California’s Attorney General sued Uber Technologies Inc. and Lyft Inc. alleging they are misclassifying their drivers as independent contractors under California’s AB 5 law.
It’s one of the first major showdowns involving AB 5, the law that took effect Jan. 1 and aims to get tough on independent contractor misclassification. Uber and Lyft are pushing back, raising concerns lawmakers should be making it easier for people to earn money, not more difficult.
The suit , announced Tuesday, claims Uber and Lyft gain an unfair competitive advantage by misclassifying their workers as independent contractors.
“Sometimes it takes a pandemic to shake us into realizing what that really means and who suffers the consequences,” California Attorney General Xavier Becerra said in a statement.
“Uber and Lyft drivers who contract the coronavirus or lose their job quickly realize what they’re missing,” Becerra said. “But it’s not just these workers who lose. American taxpayers end up having to help carry the load that Uber and Lyft don’t want to accept.”
The lawsuit seeks up to $2,500 for each violation of the California Unfair Competition Law and up to another $2,500 for violations perpetrated against senior citizens or individuals with disabilities.
Uber said it plans to contest the suit.
“At a time when California’s economy is in crisis with four million people out of work, we need to make it easier, not harder, for people to quickly start earning,” according to an Uber spokesperson. “We will contest this action in court, while at the same time pushing to raise the standard of independent work for drivers in California, including with guaranteed minimum earnings and new benefits.”
Meanwhile, Lyft said it is hoping to work with the Attorney General and other officials to bring the benefits of innovation to the state’s economy.
“We are looking forward to working with the Attorney General and mayors across the state to bring all the benefits of California’s innovation economy to as many workers as possible, especially during this time when the creation of good jobs with access to affordable healthcare and other benefits is more important than ever,” Lyft said in a statement.
California AB 5, which took effect Jan. 1, codified the 2018 California Supreme Court’s “Dynamex” decision  into law. The decision calls for use of the strict “ABC” test for determining independent contractor misclassification.
Uber and Postmates have filed a lawsuit to stop AB 5 . In addition, Uber, Lyft and others are supporting a ballot measure in California that would ask voters to exempt them from AB 5 as well as add wage guarantees for drivers and safety features. The measure has received 1 million signatures  to get it in the upcoming November election, according to an organization formed to back it. That’s more than the 623,212 needed to qualify for the ballot.
The organization said Tuesday’s lawsuit comes at the worst possible time.
“If successful, this lawsuit would force more Californians out of work and eliminate access to these essential services when millions are relying on them,” the group said .
California Attorney General Becerra was joined by the city attorneys of Los Angeles, San Diego and San Francisco.
“All Californians are harmed when companies like Uber and Lyft cheat their employees out of health care, unemployment benefits, and basic protections required by law,” San Diego City Attorney Mara Elliott said.
Elliott is also leading an independent contractor misclassification lawsuit against Instacart , which uses independent contractor delivery workers.
San Francisco City Attorney Dennis Herrera said the group had been building its case for months.
“Uber and Lyft claim that properly classifying drivers as employees is incompatible with flexibility,” Herrera said. “That is a lie. 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 suit alleges Uber and Lyft do not facilitate a marketplace for matching drivers to passengers.
“Instead, they utilize their substantial resources and technology to shape every facet of the service they sell to passengers — a branded, on-demand ride,” according to the lawsuit. “To offer an on-demand ride, defendants use their technology to choreograph the deployment of countless drivers in a localized geographic area, and integrate themselves into every aspect of how those drivers provide the service of getting passengers to their destinations.”
However, Uber cautioned that other companies should be concerned about this enforcement action under AB 5 even though it’s one being singled out now. Other workers who could be affected include janitors, truckers, freelance journalists among others.
The company also noted it made a series of changes to increase worker flexibility in December and January.