Uber Technologies Inc. and Postmates Inc. sued California to challenge legislation that could force the companies to treat their drivers as employees, the latest escalation in a battle over the new law set to take effect in the New Year.
The companies, competitors in the food-delivery market, joined two drivers in the lawsuit filed in federal court Monday against the state and its attorney general, Xavier Becerra. The suit claims that the new law, known as Assembly Bill 5, or AB5, violates constitutional guarantees of equal protection and due process because of how it targets some workers and companies.
The lawsuit is the first by major on-demand companies against AB5, which was passed in September and takes effect Wednesday, by so-called gig-economy companies that rely on drivers and others to provide on-demand services. It follows similar legal challenges in November by the California Trucking Association and in December by groups that represent journalists, which fear its effects on freelancers.
AB5 establishes a test that employers must pass to classify their workers as independent contractors, as is done with drivers by Uber, Postmates and other gig-economy companies, including Lyft Inc. and DoorDash Inc. Employers who don’t meet the test must treat their workers as employees entitled to benefits including minimum wage and paid sick days.
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The law, which is intended to give workers more protection, has also forced some companies to re-examine their operations, with some companies in industries such as health care saying they could be forced to cut workers. Uber has said it doesn’t think the law’s requirements apply to its business, but also has warned that if it had to classify drivers as employees it could be forced to hire far fewer drivers and reduce the areas where it operates.
Both sides of the debate have been marshaling their forces for battle ahead of the New Year. Uber, Lyft, Postmates, DoorDash, and grocery-delivery firm Instacart already have contributed $110 million for a statewide ballot initiative next year that would effectively exempt the companies from the law.
Lorena Gonzalez, the author of the statute, has urged city attorneys across California to seek court orders on Jan. 1 requiring companies to implement changes in response to the law.
“The one clear thing we know about Uber is they will do anything to try to exempt themselves from state regulations that make us all safer and their driver employees self-sufficient,” Ms. Gonzalez said Monday.
An Uber spokesman said that the company wouldn’t comment beyond the lawsuit. A spokeswoman for Postmates said the company continues to call for labor talks with California lawmakers to create a better framework for gig workers. Representatives for Lyft and DoorDash declined to comment, and Instacart didn’t immediately respond to a request for comment.
While the companies have argued that their workers are properly classified, they see the initiative as a potential legal shield for lawsuits. Besides promising benefits such as health care for drivers who work 15 hours or more a week, the initiative seeks to eliminate any lawsuits in the past year. The companies will have to collect more than 623,000 signatures next year to qualify it for the ballot.
The California Trucking Association argued in its lawsuit filed last month that federal law governing commerce and transportation means that the state’s new law on independent contractors doesn’t apply to its industry. A hearing in that case is scheduled for Jan. 6.
Organizations representing freelance writers and photographers in their lawsuit claimed AB5 unconstitutionally limits free speech.
Uber and Lyft have faced increased legal and political pressure in the run-up to the law. Misclassification lawsuits against Uber that cite the law have accelerated—with one federal judge recently ruling that a misclassification lawsuit by an Uber driver could move forward after the driver made a plausible claim that Uber “willfully” misclassified him.
—Christine Mai-Duc contributed to this article.
Write to Sebastian Herrera at Sebastian.Herrera@wsj.com
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Uber, Postmates Sue California Over Gig Law, Escalating Fight - Wall Street Journal
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