California Uber drivers are going after the rideshare company over the question of whether they are employees or independent contractors. This court battle begins even before a state law goes into effect that would make it more difficult for companies such as Uber and Lyft to classify drivers as independent contractors, an issue that has been looming large in the face of a growing “gig” economy in which most workers have little job security and few rights and protections.

The Issue

California Assembly Bill 5
, which passed in September and goes into effect in January, sets stringent standards for determining whether or not a worker is, in fact, an independent contractor or an actual employee. For all practical purposes, an independent contractor is a small business owner who provides a service to other companies or individuals on their own schedule and operates their business as they see fit. They are also responsible for their own taxes, health care, and retirement. An employee, on the other hand, is under company control, and must perform duties on a specific schedule according to company procedures; in most cases, they also get benefit packages, and taxes are withheld from their paychecks.

This is the question that AB5 attempts to clarify for California Uber drivers and others, such as live-in caregivers, dog walkers, delivery drivers, and others. In order to qualify as independent contractors, workers must meet three conditions:

• they must not be under the control or direction of the company
• they must be engaged in tasks that are outside the company’s “usual course” of business
• they must be working in that industry even when it is not for the company in question

Under AB5, many workers in “gig” occupations would have to be classified as employees.

What California Uber Drivers Say

The two major rideshare companies, Uber and Lyft, currently have some 525,000 drivers working for them. Many are part-timers supplementing their income from other jobs. However, those who drive for Uber and Lyft full-time say the arrangement is unfair and is costing them money.

Los Angeles artist David Leher, who drives full-time for both companies, says his take-home pay has fallen since he first began working for them in part because of changes in the wage algorithms. “We have to pay for our own gas and for our own cars—they don’t give us anything….we don’t trust these platforms anymore,” Leher told the Wall Sreet Journal.

According to economists, after paying for fuel, vehicle maintenance, and insurance, drivers wind up making between $9 and $16 an hour.

Overcoming the ‘Arbitration Clause’

One of the obstacles to a class action lawsuit over misclassification has been mandatory arbitration agreements, which gig workers are usually required to sign. In the past, this has prevented them from joining together in filing a class action lawsuit. However, a 2017 decision by the California Supreme Court ruled that companies cannot force workers to sign away their right to file a lawsuit when the purpose is to stop them from engaging in practices harmful to the general public –- in this case, depriving the state of tax revenue and the inability to qualify for social safety net programs for workers lacking job protections.

The other issue that has come up is a unanimous ruling by the 3rd U.S. Circuit Court of Appeals, which found that Uber drivers were covered by an exemption found in the Federal Arbitration Act. Under this law, arbitration does not apply to workers involved in interstate commerce and transportation of persons as well as goods.