(Bloomberg) -- A federal judge issued a sharp warning to Lyft Inc. -- and other gig-economy companies that operate in California -- that refusing to treat drivers like employees is “really disregarding the rule of law.”
During a hearing over a demand by drivers for sick pay during the coronavirus outbreak, U.S. District Judge Vince Chhabria said Thursday the refusal to reclassify drivers from independent contractors to employees violates a new California law, Assembly Bill 5, aimed at making it easier for workers to qualify for an array of workplace benefits from health care to overtime.
“It's obvious that A.B. 5 applies by its terms to its drivers, and A.B. 5 was intended to apply to” companies like Lyft, Chhabria told lawyers during a teleconference. Lyft and other companies that resist reclassifying drivers “are really disregarding the rule of law,” he said.
Lyft said a majority of drivers prefer to remain contractors.
“We believe drivers, most of whom have other full or part time work and only drive a few hours a week at most, are properly classified as independent contractors,” the company said in a statement. “This is a complex issue that affects hundreds of thousands of people.”
The judge's observations about the broader gig economy, and the implicit threat to its business model, amounted to a small sliver of Thursday's hearing.
But his warning will probably prove important because Lyft, Uber and other firms that save millions of dollars in labor costs relying on independent contractors are engaged in multiple court battles over A.B. 5. It may be the first time a federal judge has so clearly articulated an opinion that the companies are on the wrong side of the law.
The hearing ended with no ruling from Chhabria on a request by Lyft drivers, under a different state law, for three additional sick days annually to cope with the Covid-19 pandemic.
The judge cautioned that if he did order the company to revise its sick-leave policy, drivers might end up forfeiting benefits under a federal emergency law -- the same advice a different judge gave to Uber drivers Wednesday. Both Lyft and Uber have offered limited benefits to drivers sickened by the virus.
Read More: Uber Judge Says Ordering Sick Pay Could Backfire on Drivers
In November, Chhabria observed in a different case against Lyft that California gig-economy workers should be classified as employees under a 2018 state supreme court ruling. That ruling was the basis for A.B. 5, which took effect in January.
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