Tony West, Uber SVP chief legal officer delivers a keynote address at Bloomberg Law's In-House Forum West. Credit: ALM

Gov. Gavin Newsom was poised Wednesday to sign new worker-classification rules that threaten to upend the gig economy, raising fresh criticism from the top lawyer at Uber Technologies and setting the stage for a likely wave of new lawsuits across industries.

After hours of debate Tuesday night and Wednesday morning, state lawmakers sent Newsom Assembly Bill 5, a measure that will codify a landmark California Supreme Court ruling last year. That decision made it more difficult for gig companies not to classify their workers as employees entitled to wider protections such as minimum wage and benefits. Newsom has said he will sign the bill.

"Today the Legislature made it clear: we will not in good conscience allow free-riding businesses to profit off depriving millions of workers from basic employee rights that lead to a middle-class job," said the bill's author, Assemblywoman Lorena Gonzalez, D-San Diego. "It's our duty to look out for working men and women, not Wall Street and their get-rich-quick IPOs."

In a call with reporters less than an hour after AB 5 passed in the Assembly, Uber chief legal officer Tony West said the company has no immediate plans to reclassify its drivers as employees and instead will consider legal and political alternatives, including a potential 2020 ballot measure.

The state Supreme Court's ruling and the new law, which will take effect Jan. 1, do not automatically give on-demand workers employee status. Instead, employers must apply a new three-prong test outlined by the California Supreme Court—in the case Dynamex Operations West v. Superior Court—to determine if they can continue treating workers as independent contractors.

"Having to take a harder test does not determine the outcome of the test," said West, who insisted that Uber can meet the new legal threshold to continue to classify its drivers as independent contractors.

That stance will almost assuredly invite lawsuits from Uber workers, who are widely covered by arbitration agreements, and California city attorneys, who were empowered by late amendments to the bill to seek injunctive relief from companies that don't comply with the law.

Gonzalez told the San Francisco Chronicle on Wednesday that she added provisions giving city attorneys the power to ensure the law's enforcement.

"It's insulting for these companies, these billion-dollar companies, to walk into an office and say, 'We don't care what the law is,'" she said.

West said Uber did not oppose AB 5 until the language empowering city attorneys was added to the bill late last week. Uber spent more than $181,000 lobbying on the bill and other matters in the second quarter this year, according to state records.

How Companies Might Sue

West did not say which legal options the ride-hailing company may pursue, although at least one observer said the many industry carve-outs in AB 5 for lawyers, doctors, fishermen and other professionals may provide a litigation target.

"One potential avenue may be an equal protection theory—the idea that given the exemptions that have been established that there's not a basis for treating them equally," said William Gould, a professor emeritus at Stanford Law School.

Gould said the bill may also run afoul of federal law governing the trucking industry. AB 5 does grant exemptions to subcontractors who provide construction trucking services and it does specify that truck owners can work as employees of trucking companies.

Sean Gentry, an employment litigation partner with Ad Astra Law Group in San Francisco, said legal challenges to the legislation based on industry-specific exemptions would probably be "an uphill climb."

"The Labor Code and wage orders have always contained specific nuances for different industries," he said.

Despite the criticism of the Dynamex ruling and AB 5, they do provide employer- and worker-craved clarity that an earlier worker classification standard did not, he said. "In the short term you'll see a lot of heartache," Gentry said. "But in the long run it offers more clarity."

Uber, Lyft and DoorDash have contributed a combined $90 million to a campaign account that would fuel a 2020 ballot initiative to create a new classification for gig workers, one that West said would offer benefits and minimum pay without providing employee status.

Newsom told The Wall Street Journal on Wednesday that he has continued to negotiate with the on-demand companies in hopes of avoiding an initiative fight next year.

 

Read more:

Late Changes to California Labor Bill Would Empower City Attorneys

Big Law Partner Joins Lobbying Blitz Against Pro-Employee 'Dynamex' Bill

Uber GC Urges Companies to Be Intentional in Hiring Diverse Outside Counsel

9th Circuit: 'Dynamex' Worker Classification Test Applies Retroactively