California’s AB 5 Lawsuit Against Uber and Lyft: What it Means to Perform Work “That Is Outside the Usual Course of the Hiring Entity’s Business.”

One of the biggest challenges to assessing AB 5’s impact on the owner-operator model has been ambiguity about how it will be enforced by California. Particularly at issue is Part B of the ABC test codified by AB 5. An employer who wishes to treat their workers as independent contracts must be able to demonstrate that the “worker performs work that is outside the usual course of the hiring entity’s business.” Motor carriers must be able to meet this standard to establish that their drivers are owner-operators. California has provided scarce guidance on how this standard will apply.[1]

A recent lawsuit filed by California (along with the city attorneys for Los Angeles, San Diego, and San Francisco) against Uber and Lyft, however, sheds some light on the matter. California alleges that Uber and Lyft are violating AB 5 by engaging in a decade-long “calculated business decision to misclassify their on-demand drivers as independent contractors rather than employees.” The complaint’s allegations regarding Part B of the ABC test provide useful guidance for the motor carrier industry.

Although Uber and Lyft have a different relationship with their drivers than most motor carriers have with owner-operators, California’s alleged facts should sound familiar to those in the motor carrier industry. Specifically, California alleges:

• “Drivers provide the on-demand ride. They are an integrated and essential part of each Defendant’s transportation business.”

• “Each Defendant is financially integrated with and dependent on its Drivers. Each Defendant only generates income for its ride-hailing business if its Drivers transport and provide rides to its Passengers. Each Defendant sets the fare its Passengers pay, collects the entire amount of the fare from its Passengers, and then disburses a cartage of those fares to its Drivers as compensation.”

• “Each Defendant also engages in extensive data collection and surveillance of its Drivers, tracking its Drivers’ hours, movements, quality of services, and other metrics . . . Each Defendant uses this data to monitor and make disciplinary decisions regarding its Drivers, as well as for other business purposes.”

It is unclear whether California’s approach to Part B will prevail. But the adoption of an “integrated and essential” standard for assessing if a “worker performs work that is outside the usual course of the hiring entity’s business” puts the owner-operator model in AB 5’s crosshairs. The prospect of litigation and significant penalties, alone, may be enough to deter motor carriers from using owner-operators.

Owner-operators are an essential component of motor carriers’ businesses and the entire motor carrier industry. This fact was recently and repeatedly emphasized by the array of amici that filed briefs before the Ninth Circuit in support of upholding the preliminary injunction preventing enforcement of AB 5. The Cullen Law Firm filed a brief on behalf of the Owner-Operator Independent Drivers Association arguing that AB 5 does far more to damage the owner-operator model than it does to remedy instances of motor carrier worker misclassification. If the preliminary injunction is reversed or the legal challenge to AB 5 is ultimately unsuccessful, motor carriers should not be surprised to be on the receiving end of a similar complaint.

For more information about how California is enforcing AB 5 and what that may mean for the motor carrier industry and the owner-operator model, please contact:

Paul D. Cullen, Jr.
(202) 944-8600
pxc@cullenlaw.com 

[1] Independent contractor versus employee, State of California Department of Industrial Relations, (last visited on June 5, 2020) (“Contracted workers who provide services in a role comparable to that of an existing employee will likely be viewed as working in the usual course of the hiring entity’s business.”).