Column: Uber and Lyft try to blunt a court ruling that their drivers are employees

It was clear almost from the first that the California Supreme Court, in a ruling in April 2018, threw the business models of Uber and Lyft companies for a loop.

The thrust of the ruling was that drivers for those companies had been improperly classified as “independent contractors” when in fact they’re employees, entitled to most of the benefits and legal protections employees receive.

Things only looked worse for the companies when the Legislature started considering a bill to enshrine the court ruling into law.

So the companies are trying to blunt the court decision and water down the bill. They argue that treating their drivers as employees will be bad for the drivers — and, sure, for themselves too.

It’s a bad argument, rationalized by some flagrantly misleading claims. You’ll be hearing these claims quite a bit in coming weeks as the measure, AB 5, makes its way through the state Senate. (It was passed by the Assembly on May 29 and the Senate Labor Committee on Wednesday.) Don’t be snowed.

The question underlying the court decision and AB 5 may be the paramount issue confronting the working class in America today: the trend toward eviscerating workplace rights by classifying workers as independent contractors.

Such classification — misclassification, labor advocates assert — deprives workers of such traditional workplace rights as wage and hour safeguards, compensation for on-the-job injuries, health and retirement benefits, and the right of collective bargaining (that is, unionization).

Ride-hailing companies such as Uber and Lyft aren’t alone — lots of start-ups have sprung up in the gig economy to provide occasional work — but they’ve been at the forefront of the movement.

In fact, their business model is dependent on circumventing the responsibilities of employers toward the hundreds of thousands of drivers who provide services to their customers, the passengers. Not only do they avoid the pay and benefit standards of traditional employers, but they force drivers to cover daily expenses such as fuel, wear and tear on their vehicles, and insurance.

The companies are candid about how much they rely on what is, at heart, a sham. “It’s no secret that a change to the employment classification of ride-share drivers would pose a risk to our businesses,” Uber Chief Executive Dara Khosrowshahi, Lyft Chief Executive Logan Green and Lyft President John Zimmer wrote June 12 in an unusual joint op-ed in the San Francisco Chronicle.

The risk in California would be especially dire for the newly public companies, both of which lost more than $1 billion in the first quarter of this year alone. Uber has disclosed that Los Angeles and the Bay Area are two of its top three markets in the U.S. California’s initiative, moreover, might well be followed by actions in other states.

They proposed that “we update century-old employment laws” — carving out exceptions that plainly would benefit their own companies. They’ve put this notion forward in meetings attended by California labor officials, but labor sources say no one has placed any sort of formal proposal on the table. The unions say that any change aimed at undermining the right of collective bargaining and the application of existing employment regulations is a nonstarter.

“We’re not interested in and haven’t been engaged in anything that would undermine the court decision or AB 5 when it passes,” says Bob Schoonover, president of the state council of the Service Employees International Union.

The argument by Uber and Lyft that employee classification will harm drivers centers on a claim that it will deprive them of “flexibility” to set their own hours, which the companies say is the paramount attraction of their work. Instead, they say, an employee structure would require them to slot drivers into set shifts.

Yet there are grounds for questioning how much drivers really value “flexibility,” or how much they’re willing to give up in exchange for it.

“Our flexibility has always been under threat,” says Nicole Moore, a Lyft driver in Los Angeles and an organizer of Rideshare Drivers United, an independent group. “They can and they do change the flexibility of our work all the time” by changing fares to prompt drivers to drive at certain times and in certain locations. “Now they’re using it to protect themselves from being obligated to pay us a living wage and to follow basic labor rules.”

In any event, nothing in state or federal law requires drivers to give up their “flexibility” if they’re classified as employees. There’s certainly no dearth of employers who accommodate “flex-time” arrangements for workers; the structure of part-time work is infinitely variable.

“Lyft and Uber today decide whether or not these workers are flexible,” Assemblywoman Lorena Gonzalez (D-San Diego), the sponsor of AB 5, told the Senate Labor Committee during a hearing on her bill Wednesday. “That is in their hands, not in the law.”

It may be true that flexibility under an employer-employee arrangement would be inconvenient for the employers. But it’s hardly impossible. The companies’ “flexibility” argument is merely being bootstrapped to support their desire to pay drivers as little as they can get away with while saddling the drivers with their own expenses.

The debate in California centers on the state Supreme Court’s so-called Dynamex decision. The case is named after Dynamex International, a package and document delivery company that in 2004 abruptly reclassified all its drivers as independent contractors, not employees.

Dynamex didn’t change the drivers’ work responsibilities, but removed them from the jurisdiction of California wage and hour rules. From then on, the drivers were required to provide their own vehicles and pay for all their own expenses, such as fuel, tolls, wear and tear on their vehicles and insurance, including workers’ compensation insurance. They no longer received overtime pay.

There was no doubt about the reason for the change: “Such a conversion would generate economic savings for the company,” the Supreme Court observed. Wage and hour rules should not be lightly discarded, the court said, since “workers’ fundamental need to earn income for their families’ survival may lead them to accept work for substandard wages or working conditions.”

The Dynamex ruling enshrined the “ABC test” into California law as a guide to the difference between employees and independent contractors. The test says workers are employees unless they’re (A) independent of the hiring entity’s control and direction about how they perform their work; (B) engaged in work different from the hiring entity’s business; and (C) conducting an independent business in the same field as the work they’re doing for the hiring entity.

In other words, a plumber hired by a clothing store to fix a leaky bathroom: independent contractor. A driver picking up passengers for Uber: employee. Though they might start and end their workday when they like, Uber and Lyft drivers are subject to numerous corporate rules about their conduct on the job, the condition of their vehicles, the rate at which they accept or reject proffered trips and other issues. Their work is manifestly central to the employers’ business, and the companies themselves acknowledge that many drivers are earning income to supplement other jobs.

The Dynamex ruling left a few loose ends, some of which would be tied up by AB 5. The measure would apply the ABC test to a wide range of workplaces and to unemployment insurance and workers’ compensation coverage, in addition to wage and hour rules alone. It also would carve out a roster of professions from the test, including doctors, real estate salespersons, securities and insurance brokers and hairstylists who rent their booths from salon owners.

What AB 5 can’t do is guarantee drivers the right of collective bargaining. That’s because the National Labor Relations Board, through its general counsel’s office, ruled in April that Uber drivers are independent contractors and therefore ineligible to unionize. The NLRB memo took an opposite tack from the way the Obama-era board was heading.

“I think the drivers are really employees under the National Labor Relations Act,” argues William B. Gould IV, chairman of the NLRB under President Clinton and an emeritus law professor a Stanford University. “But that door is shut for at least the next two years” because of the general counsel’s decision, which is unreviewable in court.

That may be one reason the unions are willing to talk to the companies at all, in search of a representation formula that resembles unionization. The unions say, however, that a possibility raised by the companies of an “association” that could parley over issues such as standards for banning drivers from their network but not over pay, and without the right to strike, falls short of what they’re seeking.

What’s really needed in the gig economy isn’t a new definition of work, but enforcement of the rights enjoyed by employees. In terms of compensation, the ride-hailing industry is among the most top-heavy in America. Uber’s Khosrowshahi collected $45.3 million in 2018; Green and Zimmer about $42 million each in 2017, according to the companies’ financial disclosures.

Meanwhile, drivers are collecting pay close to or below minimum wage after expenses. The driver community site Ridester says its driver survey indicates that half of all Uber drivers collect less than $10 an hour after expenses. A study done for the New York Taxi and Limousine Commission by Michael Reich of UC Berkeley and James Parrott of the New School placed median hourly pay for Uber and Lyft drivers in 2017 at roughly $14 an hour, net of expenses. (Lyft says its drivers earn an average of $30.84 an hour from the time they accept until they drop off a passenger, but that’s before expenses.)

“We have companies where CEOs are making $45 million a year … and their drivers are sleeping in their cars,” Gonzalez said at Wednesday’s Senate hearing. “There is something fundamentally wrong when we have allowed this situation to get to this point.”

California’s unions must recognize that at the moment, they are operating from a position of strength. AB 5 would allow them to consolidate that position, and any thought of compromising with the gig economy companies should be rejected out of hand.

Should we sympathize with the lament of Uber and Lyft that making their drivers employees would kill their business model?

Karen Heisler doesn’t think so. The co-owner of Mission Pie in San Francisco described at Wednesday’s hearing how she struggles to compete with app-based services that use “independent contractors” to deliver food, while she pays a living wage and benefits that keep her employees off taxpayer-funded safety net programs.

“If you have a business model that intrinsically exploits workers and endows you with a competitive advantage based on shirking responsibilities and violating law,” she said, “maybe you need to reevaluate that model.”

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