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California Gig Workers Still Can Sue for Wages After Prop 22 (1)

Nov. 9, 2020, 7:36 PM; Updated: Nov. 9, 2020, 9:46 PM

Gig companies such as Uber Technologies Inc. and Lyft Inc. will continue to defend some driver lawsuits in California seeking unpaid wages, overtime, and other labor benefits despite the passage of Proposition 22, thanks to the measure’s lack of backward reach and workers’ rights under federal law.

But these legal options are limited, damages will be capped, and workers will have an uphill battle proving their claims, attorneys say.

Proposition 22 offers insulation from legal attacks to gig companies, unlike other stricter state laws that put their business models at risk. However, the measure—which essentially created a new worker status test so drivers for app-based companies can be classified as independent contractors instead of employees—doesn’t apply retroactively, lawyers say.

This allows already-pending misclassification litigation against Uber, Lyft, DoorDash Inc., Postmates, Instacart, and other gig companies to continue, assuming they’re not tossed out of court because of arbitration agreements.

Drivers also can file lawsuits under the measure’s new classification standard or the federal Fair Labor Standards Act, but either avenue will prove difficult, attorneys say.

Pending Claims

Before Proposition 22, gig companies were subject to a three-part “ABC test” that made it harder for them to classify their drivers as contractors who aren’t entitled to wage, unemployment, discrimination, and other benefits reserved for employees.

That test was created by a 2018 California Supreme Court ruling and later codified into a law known as Assembly Bill 5, or A.B. 5.

Gig workers and state regulators filed several lawsuits in federal and state courts since the ABC test first took effect in 2018, seeking minimum wages, overtime, and reimbursements for business expenses.

If a worker is found to be misclassified while the ABC test applied to the gig companies, that worker will be owed wages or other employment-related benefits, said Sandy Rappaport, a partner at Hanson Bridgett in San Francisco.

The California attorney general won a preliminary injunction against Lyft and Uber that required them to treat their drivers as employees, and a state appeals court upheld that order in October.

That lawsuit, as well as other local government enforcement actions, may now be moot after Proposition 22, at least in terms of forcing the companies to change their workers’ classification, attorneys said. Lyft and Uber on Monday asked the state appeals court to reconsider its October ruling.

However, the state attorney general’s suit also sought restitution and penalties for alleged misclassification that occurred before the ballot measure was approved.

The AG’s office said it is monitoring and assessing the election results, and waiting for them to be certified.

Regardless, the Oct. 22 state appeals court decision will be instructive in pending private disputes that aren’t sent to arbitration, attorneys say.

Arbitration agreements kept a dispute between DoorDash and thousands of workers out of court, in a decision that came down the week Proposition 22 passed. The contracts signed by drivers of these companies are common.

Plaintiffs’ attorneys, meanwhile, have taken on a new strategy of filing individual arbitration claims against companies that could mean millions in fees just to start the process.

Appeals courts, including the U.S. Court of Appeals for the Ninth Circuit, also are weighing whether gig drivers should be exempt from arbitrating their employment disputes under the Federal Arbitration Act. The Seventh and First circuits have weighed these questions, as well, for the ride-hailing giants and GrubHub Inc.

Federal Claims

The Fair Labor Standards Act (FLSA) still governs workers in California, but it still will be hard for drivers to prove misclassification under the federal law, said Boston-based attorney Shannon Liss-Riordan.

She said the FLSA only protects against overtime and minimum wage violations, not expense reimbursement, which has been the main claim for damages in the California cases against gig companies.

Liss-Riordan said if the U.S. Department of Labor finalizes regulations that narrow the test for worker classification under the FLSA, it will make it even more difficult to bring these claims under federal law.

The labor department is in the final stages of a rulemaking process that would create a shorter, simpler test for determining when a worker should be considered an independent contractor or employee under the FLSA.

Uber submitted one of more than 1,800 comments to the labor department, asking the agency to further refine regulations that could help it defend its business model in ongoing federal court battles.

The labor department has said it aims to finalize the rule by the end of the year. If that happens, the incoming Biden administration would have avenues to potentially adopt a much broader interpretation of employees under the FLSA.

Prop 22’s New Test

Uber and Lyft have long pushed federal and state lawmakers to adopt a “third classification” to fit their business models. Some federal lawmakers also have pushed “portable benefits” that would give some benefits to drivers, but not full employment entitlements.

Proposition 22 specifically classifies drivers for app-based transportation and delivery companies as independent contractors, unless it sets drivers’ hours, requires acceptance of specific ride or delivery requests, or restricts working for other companies.

It also requires the companies to provide some entitlements that are traditional inat an employment relationship, including minimum earnings, health-care subsidies, and vehicle insurance. It restricts certain local regulation of app-based drivers and criminalizes impersonation of drivers.

Rappaport of Hanson Bridgett said if a company wants to have more control over drivers, then the hybrid law that Prop 22 has created wouldn’t apply to those workers.

“This means that to be covered by Prop 22’s provisions, even an app-based company cannot tell the drivers how much or when to work, cannot require them to accept any particular passengers or delivery, cannot restrict them from also driving through another app-based company, and cannot prevent them from working any other job,” she said.

Still, attorneys said there are few avenues to bring misclassification cases under the new Proposition 22 standard, and the companies are largely insulated from challenges.

Damages also would be capped, said Daniel Pyne, chair of Hopkins & Carley’s labor and employment law practice in San Jose, Calif.

But Prop 22 “isn’t the end of the story here,” he said. “It will embolden other industries and influence moves in other states.”

State Moves

The companies also could face coming battles in other states that have rigid classification standards. Already they face a Massachusetts attorney general lawsuit challenging their business model, and audits in New Jersey where regulators say they owe millions in unemployment and disability insurance payments.

This could push the companies to lobby for state and federal actions that mirror what happened in California.

Proposition 22’s success shows companies can take their legislative grievances to the ballot box and win, said Kenneth Miller, an associate professor of state and local government at Claremont McKenna College in Claremont, Calif.

“Uber and Lyft went to the mattresses in the [California] Legislature and they lost,” Miller said. “The initiative process provided an avenue for Silicon Valley companies to go over the head of the Legislature.”

—With assistance from Peter Blumberg, Bloomberg News

(Updated with additional reporting and a comment from the California Attorney General's office.)

To contact the reporters on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com; Tiffany Stecker in Sacramento, Calif. at tstecker@bgov.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Tina May at tmay@bloomberglaw.com

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