U.S. District Judge Edward Chen declined Monday to order Uber to instantly convert drivers in its home state from contractors to employees based on an argument that it’s cheating not just workers but also the public at large.
But the San Francisco judge also refused to throw out the case, an early test of a California law aimed at gig economy companies that’s set to take effect Jan. 1. In what may turn out to be a significant threat to Uber’s business model, Chen concluded the case presents “a plausible claim that any misclassification by Uber is willful.” Uber declined to comment on the ruling.
AB 5, signed by California Governor Gavin Newsom in September, says workers can generally only be considered contractors if they perform duties outside the usual course of a company’s business. Legal experts say the law weakens Uber’s argument that its drivers are independent contractors, and even the company acknowledges the law creates a higher hurdle.
Shannon Liss-Riordan, the lawyer representing the drivers and a longtime Uber nemesis, argued AB 5 was passed in order to stop Uber and the rest of the gig economy from misclassifying its workers. Liss-Riordan had no immediate comment on the ruling
Chen said it’s premature to order Uber to immediately reclassify its California drivers given that arbitration agreements they signed barring them from pursuing their grievances in court will likely diminish the number who would benefit, which the judge said is still “ill-defined.”
But he refused Uber’s request to dismiss the complaint, finding the driver who filed it “could form the basis” of a lawsuit based on the 2018 Dynamex decision by California’s highest court. The ruling applies a more straight-forward test to determine which workers qualify for employee status and the attendant benefits.
Legal experts widely agree that test, especially as codified by AB 5, will make it much harder for Uber to continue to deny California drivers benefits including business expense reimbursements that would ordinarily be available to employees.