COVID-19 has created a crisis on many fronts, including health and economic crises of epic proportions. Although the gig economy started well before the coronavirus worldwide pandemic, COVID-19 has brought worker classification into sharp focus. That has played out especially in California, where its ABC test became law, creating a stricter definition of employee, and seemingly dealing a blow in the ongoing Uber misclassification lawsuit.

The status of gig workers has even caught the attention of Labor Secretary Marty Walsh. In a recent interview with Reuters, Walsh declared that gig workers should have an "employee" classification. He clarified the reason behind his stance, explaining that they (gig workers) get respectful treatment in some cases, and in other cases, they do not. "It has to be consistent across the board," he stated.

Legal actions by state governments and gig workers against drive-sharing gig companies Uber and Lyft have seen wins and losses across the world. Some overseas countries like the UK, France, and Switzerland have ruled in the ongoing misclassification lawsuit that Uber drivers are employees. However, Australia and Brazil have upheld drivers as independent contractors.

Transfer from 1st Circuit Court

An interesting turn in the lawsuit happened in March 2021. Federal judges found the 1st circuit court does not have jurisdiction over the Uber driver’s appeal of the district court’s refusal to force Uber to reclassify drivers as employees. The case was transferred to the 9th circuit court in the Northern District of California, Uber’s home state. There, it found the “ABC” test applies retroactively to a limited number of cases.

However, the lawsuit was impacted by the passage of California’s Proposition 22 (Prop 22) which exempted companies from having to classify gig workers as employees. The same thing happened in Pennsylvania and Florida. Those states let the gig companies off the hook for major financial and legal liability for drivers as employees, freeing them from providing common employee protections.

KluwerTaxBlog suggests the wins in the ongoing misclassification lawsuit may be creating a new “hybrid” worker classification, which will need separate tax obligations for gig companies and workers. That’s what Uber is going to be working for going forward.

Proposition 22 Impact on the Ongoing Misclassification Lawsuit

Winning Proposition 22 in California meant defeating California labor law AB5, in a hard-fought battle that included Uber threatening to stop doing business in the state and uniting with Lyft, DoorDash, and Instacart to sway voters. Having the case moved to the 9th district court there helped. Gig companies spent more than $200 million on their “Yes On 22” campaign as the most expensive ballot measure in the state’s history and won their gamble.

The impact of winning Prop 22 during the ongoing misclassification lawsuit is that gig companies continue classifying their gig workers as independent contractors in California. It also provides new benefits including a wage floor of at least 120% of local or state minimum wage. Also included are limited care insurance and health subsidies for some drivers.

Legal analysts foresee the bigger impact of winning Prop 22 as a precedent-setting scenario that could have an influence across the country on lawmakers and states that have been closely following California’s labor laws. Lawyers predict that Prop 22 will be viewed as a model, with other companies with gig workers pushing for similar legislation.

Prop 22 seems to support the idea of a new type of worker. The Uber “hybrid” model of worker is neither strictly employee nor an independent contractor. Lyft and DoorDash have already shown they will work to bring the same model to other states.

Uber CEO Dara Khosrowshahi’s Stance

Opposition is determined to continue the fight to get gig workers classified as employees in the ongoing misclassification lawsuit. Gig companies are prepared to fight the costly changes to their operating models. Uber’s CEO Dara Khosrowshahi has a unique point of view on the matter. He claims that Uber is not trying to merely save money to avoid protecting independent drivers, but is trying to protect them and treat them well.

Khosrowshahi explains that simply complying with opponents and treating drivers as employees would not magically solve things. His main point is that it would mean there would only be full-time jobs for a much smaller pool of drivers than the current model with independent contractors, and in many fewer places. This would mean more expensive rides and far less ride availability, for both drivers and customers.

Another point he makes is that survey results show drivers value flexibility over traditional employment, and highly favor this freedom. His suggestion is new laws are needed for gig workers, as well as paid benefits and strengthened rights. He suggests all gig companies be required to pay into benefit funds for workers to use toward flexible benefits of their choice like health insurance or paid time off, as well as medical and disability coverage for work injuries.

The Uber CEO also suggests new laws are needed to protect independent workers from discrimination to provide the protected statuses that traditional employees enjoy. This would create fundamental equality for all American workers. He says Uber has already started making important changes and commitments to its gig workers.

Khosrowshahi argues that the ongoing misclassification lawsuit to force companies to classify gig workers as employees isn’t a viable solution or beneficial to drivers. His solution is to truly support flexible work with new legislation. He says gig work can fuel economic recovery, and Uber and government must come together to create real change.