Ride-hailing company, Uber Technologies Inc. and courier services provider, Postmates Inc. sued California over a new legislation that could force the companies to treat their drivers as employees and provide them with additional benefits.
In a lawsuit filed in Los Angeles federal court on Monday, the companies ― along with two gig workers who are also plaintiffs ― claim the law is unconstitutional. Both Uber and Postmates say in the complaint that this is about plaintiffs defending “their fundamental liberty to pursue their chosen work as independent service providers and technology companies in the on-demand economy.”
The law was signed in the month of September by California Governor Gavin Newsom and has since then garnered national attention, largely owing to the size of California’s workforce and the state’s leadership role in establishing policies that are frequently adopted by other states.
Those who are in support the bill, including the labor group, have argued the law protects workers’ rights. By classifying the contractors as employees, the companies would be subject to labor laws that require higher pay and other benefits such as medical insurance.
The bill is said to hurt the “gig economy” business model of technology platforms, such as Uber, Postmates, Lyft Inc, DoorDash and others who predominantly use contract workers for ride-hailing or food delivery services.
Uber, Postmates and other app-based companies said the law includes the flexibility prized by their workforce, and that fewer workers would be hired were they considered employees.
The companies said it’s arbitrary that direct salespeople, travel agents, grant writers, construction truck drivers, commercial fishermen and others are exempted from the law.
Uber and Postmates are not alone in challenging the law. The California Trucking Association filed the first challenge to the law in November on behalf of independent truckers. That was followed by a lawsuit filed by organizations representing freelance journalists, who also would be subject to the law.
The overall impact of the bill remains unclear in the short term, however the lawsuit cited a study saying the bill would increase ride-hailing company Lyft’s operating costs by 20% and lead to some 300,000 fewer drivers in California.