This week, more shots were fired in the ongoing war over AB5. On May 5, 2020, California’s Attorney General and city attorneys for Los Angeles, San Diego, and San Francisco sued Uber and Lyft for misclassification of hundreds of thousands of California workers.

Under AB5, a California law that went into effect on January 1, 2020, workers are presumed to be employees unless the hiring entity proves that the worker:

(A) is free from the control and direction of the company in performing work, both practically and in the contractual agreement between the parties; 

(B) performs work that is outside the usual course of the company’s business; and, 

(C) is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.  

Not only does AB5 authorize California’s Attorney General and city attorneys in the state’s four biggest cities to sue companies for misclassifications, it empowers the government to obtain injunctive relief to prevent the continued misclassification of employees as independent contractors. The California government has stated that this addition to California law is designed to prevent companies from settling individual misclassification claims while continuing broader worker misclassification practices.

Uber and Lyft have fought hard against AB5 for over a year. The ride-share companies spent nearly $675,000 lobbying California lawmakers last summer fighting unsuccessfully for a carve-out from the legislation. Undeterred, Uber and Lyft have been pursuing several alternative attacks on the new law. The companies had been negotiating with lawmakers and labor unions to create an alternate class of worker, Uber filed a federal lawsuit challenging AB5 as unconstitutional, and gig companies are working on a ballot measure to exempt them from AB5 to put before voters in November.

Now, California is taking the fight to Uber and Lyft. Maybe the government smells blood in the water. Uber and Lyft reportedly have suffered huge financial blows in the wake of country-wide stay-at-home orders. Maybe the government’s lawsuit may be born out of necessity. Roughly 3.7 million California workers have filed for unemployment benefits during the Coronavirus crisis. Since March 12, California has paid out over $6 billion in unemployment claims. The state of California estimates that the annual state tax revenue loss due to misclassification is as high as $7 billion. It may become more aggressive in trying to recoup those dollars due to the unprecedented strain on the state budget resulting from COVID-19.

We will continue to monitor the claims and report to you. In the meantime, if you have questions about worker classification under AB5, or other employment law questions, please contact Tricia Legittino, Tiffany Caterina or any other member of the Frankfurt Kurnit Employment Compliance, Training & Litigation Group.