Several months ago, a California law known as AB5 took effect. This groundbreaking legislation defines the distinction between employees and independent contractors. It uses the “ABC test” applied in a recent court decision, which provides certain requirements that independent contractors must meet. Specifically, they must work outside the control and direction of the entity that hired them, their work must lie outside the scope of the hiring entity’s regular business, and they must have their own independent trade or business, rather than working solely for the hiring entity.
Based on the new law, California Labor Commissioner Lilia Garcia-Brower has sued rideshare companies Uber and Lyft. The lawsuit argues that Uber and Lyft drivers are misclassified as independent contractors because they do not meet the test provided by AB5. As a result, Uber and Lyft allegedly owe overtime compensation, reimbursement of expenses, and benefits such as paid sick leave to their drivers. They also must meet minimum wage rules and offer paid breaks. The Labor Commissioner seeks an order from the court declaring that Uber and Lyft drivers are employees. (In a parallel lawsuit brought by the California Attorney General, a judge in San Francisco issued an injunction requiring Uber and Lyft to classify their drivers as employees, but that order has been stayed.)
Later this fall, Proposition 22 will appear on the ballot in California. Proposition 22 would stipulate that rideshare drivers are independent contractors, but it would provide them with certain benefits. For example, they would receive a health care stipend, car insurance, work-related accident insurance for injuries on the job, reimbursement of 30 cents per mile for expenses, and a guarantee that they will receive at least 120 percent of the state-mandated minimum wage.
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