Written by David Doorey, York University
Yesterday, the California Court of Appeal upheld an injunction against Uber and Lyft ordering the gig companies to stop breaking the law. This is a fun twist on the usual story of injunctions, a powerful judicial tool that is more commonly deployed against workers and unions engaged in fights to win improvements in working conditions.
Here is the Court of Appeal decision. The decision is nicely summarized in this paragraph:
The core allegation in the case is that Uber and Lyft improperly misclassify drivers using their ride-hailing platforms as independent contractors rather than employees, thus depriving them of a host of benefits to which employees are entitled. This misclassification, it is alleged, also gives defendants an unfair advantage against competitor companies, while costing the public significant sums in lost tax revenues and increased social-safety-net expenditures that are foisted on the state because drivers must go without employment benefits. Mindful that—absent legal error—our role in reviewing a decision to issue interim injunctive relief is a limited one, we address here whether the trial court abused its discretion in granting a preliminary injunction that restrains Uber and Lyft from classifying their drivers as independent contractors. Seeing no legal error, we conclude the trial court acted within its discretion and accordingly affirm the order as issued.California Court of Appeals, The People v. Uber Technologies, et al.
The case involves the application of California’s 2019 Assembly Bill 5 (AB5), which defines when a worker is to be treated as an “employee” rather than an independent contractor for the purposes of labour standards legislation as well as unemployment insurance and workers’ compensation (but not for collective bargaining purposes, which is a federal matter in the US).
The law creates a test, known as the “ABC Test”, that treats as an employee any worker who provides labour or services for pay, unless the “hiring entity” demonstrates that all of the following conditions are satisfied:
(A) The person is free from the control and directionof the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.The California “ABC Test”
AB5 presumes that a worker is an employee unless proven otherwise, which is an eminently sensible starting point for Canadian governments. The onus should be on a business to establish that someone should not be covered by protective legislation.
The test for issuing a preliminary injunction in California is similar to the Canadian approach. The court must decide whether there is a reasonable probability that the applicant for the injunction will succeed on the merits, and then whether issuing the injunction would cause “grave harm” to the defendant and, is so, whether a balance of harm favours issuing the injunction anyways. The lower court decided, and the Court of Appeal agreed, that there was a strong probability that the state would win its argument that under AB5 Uber and Lyft drivers are “employees”, and that the balance of harm favoured requiring the companies to comply with the law.
Notably, the courts commented that nothing in AB5 requires the gig companies to stop offering “flexible work”, contrary to the companies’ propaganda:
… the People contend, again correctly, nothing in the preliminary injunction prevents defendants from allowing drivers to maintain their flexibility rather than assigning rigid shifts. (See Dynamex, supra, 4 Cal.5th at p. 961, fn. 28 [business may allow workers to set own hours and to accept or decline a particular assignment while treating them as employees for purposes of wage order]; Cunningham, supra, 2020 U.S. Dist. Lexis 90333, [describing as “red herring” argument that classifying drivers as employees was inconsistent with flexible schedules].)California Court of Appeals, The People v. Uber Technologies, et al.
I had a job in my undergraduate years at a giant A&P (now Metro) distribution centre in Toronto. There was lots of work, so the employer let part-timers like me show up any time we wanted provided that we worked at least 3 hours. I just punched in and punched out. That was flexible employment, but it was employment. I was also unionized. There are entire sections of HRM textbooks devoted to “flexible”/flextime employment arrangements. Maybe Uber and Lyft should hire some HRM folks to help them get their mind around the concept flexible employment.
In assessing whether the state was likely to succeed on the merits, the court considered only the second branch of the AB5 test [The person performs work that is outside the usual course of the hiring entity’s business], and ruled that drivers are the core of the gig companies’ business:
Defendants’ businesses depend on riders paying for rides. The drivers provide the services necessary for defendants’ businesses to prosper, riders pay for those services using defendants’ app, and defendants then remit the drivers’ share to them, either through a bank account in the case of Uber or a payment processing service in the case of Lyft.California Court of Appeals, The People v. Uber Technologies, et al.
The second branch of the AB5 test is very similar to the test long applied in Canada and Britain known as the “organization” or “integration” test, which asks whether the work being performed is a core part of the hiring business. The Supreme Court of Canada examined the “organization test” in the leading common law case on employment status, Sagaz Industries Canada. It concluded that, while helpful, the organization test can also be difficult to apply in practice: “If the question is whether the activity or worker is integral to the employer’s business, this question can usually be answered affirmatively.” This indeed seems to be the intent and effect of AB5. The SCC ruled in Sagaz that there is no one test and the inquiry boils down essentially to the rather vague question of whether the worker is performing the services “as a person in business on his own account”.
Of course, unlike in the US, Canadian labour relations law has long approached the issue of categorizing workers with some independence through the device of the intermediate “dependent contractor” category. Whether or not Uber drivers are pure “employees” applying the common law tests, it seems clear that they are “dependent contractors”, as the OLRB recently ruled in the Foodora decision. Foodora closed up shop in Canada after the ruling, rather than bargain with a union, and Uber and Lyft have both threatened they will shut down if forced to treat drivers as employees. We’ll see. They would be leaving a hell of lot of sunk cost and future revenues on the table.
There is much discussion in Canada too about how best to regulate work in the platform economy, with some calling for the adoption of an equivalent AB5 test. California is a test case in that regard. It may be that a more probable route here is to extend the “dependent contractor” category to all employment related statutes–a move that was proposed in the Ontario Changing Workplace Review but oddly ignored by the Liberal government–alongside the rebuttable AB5 presumption of employment status (which the Liberals did introduce only to then be repealed by the Doug Ford Conservatives, presumably because the business lobby asks). In any event, I believe we are on the path towards sweeping platform workers under labour standards and social benefits legislation.
Two last points about California. Firstly, the status of AB5 now will come down to the whacky rule in California that permits well-funded corporations to ask voters to veto employment protection laws. Uber and Lyft and other corporate interests have spent hundreds of millions of dollars in propaganda to persuade votes to accept its Proposition 22 which would effectively veto AB5. Surveys so far show that Proposition 22 is likely to fail, notwithstanding the unprecedented millions spent by corporate lobbyists. Something to watch closely.
Secondly, a group of drivers have sued Uber alleging political coercion in the form of a non-stop barrage of communications telling drivers to vote for Proposition 22. Canadian collective bargaining laws include a provision to deal with employers who overwhelm employees with propaganda relating to unionization campaigns. This appears in the form of the prohibition on “undue influence” found in unfair labour practice provisions (such as section 70 of the OLRA). Walmart was found to have engaged in undue influence in a case I worked on years ago when it bombarded employees with pressures in various forms intended to persuade workers to vote against unionization. However, the Uber activities in California are not related to a unionization campaign.
Legal challenge for the day: Is there any Canadian law that would prevent a company from bombarding employees through communications to support the company on a political matter?
We will keep an eye on developments in California, which are sure to influence discourse in Canada in relation to regulation of the gig economy.
David Doorey, “Dispatches from Canada on the Big California Uber Decision” Canadian Law of Work Forum (October 23 2020): https://lawofwork.ca/?p=13052