California Attorney General Xavier Becerra is suing Uber and Lyft, alleging the ride sharing companies have misclassified their drivers as contractors. City attorneys from San Francisco, Los Angeles and San Diego have joined Becerra in the lawsuit.
The lawsuit gets to the heart of a recent debate between gig economy companies and California officials. The lawsuit is based on a California law that went into effect earlier this year, known as Assembly Bill 5 (AB5). Uber, Lyft and other companies opposed the law, which was created as a way to require gig economy companies to classify their drivers as employees, rather than contractors. The companies have said the law strips workers of flexibility in work that they enjoy, while government officials backing the bill say it affords workers key benefits they are otherwise denied as contractors.
“Uber and Lyft claim that properly classifying drivers as employees is incompatible with flexibility. That is a lie,” San Francisco City Attorney Dennis Herrera said in a statement. “There is no legal reason why Uber and Lyft can’t have a vast pool of employees who decide for themselves when and where they work – exactly as drivers do now. These companies simply don’t want to do it.”
The plaintiffs are seeking and injunction on the alleged misclassification and restitution for workers and civil penalties that could amount to hundreds of millions of dollars, according to the lawsuit.
The coronavirus pandemic has brought into focus the unique challenges for gig workers. As Uber and Lyft have experienced decreased ridership, drivers are left without a source of income they have come to rely on. Gig workers gained access to unemployment benefits and the additional $600 per week for up to four months offered under Congress’ economic relief bill. But some drivers have reported issues filing for the money due to bureaucratic roadblocks.
In a virtual press conference Tuesday, law enforcement officials said the pandemic has exacerbated problems it highlights in the lawsuit, but said they would have brought the case to court regardless.
Prior to the passage of the coronavirus stimulus bill, Uber CEO Dara Khosrowshahi asked President Donald Trump to make sure gig workers were included in relief measures and advocated for a “third way” to classify workers “to remove the forced choice between flexibility and protection for millions of American workers.”
Uber and delivery start-up Postmates sued the state of California over AB5 late last year, arguing the law is unconstitutional. The lawsuit claimed AB5 carves out “nonsensical” exemptions for roles such as “direct salespeople, travel agents, grant writers, construction truck drivers, commercial fisherman” and more.
Uber and Lyft did not immediately respond to CNBC’s requests for comment.
This story is developing. Check back for updates.