LYFT Lyft Inc

By Sebastian Herrera and Tim Higgins 

California sued Uber Technologies Inc. and Lyft Inc. for allegedly misclassifying their drivers as independent contractors instead of employees, a move that intensifies a battle between the ride-hailing giants and their home state.

California, which is suing the companies under authority granted by a new state law and under the California Competition Law, said the decision to classify drivers as contractors has deprived them of rights such as paid sick leave and unemployment insurance.

"We believe it's time for all workers to be treated fairly," California Attorney General Xavier Becerra said Tuesday. "Innovation, regardless of what Uber and Lyft tell you, doesn't require these companies to mistreat their workers."

The state, which seeks up to millions of dollars in civil penalties and to force the companies by a court order to reclassify their drivers and restore unpaid wages, also said Uber and Lyft haven't contributed state payroll taxes used to fund general health welfare programs. The lawsuit was filed with the city attorneys of San Francisco, where Uber and Lyft are based, and Los Angeles and San Diego.

Uber and Lyft have maintained that their drivers are properly classified after the state passed the so-called gig economy law last year and Gov. Gavin Newsom signed it. The law codified a test companies must pass to classify their workers as independent contractors, which enables companies to avoid costly benefits such as health care. Uber and Lyft have said the law could take away flexibility for drivers and force them to work pre-scheduled shifts.

"We are looking forward to working with the Attorney General and mayors across the state to bring all the benefits of California's innovation economy to as many workers as possible, especially during this time when the creation of good jobs with access to affordable health care and other benefits is more important than ever," a spokeswoman for Lyft said in a statement.

An Uber spokesman said the company would contest the action in court. "At a time when California's economy is in crisis with four million people out of work, we need to make it easier, not harder, for people to quickly start earning," the spokesman said.

Lyft has said it has 325,000 drivers in California. Uber has said it has more than 200,000.

The legal battle comes as the coronavirus pandemic has raised an unprecedented crisis for the ride-hailing companies. Ridership has plummeted as governments have encouraged or ordered people to shelter in homes and closed nonessential businesses in a bid to stop the spread of Covid-19.

Spending on Uber and Lyft rides plunged 83% during the week of April 20 in the U.S. compared with a year ago, according to data from researcher Edison Trends.

Uber drivers have turned to the food-delivery business while ride-hailing has languished. The company has pulled its guidance ahead of reporting first-quarter financial results on Thursday.

Lyft last week announced it was cutting 17% of its workforce and instituting unpaid furloughs and salary cuts for those who remain. The company reports first-quarter results on Wednesday.

The confrontation highlights the difficulties in the pandemic for some workers on the front lines, including those making deliveries, who may not have benefits such as sick pay. A number of companies have provided paid sick leave only in the event of a positive Covid-19 diagnosis for some workers.

Many drivers have talked about the conundrum they face: Drive and risk getting sick, or stay home and don't get paid.

"The pandemic highlights the danger of the work these essential workers are doing," San Francisco City Attorney Dennis Herrera said Tuesday.

Los Angeles City Attorney Mike Feuer said he expected the lawsuit to create a ripple effect throughout the gig economy.

"Misclassification means cheating," he said. "We are here to make sure no company gets an advantage over the other."

Uber, Lyft and several other companies have amassed more than $110 million to pass a November ballot initiative to exempt themselves from the law. Uber, along with food delivery company Postmates Inc., late last year filed a lawsuit challenging the law. It is unclear how those plans have been affected by the impact coronavirus is expected to have on elections and organizing.

Since it was passed last fall, the new California law has prompted opposition from a number of industries, including free-lance journalism and trucking. Uber and Lyft have been among the most organized opponents of the legislation.

The companies have said the law doesn't apply to their businesses but have also warned that if they are forced to reclassify their drivers, it could force them to hire far fewer drivers and reduce the areas where they operate.

Although the companies have said their workers are properly classified, they see their ballot initiative as a potential legal shield for lawsuits. The initiative, if passed in November, would promise benefits such as health care for drivers who work a certain amount of hours a week but also seeks to eliminate any lawsuits in the past year.

A group representing the companies in March said more than one million signatures had been collected, nearly double the number required to qualify for the November ballot.

Uber is " pushing to raise the standard of independent work for drivers in California, including with guaranteed minimum earnings and new benefits," the Uber spokesman said.

Write to Sebastian Herrera at Sebastian.Herrera@wsj.com and Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

May 05, 2020 16:20 ET (20:20 GMT)

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