Uber's last-minute bid to beat gig worker law is latest of many tries

The ride-hailing company takes a new approach with an eleventh-hour lawsuit aimed at California's AB 5. The law could reclassify some gig workers as employees.

Dara Kerr Former senior reporter
Dara Kerr was a senior reporter for CNET covering the on-demand economy and tech culture. She grew up in Colorado, went to school in New York City and can never remember how to pronounce gif.
Dara Kerr
5 min read

Uber drivers protest in front of the company's San Francisco headquarters.

Dara Kerr/CNET

For Uber , maybe this time's the charm. Over the past year, Uber has made various attempts to stop a California labor law from going through, but nothing's worked. The law, Assembly Bill 5 (or AB 5) was signed by Gov. Gavin Newsom in September and set to go into effect Wednesday.

But in an eleventh-hour attempt, Uber is trying something new.

The ride-hailing company, along with its gig economy cohort Postmates and two of that companies' workers, on Monday filed a lawsuit against the state of California aiming to have AB 5 declared invalid. The lawsuit alleges that AB 5 is unconstitutional and that it unfairly targets gig economy companies and workers. Uber and Postmates are asking the court to exempt them from any AB 5 enforcement.

"AB 5 is an irrational and unconstitutional statute designed to target and stifle workers and companies in the on-demand economy," the lawsuit reads.

On Tuesday, a judge put part of the law on hold, granting a temporary restraining order that exempts independent truckers from the law. That ruling, by Judge Roger Benitez of the US District Court for Southern California, was in response to a separate lawsuit filed in November by the California Trucking Association. Benitez has set a hearing for Jan. 13, at which time he'll consider imposing a permanent injunction, Reuters said.

Uber declined to comment on the judge's ruling.

AB 5 boils down to worker classification. Currently, workers for these companies are classified as independent contractors. Though independent work has been around for decades, Silicon Valley companies have ushered in hundreds of thousands of new jobs that fit into this category, from Uber and Lyft drivers to DoorDash and Postmates delivery people to TaskRabbit do-anything helpers.

When first introduced about a decade ago, these app-centered jobs were seen as a way to help workers make ends meet. Gradually, they morphed into some people's sole source of income. Now many of these drivers and delivery people say they're earning lower pay for longer hours, with no benefits, and that the independent contractor classification no longer works for them.

Enter AB 5. Introduced by California Assemblywoman Lorena Gonzalez in December 2018, the law could reclassify some gig workers as employees. As such, these workers would be entitled to basic labor rights, such as minimum wage guarantees, overtime pay, health benefits and other protections. Under the law, all companies using independent contractors in California will be put to a three-part test to determine whether they must reclassify their workers.

Gig economy companies aren't the only businesses that've battled AB 5. Similar lawsuits have been filed, such as the one brought by truck drivers and another by freelance journalists, who say the legislation would harm those workers and industries.

The problem for companies like Uber is that managing massive workforces can be unwieldy and expensive. For example, both Uber and Lyft are struggling to become profitable and labor costs could add millions of dollars to their bottom lines. A Barclays analysis from June said reclassifying California drivers as employees could cost Uber $500 million per year and Lyft $290 million per year.

Though the two businesses experienced a rocky start as public companies this year, they're still valued in the billions. Uber currently has a valuation of more than $50 billion, and Lyft's valuation is more than $12 billion. Uber's two co-founders, Travis Kalanick and Garrett Camp, each have a net worth of nearly $3 billion.

The fight

In their lawsuit, Uber and Postmates accuse Gonzalez and other legislators of displaying "overt hostility" toward gig economy companies.

"Rather than embrace how the on-demand economy has empowered workers, benefited consumers, and fueled economic growth, some California legislators have irrationally attacked it," the lawsuit reads. "Their goal is to deprive workers of the flexibility and freedom of their current independent status, and instead place them under the authority, control, and direction of an employer."

Gonzalez said this is just one in a long line of attempts by Uber to skirt regulations and avoid giving workers labor protections.

"First, Uber sought not only an exemption from AB5 but from all California labor laws," Gonzalez said in an email. "Then, they said they wouldn't abide by AB5 anyway. Then, they said AB5 didn't apply to them because they weren't a transportation company. Then, they said they would create a ballot initiative to exempt themselves from AB5. And now Uber is in court bizarrely trying to say AB5 is unconstitutional."

Over the past year, Uber and other gig economy companies have tried various means to stop or alter AB 5.

Before the law passed, Uber and Lyft circulated millions of online petitions to drivers and riders, asking them to join the companies in opposing AB 5. Lyft's petition warned "AB 5 may lead to hundreds of thousands of California Lyft drivers out of work ... As a result, passengers could wait longer for rides or risk losing reliable access to rideshare altogether." Uber issued similar warnings.

And in a rare show of cooperation, the two companies wrote a joint op-ed in the San Francisco Chronicle in June, saying they wanted to work with the state to allow drivers to remain independent contractors.

When none of that worked and AB 5 passed the California legislature with an overwhelming majority of votes. Uber, Lyft, DoorDash, Postmates and Instacart rounded up $110 million to sponsor a ballot initiative for November 2020 to take the issue to California voters. Uber has said it'll spend even more if needed.

But with November still nearly a year away, the new lawsuit could stifle AB 5 in the meantime. Along with the suit, Uber and Postmates also filed for a preliminary injunction against the law that would stop it from being applied to them while their case is being considered. 

"This lawsuit is an effort to preserve on-demand work opportunities while urging lawmakers, organized labor, and Gov. Newsom to return to the table," said a Postmates spokeswoman. "So far, California has failed to heed calls nor answer the big questions about the future of work and workers in a changing economy."

Uber declined to comment further on the lawsuit.

For Gonzalez, those big questions about workers in the gig economy have been addressed with AB 5. And, she said, failing to apply the law to those companies could be detrimental.

"The one clear thing we know about Uber is they will do anything to try to exempt themselves from state regulations that make us all safer and their driver employees self-sufficient," Gonzalez said. "In the meantime, Uber chief executives will continue to become billionaires while too many of their drivers are forced to sleep in their cars."

Lyft declined to comment on the lawsuit. 

Originally published Dec. 31.
Update, Jan. 1: Adds information about a judge's temporary restraining order regarding truckers affected by the gig worker law. Jan. 2: Adds that Uber declined to comment.