Both Uber and Lyft hope that a California ballot initiative will deliver a preferred outcome because a recent court decision in the Golden State assuredly did not. A judge ordered that Uber and Lyft must follow state law and reclassify workers as employees. The ride-hailing companies wish to continue to classify workers as independent contractors.
Both Uber and Lyft intend to appeal the decision. However, recent legislation passed in California establishes very narrow parameters for the definition of an independent contractor. The judge cited that ride-hailing app drivers do not perform services outside of Lyft or Uber’s regular business.
If workers become employees, they would not receive a 1099 nor be deemed self-employed. Taxes would come out of their pay. Also, once reclassified as employees, ride-hailing app drivers become eligible for workers’ compensation and unemployment benefits under certain conditions.
Uber and Lyft do not want to bear the burden of the additional expenses of paying employees, and the two corporations doubtfully wish to see other states encouraged to follow California’s lead. Uber reported multi-billion-dollar losses repeatedly and appears unwilling to accept more losses. Both Uber and Lyft suggested that they may shut down California operations until the November ballot initiative vote occurs. Pulling out of the California market would leave roughly 200,000 drivers out of full- or part-time work.
The California legislature passed the law to address purported issues of worker misclassification. That is, employers hire workers as independent contractors when workers should be classified employees. Saving money on labor might be among the top reasons that employers engage in such a practice.
Regarding contractor vs. employee classification, Uber and Lyft suggest that not all drivers want to be employees. Some may prefer the flexibility that being an independent contractor provides. However, only employees may file for workers compensation or unemployment claims. Independent contractors could not file for these benefits if hurt on the job.