California has filed a lawsuit that may threaten the future of Uber and Lyft. The companies have sparked controversy because they classify their drivers as independent contractors instead of employees. This has a host of financial benefits for the ridesharing companies but shortchanges many others. Now, California has filed a lawsuit with the intention of putting a stop to the practice. If the state is successful in court, it could force a large change in how the companies operate. The primary impetus for the suit was to bring about action that could benefit the company's drivers.

There are numerous ways that the ridesharing companies profit by classifying their drivers as independent contractors. The first advantage for the company is that they do not have to give the drivers benefits such as health insurance. They have an exemption from many of the labor laws. Uber and Lyft do not offer the drivers sick leave and overtime and do not pay for payroll taxes. Opponents claim that this classification is a clever sleight of hand that has all of the hallmarks of the employee relationship without any of the benefits for the drivers.

The classification also shields Uber and Lyft from being sued if the drivers injure a passenger or another motorist in a car accident. The driver is required to carry a certain amount of insurance in their own name that pays for damages to others. If someone is injured and the damages exceed the policy cap, then the claimant would not be able to go after the ridesharing companies for the difference. Really, the only times that Uber and Lyft may be sued is when their drivers are engaged in intentional misconduct such as sexual assault or they fail to conduct a proper background check.

This Lawsuit Is Based on the New AB5 Law

California had already tried to assert some control over the gig economy through AB5, which limited the instances in which companies could not classify someone as an employee. The controversial law has had some unintended consequences of harming some freelance workers and has not yet necessarily protected rideshare drivers. Uber has spent tens of millions of dollars to combat California's efforts to change the way that it classifies its drivers. The rideshare companies are also trying to promote a ballot measures that protects their interests in the state by trying to guarantee minimum earnings for the drivers that are 120% above minimum wage and at least 30 cents per mile. These seem to be token efforts that would still enable to companies to continue to profit off of the drivers.

This lawsuit represents the first major effort to enforce AB5. Uber and Lyft claim that they are properly classifying the drivers as independent contractors. In reality, even after AB5 was passed, the companies still had no intention of making their drivers employees. The companies were always going to be forced into complying with the terms of the law if they were unable to get it repealed.

Rideshare Companies and California Are at War With Each Other

Uber has tried every strategy possible to try to overturn AB5. It has also filed a lawsuit arguing that the law is unconstitutional. The battle between companies that rely on gig workers and California does not appear to be abating anytime in the near future.

Here, several large California cities including Los Angeles, San Francisco and Los Angeles have joined the state's lawsuits against these companies. In all, the plaintiffs are seeking hundreds of millions of dollars in judgments to compensate the drivers. They are also requesting that the court issue a declaratory judgment stating that the company can no longer classify the drivers as independent contractors.

For Uber and Lyft, losing this lawsuit would change the way that they do business and possibly force them to raise their costs. Paying their drivers benefits would increase the companies' expenses dramatically. At the same time, it would also make a large difference in the lives of the drivers who often struggle to earn a living.

The COVID-19 pandemic has exacerbated the problems that gig workers face. Uber and Lyft drivers have seen their earnings disappear. Now, they are eligible for unemployment and can receive an additional $600 per week from the federal government. However, when the unemployment benefits run out, the drivers will be stuck having to earn a living in what will still be a down economy.