Uber wins bigly in court
Two rulings landed in Uber's favor this week in the long-running battle over if drivers are employees or independent contractors
The big news out of the gig economy this week was a pair of U.S. legal rulings that sided with companies like Uber in the Sisyphean debate over whether gig workers are employees or independent contractors.
First, on Monday, a California appeals court said the 2020 ballot measure passed by state voters to classify Uber and Lyft drivers as contractors, known as Prop 22, should stay state law. The decision is sure to be appealed up to the California Supreme Court and therefore not final, but was a welcome result for Uber after a lower court judge in 2021 declared the “entirety of Proposition 22 is unenforceable.” Tl;dr, for now the Uber model is safe in California.
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Prop 22 was a big and controversial initiative by gig firms to get their businesses exempted from another California state law, AB5, which from 2019 codified a labor test making it harder for companies to claim contractor status for their workers. This was obviously bad news for the Ubers of the world, which have spent years and billions of VC dollars pushing the narrative that ride-hail drivers are independent contractors who get to “be their own boss” and “set their own schedule,” never mind the myriad other ways in which gig companies exert control. Prop 22 quickly became the costliest ballot measure in California history, with $224 million spent on it, led by contributions from Uber, DoorDash, and Lyft. It passed with 59% of the vote.
Uber and Lyft have long maintained that the labor standards set out by AB5—under which ride-hail drivers would almost certainly be deemed employees, not contractors—would make their businesses inoperable in California. Ahead of the Prop 22 vote, Uber experimented with letting California drivers set their own fares, in a bid to increase the amount of presumptive control drivers had over their work. As the vote got closer, the companies also threatened to leave California altogether if Prop 22 failed.
Another popular gig economy talking point is that the flexibility gig workers enjoy wouldn’t be possible if they were classified as employees rather than contractors. This remains a subject of debate with arguments to be made on both sides, but what is certainly true is that employment and flexibility aren’t as mutually exclusive as Uber and Lyft would like their workers to believe—just more complex to facilitate.
The second ruling came from a U.S. appeals court in California, which revived a challenge to AB5 brought by Uber and food-delivery subsidiary Postmates that a judge had previously tossed out. The companies had argued that AB5, that same state labor law discussed above, was unconstitutional as it unfairly targeted ride-hail firms while exempting other types of businesses. The U.S. appeals court said Friday that the “piecemeal fashion” of exemptions to the law was enough to keep Uber’s case going.
All in all, a big legal week for gig companies. That said, one other ruling didn’t go their way. It came from a U.S. District judge who on Thursday denied Uber, Grubhub, and Postmates their request to move a complaint alleging price-fixing and anticompetitive behavior in their food delivery businesses to third-party arbitration.
This case is far less high-profile than the employment classification lawsuits, but in my opinion much more interesting. I wrote about it last July, and also chatted with antitrust expert Marshall Steinbaum about the logic of the argument that fees on food delivery apps ultimately raise restaurant prices for all diners. (You read that right! Food delivery is making your sit-down restaurant dinner more expensive!) Companies have dismissed the case a fringe argument, but we are entering a new era of antitrust under the guidance of FTC chair Lina Khan, one in which it’s possible to imagine price-fixing tech companies being held to account. So far, this lawsuit has kept moving along.