© 2020 American Payroll Institute, Inc. California Judge Orders Uber and Lyft to Reclassify Workers as Employees A California Superior Court judge granted a preliminary injunction requiring Uber Technologies, Inc. (Uber) and Lyft, Inc. (Lyft) to reclassify ride-hailing drivers as employees rather than independent contractors. The injunction was sought by the state attorney general and the city attorneys of Los Angeles, San Diego, and San Francisco (see PAYSTATE UPDATE, Issue 11, Vol. 22), who allege the companies have misclassified drivers in violation of A.B. 5, which took effect on January 1, 2020. Uber and Lyft have announced the intention to appeal the ruling [California v. Uber Tech., Inc., No. CGC-20-584402 (Cal. Super. Ct., 8-10-20)]. ABC test The court order applies the ABC test to determine worker classification, which the California Supreme Court established in its Dynamex decision and the state legislature later codified into law with A.B. 5 (see PAYSTATE UPDATE, Issue 19, Vol. 21). Under the employee-friendly test, a worker paid to provide labor or services is presumed to be an employee rather than an independent contractor unless the hiring entity (i.e., company) proves that: (A) the worker is free from the control and direction of the company in connection with the performance of the work, both under the work contract and in fact (B) the work performed is outside the usual course of the company’s business and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Work performed not outside usual course of business The court determined that the preliminary injunction is appropriate because there is a reasonable probability that the state attorney general and city attorneys will prevail. According to the court, Uber and Lyft are unlikely to prevail because they “cannot possibly” prove that work performed by ride-share drivers is outside the usual course of the ride- hailing business. Substantial public harm Additionally, according to the court, substantial public harm would result if an injunction is not issued. The misclassification of workers as independent contractors deprives them of the protections to which employees are entitled under California law, including minimum wage, paid sick leave, paid family leave, state disability insurance, unemployment insurance, and workers’ compensation. Uber and Lyft arguments According to the court, the assertion by Uber and Lyft that they are not hiring entities within the meaning of the law cannot be reconciled with the fact that Uber and Lyft hire and contract with drivers. Additionally, the court found several arguments made by Uber and Lyft unpersuasive. Uber and Lyft argue that A.B. 5 does not apply to them or that they are exempt from it. Yet Uber has filed suit in federal court claiming that A.B. 5 unconstitutionally targets its business in a concerted effort, Uber and Lyft are actively seeking for A.B. 5 to be overturned and both Uber and Lyft are major supporters of Proposition 22, a measure on the November 2020 ballot that would exempt their businesses from A.B. 5. Separate lawsuit, agency decision The California Labor Commissioner’s Office has filed lawsuits against Uber and Lyft for committing wage theft by misclassifying employees as independent contractors. In addition to recovering unpaid wages owed to nearly 5,000 drivers who have filed claims with the Labor Commissioner’s Office, the lawsuits also seek recovery for a wider range of statutory violations and damages, such as failure to provide paid sick leave, reimburse drivers’ expenses, pay minimum wage, and pay overtime [Department of Industrial Relations, News Release, 8-5-20]. The California Public Utilities Commission, which regulates Uber and Lyft, issued a June 9 decision determining that ride-hail company drivers are employees. New Seattle Employer-Paid Tax Set to Take Effect January 1 Eemployers ffective January 1, 2021, through December 31, 2040, engaging in business in Seattle, Washington, will be subject to a payroll expense tax. This is an employer- paid tax on the “payroll expense” of the business, meaning the compensation paid in Seattle to employees. The Seattle Department of Finance and Administrative Services will administer the tax and will draft regulations [Ordinance No. 126108, L. 2020]. Payroll expense tax definitions Compensation is considered paid in Seattle, if: (1) the employee is primarily assigned within Seattle (2) the employee is not primarily assigned to any place of business for the tax period and the employee performs 50% or more of their service for the tax period in Seattle or (3) the employee is not primarily assigned to any place of business for the tax period, the employee does not perform 50% or more of their August 17, 2020 Volume 22 Issue 16
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