Dive Brief:

• A group of Uber drivers has filed a class action lawsuit alleging that the company misclassified them as independent contractors rather than employees; the suit was filed the day after California legislators passed Assembly Bill No. 5 (AB-5), which codifies a state worker classification test and is expected to be signed by Gov. Gavin Newsom (McRay v. Uber Technologies, Inc., No. 19-cv-05723 (N.D. Calif. Sept. 11, 2019)). 
• The complaint claims that Uber, due to the alleged misclassification, has illegally required drivers to pay business expenses, failed to guarantee and pay minimum wage and overtime, and failed to provide the itemized wage statements required by California law.
• The class, according to the complaint, includes more than 100 putative members around the country, with an amount in controversy exceeding $5 million.

Dive Insight:

Uber joined DoorDash and Lyft in opposing the passage of AB-5, which could force major changes to the way the companies do business.

AB-5 codifies a 2018 California Supreme Court case, Dynamex Operations West, Inc., which presumes that workers are employees rather than independent contractors unless all components of a three-part test are met.

The test, known as the ABC test, allows a worker to be deemed an independent contractor (if no state wage order applies) only if: (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work; (B) the work is outside the usual course of the hiring entity’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 for the hiring entity. 

The bill, which takes effect Jan. 1, 2020 if signed, includes specific exceptions for several occupations, including doctors, surgeons, dentists, lawyers, certain direct salespeople and commercial fishermen working on U.S. vessels. Additionally, the ABC test would not be applied to certain people working in "professional services" occupations.

A last-minute change to the bill exempts newspaper distributors and carriers until Jan. 1, 2021 (again, subject to signature by the governor, which is expected).

Assuming enactment of AB-5, it's still not clear whether its provisions will be applied retroactively. In late 2018, the 9th U.S. Circuit Court of Appeals ruled that the ABC test adopted in Dynamex and codified in AB-5 would be applied retroactively, but the court later withdrew that opinion and sent the question to the state's supreme court.

Given the high stakes involved in misclassification lawsuits — which often involve large numbers of employees and significant amounts of money — employers both inside and outside California may want to review their current classification procedures and job descriptions to ensure compliance with applicable laws.