The state of California demonstrates its reluctance to foster a good business environment on a regular basis and with seeming alacrity, and one bugaboo du jour among the Golden State’s policymakers is the area of alleged misclassification of independent contractors. The upshot of their position is that employers deliberately fail to categorize such contractors as employees to avoid the extra costs and liability that attach to an employer-employee relationship.
That flawed—and cynical—assessment has led to an all-out assault on companies in the so-called gig economy that offer platforms for customers to procure goods and services from individuals willing to provide them for predetermined fees or rates. For example, as this blog reported last month, the California attorney general and several city attorneys filed a lawsuit against Uber and Lyft alleging that the pair of gig economy companies are violating state law through their use of independent contractors who utilize the companies’ technology.
In a similar vein, the San Francisco district attorney last week announced—via Twitter—that he was initiating a lawsuit against another gig company, DoorDash, alleging it was engaged in unfair business practices “for illegally misclassifying employees as independent contractors.” In a press conference, he also said this lawsuit was just a “first step,” which will be managed by the Economic Crimes Against Workers Unit run by Assistant District Attorney Scott Stillman, adding ominously, “I did not bring ADA Stillman into the office to file one lawsuit.”
The complaint against Uber and Lyft alleges that the companies are violating California’s relatively new, controversial law known as AB 5 that redefines the standard for classifying independent contractors. In contrast, the suit against DoorDash further argues that the company is in violation of section 17200 of the state Business and Professions Code, which defines “unfair competition” as “any unlawful, unfair or fraudulent business act,” due to its failure to abide by AB 5. As such, the company could be slapped with a $2,500 civil penalty for each violation.
In addition to civil penalties, the lawsuit against DoorDash seeks “restitution” in the form of back wages allegedly owed as well as an injunction barring the company from continuing to classify so-called Dashers, who deliver food using the platform, as independent contractors. In an apparent coincidence, the California attorney general reportedly has asked the court hearing the case against Uber and Lyft for a preliminary injunction as well, all of which could cease the companies’ operations in the state if the injunctions are granted.
While the rhetoric surrounding these lawsuits is couched in terms of alleged misclassification as it relates to California labor law, one can be forgiven for concluding that the state’s AB 5 standard has more to do with the wishes of organized labor, which supported the legislation to say the least. The reason for that is simple enough: membership in labor unions, which independent contractors cannot join, has been declining for decades.
Whether or not politicians passed AB 5 to facilitate union organizing at gig-economy companies, there is hardly any question that the law’s new standard has upended countless individuals’ lives and livelihoods. In doing so, the law defies common sense by assuming every user of platforms like DoorDash, Uber, and Lyft is—or wants to be—an employee of those companies. More importantly, should the crusade against supposed misclassification continue, it remains to be seen whether such gig-economy companies can even continue doing business in a state known for its high-tech industry. How ironic.
About the authors
Sean P. Redmond
Sean P. Redmond is Vice President, Labor Policy at the U.S. Chamber of Commerce.
