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People of the State of California v. Uber & Lyft

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NELP and other workers’ rights advocates urge court to stop Uber and Lyft’s independent contractor misclassification.

On July 17, 2020, NELP, in collaboration with Legal Aid at Work and other California-based workers’ rights organizations, urged the San Francisco Superior Court of California to stop Uber and Lyft’s illegal misclassification of their drivers as independent contractors.

Though they proudly wear the label of innovative “technology” companies, Uber and Lyft are no different than any other company that routinely violates labor and employment laws to boost its profits at the expense of its workers.

By misclassifying their hundreds of thousands of drivers as independent contractors, Uber and Lyft dispossess their workers of basic labor protections, such as minimum wage, overtime pay, workers’ compensation, unemployment and state disability insurance, and other critical rights intended to cover most workers in our society.

Calling a driver an “independent contractor” does not make it so, and managing employees through an online application does not transform them into self-employed entrepreneurs. Drivers for Uber and Lyft are not running their own separate businesses; they are integral to the companies’ businesses. They are Uber and Lyft’s employees.

Misclassification is not unique to app-based employers—it occurs in every industry where a company might feel the itch to cut corners and boost profits. But in Silicon Valley, the practice has its peculiarities. Companies like Uber and Lyft have flourished in a venture capital fever dream in which regulations are disrupted and the dignity of human labor processed via algorithm and code. Through their gospel of “flexible work,” Uber and Lyft have taken an illegal practice familiar to bad employers everywhere and turned it into the “future of work.”

As described in the amici brief, by subverting labor laws and disabling industry regulations, the two companies have been able to steal wages, duck accountability, offload risk, sabotage worker power, and worsen income and wealth inequality.

Driving for Uber and Lyft must be seen for what it really is: Employment for a company that unilaterally dictates the material terms of work for people who are not running their own business.

NELP urges the San Francisco Superior Court of California to correctly enforce state law, so that drivers for Uber and Lyft, already providing the core transportation service for the companies, may access their employee rights under California law.

This blog originally appeared at NELP on July 20, 2020. Reprinted with permission.

About the Author: Brian Chen is a Staff Attorney at the National Employment Law Project. He primarily focuses on building power for workers who are exploited in “nontraditional” work structures, such as independent contractors, temp, and gig workers. Through litigation and policy campaigns, he aims to support workers’ efforts to democratically self-determine their material conditions.


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California Flexes its Muscles to Remind Fitness Studio Owners that Fitness Trainers are Employees, not Independent Contractors

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Fitness Studios in California, including those that provide training in yoga, strength conditioning and stationary bike classes, have for years flourished in California by using workers classified as independent contractors.  In fact, fitness instructors working for studio owners should almost always be classified as employees.  By misclassifying workers as independent contractors, many studio owners have either knowingly or inadvertently failed to provide fitness instructors basic employment rights guaranteed in California.  As a result, these companies have saved millions of dollars in business costs.

What is the State of the Law on Worker Classification?

With respect to claims for underpaid wages, missed meal and rest periods and record keeping violations, California law is clear.  Last year’s California Supreme Court decision Dynamex v. Superior Court (2018) 4 Cal.5th 903, establishes that a worker is an employee in the eyes of the law unless an employing party establishes that, (A) the hired person is free from the control and direction of the hiring entity in connection with the performance of the work, (B) the hired person performs work that is outside the usual course of the hiring entity’s business, and (C) the hired person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.  This is the “ABC Test” for determining whether a worker is an independent contractor or employee in California.  Very few fitness salons can satisfy Part B of the ABC Test. Providing instruction to salon clients is squarely inside “the usual course of the hiring entity’s business.”

In September 2019, Governor Gavin Newsom signed Assembly Bill 5 into law.  AB 5 codifies the Dynamex decision and the ABC Test for most workers.  In other words, the California Legislature and Governor Newsom believe so strongly in the correctness of the Dynamex decision, that they passed AB 5 into law, which makes the ABC Test the standard of evaluating whether a worker is an employee or an independent contractor.  Read together, AB 5 and Dynamex establish that nearly all fitness instructors in California working for fitness studios are employees and not independent contractors.  Not only now, but in the past as well.  Though the Supreme Court did not state that the ABC Test must be applied retroactively, courts across California have determined that it is, and now in AB 5 the Legislature has clearly stated that the ABC Test must be used in all applicable cases brought before the courts of California, past, present and future.

What are the Consequences of Worker Misclassification?

The adverse consequences of worker misclassification in the fitness industry in California have been significant.  One of the most widespread and detrimental effects of worker misclassification is that many studio owners have avoided their duty to pay the price of conducting business in California that is required of other businesses that do not rely on misclassified workers.  Non-compliant studios have operated and continue to operate as if they were exempt from California’s strict employment laws.  They are not.

Here are just a few of the economic costs fitness studio owners have avoided:

  • Workers Compensation Insurance: By failing to provide workers compensation insurance to instructors, studio owners have avoided the cost of insurance premiums paid by compliant businesses.
  • Off-the-Clock Work: By paying misclassified instructors on a flat rate basis only for the time they are running classes, studio owners have avoided paying their instructors for the time they spend on class planning activities.  By failing to pay for prep time, fitness studio owners routinely retained money that was due their employees.
  • Rest Breaks and Nonproductive Time: “Flat rate” wages are classified as piece rate wages under California law. Piece rate employees in California are entitled to be paid separately for rest breaks (every 3.5 hours) at their regular rate of pay (20 minutes during an eight-hour day), and they are entitled to be paid for nonproductive time before and after teaching classes, for team meetings and for the time spent in advanced training programs required by the studio owners at least at minimum wage.  By failing to pay for these additional work hours, fitness studio owners in California have pocketed millions of dollars that should have gone to their instructors.
  • California and Local Sick Leave Laws: Studio owners have avoided the cost of providing paid sick leave to their workers.
  • Uniforms: To the extent salon owners have required instructors to buy and wear studio-specific attire, especially apparel with studio logos, salon owners have violated California law relating to the purchase and maintenance of work uniforms.
  • Record Keeping: By misclassifying workers, studio owners have avoided the cost of buying payroll systems that are needed to track worker time, including the nonproductive time of their piece rate workers.
  • Payroll Taxes: Studio owners have avoided paying the employers’ share of payroll withholding, including the cost of paying into the unemployment insurance system in California.  This often leaves workers unable to obtain unemployment benefits when their work for a fitness studio ends.
  • Discrimination and Harassment: By running their operations with misclassified workers, studio owners have failed to provide mandatory sexual harassment training to their staff, and they have failed to give workers the protections mandated under Title VII of the United States Code (barring discrimination in the workplace) and under the Fair Employment and Housing Act in California.
  • Wrongful Termination: California employees are protected from termination on grounds that violate California public policy.  To the extent salon owners have terminated workers based on workers’ good faith complaints about how they are paid and about their worker rights, studio owners have sought to shield themselves against several California laws designed to protect employees from unfair termination practices.
  • Waiting Time Penalties: Under Labor Code § 203, an employee who has not been paid all wages due at termination, is entitled to up to 30 days of additional pay.  Labor Code § 203 provides that an employer who willfully fails to pay an employee all wages due at termination must pay the employee waiting time penalties.  Given the relatively high turnover in fitness studios, millions of dollars in waiting time penalties have been avoided by studio owners who have operated their business with misclassified independent contractors.
  • Unreimbursed Expenses: Employers are required to reimburse employees costs they incur performing their job.  For example, in the fitness studio world, instructors often are required to pay for the cost of advanced training studio owners require.  Some studios have required instructors to bring in their own music and sound systems for classes.  All of these kinds of costs are recoverable for employees under Labor Code § 2802.  Reimbursement of these costs is not required with independent contractors, however.  By misclassifying fitness trainers as independent contractors, fitness studio owners have foisted these costs onto their workers.

These are the most obvious cost savings fitness studio owners have enjoyed by misclassifying their workforce.  In the preamble to Assembly Bill 5, the California Legislature was even clearer about the impact of worker misclassification on the economic health and wellbeing of California workers:

The misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality.

It is also the intent of the Legislature in enacting this act to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers’ compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave. By codifying the California Supreme Court’s landmark, unanimous Dynamex decision, this act restores these important protections to potentially several million workers who have been denied these basic workplace rights that all employees are entitled to under the law.

What is Kitchin Legal Doing to Help Fitness Workers?

On September 26, 2019, Kitchin Legal filed an employment class action against Wheel House in San Francisco.  We also filed with the State of California a request to be appointed as a private attorney general on behalf of California to obtain penalties for the State and our client’s similarly misclassified co-workers.

Our client, a former spin instructor at Wheel House, was misclassified as an independent contractor by the company.  Though Wheel House paid her a flat fee for teaching spin classes, it failed to pay her any wages for the trainings the company required her to undergo.  In the lawsuit, out client alleges Wheel House failed to pay her for the many hours she spent preparing for each class, which Wheel House expressly called “home work.”  By misclassifying its workforce as independent contractors, she alleges, Wheel House failed to provide workers compensation coverage for her and other instructors, failed to provide paid medical leave, failed to institute mandatory sexual harassment training and protections, and failed to maintain employment records required under California law.  The complaint can be viewed on the San Francisco Superior Court website’s online site:  https://www.sfsuperiorcourt.org/online-services [Enter Case Number CGC-19-579541.]

In the coming year, I expect to see dozens of lawsuits filed against fitness studio owners in California.  Given the clarity of the law today, this seems inevitable. As studio owners across California begin to reclassify their fitness instructors as employees, I believe we will begin to see some of the benefits promised to fitness instructors and many others by both the California Legislature and the California Supreme Court.  Fitness workers will begin to receive “the basic rights and protections they deserve under the law.”

 

About the Author: Patrick Kitchin is the founder of Kitchin Legal APC, a San Francisco, California employment law firm. He has represented thousands of employees in both individual and class action cases involving violations of California and federal labor laws since founding his firm in 1999. According to retail experts and the media, his wage and hour class actions against Polo Ralph Lauren, Gap, Banana Republic, and Chico’s led to substantial changes in the retail industry’s labor practices in California. Patrick is a 1992 graduate of The University of Michigan Law School and is personally and professionally committed to the protection of workers’ rights everywhere.


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