astounding $188.9 million supporting the measure, outspending opponents of Proposition 22 by nearly 12:1.

Despite its high cost, the passage of Proposition 22 is a huge victory for gig companies. The few worker concessions written into the proposition, like a weak minimum wage and a health care stipend, are far less expensive than the benefits workers would have been entitled to as employees under California law. And even those weak benefits aren’t exactly guaranteed: The measure lacks any enforcement mechanism.

The measure also prohibits California cities and counties from applying their own worker protections to independent contracts. It forecloses on any hopes of amendment by requiring that any changes be consistent with the intent of the measure and supported by an unprecedented seven-eighths majority in the California legislature. And, if gig companies are sued under Proposition 22, the law requires state officials to represent or to fund the representation of the companies, not the workers.

Taking Proposition 22 on the Road?

Uber said that it intends to push for similar laws in other states, but has signaled that it’s hoping to do so with union buy-in — something it didn’t have in California.

Although a deal with union support would likely be much cheaper for the company, getting that support will be a challenge. Uber has been trying to find a compromise with unions in New York for several years, and, now with an incoming administration that’s more friendly to workers, the unions may have little reason to budge.

DOL Weighs In

While gig companies have been waging war in California, the U.S. Labor Department has been working on its own worker classification regulation. The regulation hasn’t been finalized, but the proposed version presents a much more business-friendly approach than existing federal law.

Despite Uber’s best efforts to endear itself to the Biden administration, that approach isn’t likely to be well-received by the incoming administration. Even if the DOL rule is finalized before President Trump leaves office, it’s vulnerable to the Congressional Review Act and could be rescinded or replaced with a more worker-friendly version by the incoming DOL.

Future Still in Doubt

While the Proposition 22 victory in California and a business-friendly federal regulation may suggest that gig companies are marching toward victory, that’s not the full story. Gig workers have won in the courts, are starting to mobilize, are getting support from state governments, and, despite gig companies’ efforts, can expect to see support from the incoming administration. The worker classification war is far from over.

Access additional analyses from our Bloomberg Law 2021 series here, including pieces covering trends in Litigation, Transactions & Markets, the Future of the Legal Industry, and ESG.

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